The e-invoicing system in the Kingdom of Saudi Arabia is designed to phase out paper invoices. Introduced by the Zakat, Tax, and Customs Authority (ZATCA), the initiative will help businesses and customers interact more seamlessly and securely.
The first phase of this rule took effect on December 4, 2021, with electronic invoicing becoming mandatory. The ZATCA will penalize those who refuse to honor this new policy.
Phase 2 of the policy, the integration phase, took effect on January 1, 2023. This phase included ZATCA in the invoicing process, where you must submit invoices to them first for validation.
In this post, we’ll discuss electronic invoicing in Saudi Arabia, including its implementation, its advantages, and who it is mandatory for. We'll also offer tips on how to help you ensure compliance.
Is e-invoicing mandatory in Saudi Arabia?
Following the regulation's publication, electronic invoicing became mandatory in Saudi Arabia on December 4, 2021. All taxable Saudi Arabian persons, including third parties issuing tax invoices in proxy, must undergo this new e-invoicing process.
The new regulations published by the ZATCA include all technical and procedural rules guiding the implementation of e-invoicing.
Consequently, taxable businesses that refuse to comply with the electronic transactions law will face penalties. The regulation's introduction had certain implications for resident businesses.
Once resident businesses with VAT registration in the kingdom have taxable supplies exceeding SAR3 billion for the 2021 calendar year, they were required to implement Phase 2 of electronic invoicing.
Who governs e-invoicing in Saudi Arabia?
The Zakat Tax and Customs Authority (ZATCA) governs all e-invoicing processes in Saudi Arabia. This body released the new system's e-invoicing policy, adoption guidelines, and timelines.
The invoicing system is designed to facilitate safe and simplified tax invoices. Once issued, tax invoices remain timestamped and can no longer be edited.
If a buyer returns some goods, and you need to reflect that accordingly, you’ll need to issue a credit note through the invoicing system. The credit note will be issued with reference to the original invoice.
Nevertheless, whether you issue electronic invoices, credit notes, or debit notes, they must all comply with ZATCA’s regulations. This is crucial to ensuring the standardization of the process while safeguarding information.
You may also like: What Is ZATCA e-invoicing? (in Saudi Arabia).
What are the types of e-invoices in KSA?
The electronic invoicing system in Saudi Arabia categorizes invoices into two main types, including:
Standard tax invoices
Designed for B2B and B2G transactions, standard tax invoices are essential for claiming input VAT deductions. They contain the elements of a tax invoice, including the buyer’s and seller’s VAT registration numbers.
Here are the main attributes of a compliant standard tax invoice in the KSA:
- Contains seller, buyer, and detailed transaction information
- Must be issued to ZATCA for clearance and a cryptographic stamp
- Must be issued through the ZATCA platform in real-time for verification
Simplified tax invoices
These are issued for B2C transactions, typically at the point of sale. Simplified e-invoices include essential details, such as a QR code, enabling quick validation. Their key attributes include:
- Do not allow VAT deduction for the buyer
- Must be reported to ZATCA within 24 hours after issuance
Phases of the e-invoicing mandate in Saudi Arabia
Implementing the electronic invoicing system was divided into two critical phases, ensuring a smooth business transition.
Phase 1
The first phase, implemented on 4 December 2021, guides the issuance and storage of electronic invoices. In this phase, you must issue invoices using a system connected to the Internet and in accordance with ZATCA regulations.
Examples of usable invoicing systems include e-invoicing software, an online cash register, or a cloud-based solution.
When issuing an invoice, you must complete all mandatory boxes and include all relevant details, such as the issuer’s name, time, and VAT number.
Phase 2
The second phase started on 1 January 2023 and has been implemented in waves targeting specific tax groups. It involves integrating your e-invoicing solution with ZATCA’s mandatory system for real-time validation.
The following are the waves within Phase 2 announced by ZATCA:
What is the scope of electronic invoicing in Saudi Arabia?
Saudi Arabia's mandatory e-invoicing system applies to all taxable transactions subject to VAT. This includes sales conducted within the country, exports of goods and services to other nations, and advanced payments related to taxable activities.
When issuing electronic notes, such as credit and debit notes, they must comply with ZATCA’s regulations, ensuring proper adjustments and accurate reporting.
These requirements exclude various transactions, such as imports, VAT-exempt supplies, and those involving reverse charge mechanisms.
Who is exempted from issuing electronic invoices in Saudi Arabia?
Although the new invoice system covers most business activities, some exceptions exist. You must issue electronic invoices for sales in the country, advance payments, and exports from KSA to other countries.
However, you won’t require an electronic invoice for the following:
- Imports into KSA,
- VAT-exempt supplies,
- Supplies that could undergo reverse charge mechanism.
Is there a mandate to process inbound e-invoices?
There is no specific mandate to process inbound e-invoices in Saudi Arabia. While the primary requirement was issuing compliant e-invoices, businesses must ensure their systems can validate and store electronic invoices received from other taxable entities.
This includes invoices for advanced payments and contracts, allowing businesses to meet regulatory standards and maintain accurate financial records.
ZATCA Guidelines for the Implementation of e-invoicing in Saudi Arabia
ZATCA’s new e-invoicing guidelines regulations apply to all taxable goods and services subject to VAT in KSA, irrespective of the rate. If the provisions apply to your business, you must issue and store tax invoices accordingly.
The following are more guidelines to follow to ensure your company is fully compliant:
- Invoices must be in Arabic and shared in XML or PDF/A-3 with embedded XML
- Applies to all VAT-registered businesses for taxable goods and services, excluding non-resident persons. Third parties issuing invoices on behalf of taxable KSA businesses must comply.
- Covers B2B, B2G, B2C transactions, debit notes, and credit notes
- You must integrate e-invoicing systems with ZATCA, with six months' notice before mandatory Phase 2 compliance
- Your systems must use APIs, apply digital signatures, and include anti-tampering features like UUIDs and hashes
Key amendments to the updated e-invoicing legislation
The updated e-invoicing legislation reflects some of the key changes made. These amendments include:
- Amendments concerning the verification of the XML invoices
- Amendments relating to data fields - which are mandatory, optional, or conditional
- Value Added Tax Identification Number (VAT ID) is no longer categorized into Group or Individual VAT number
- Taxpayer’s EGS verification process has now been revised to include a secret value component
- Fields are now included for Contract Identification Numbers and Purchase Order
Following the release of Phase 2’s regulations, notifications of target taxpayers started on January 1, 2023. ZATCA informed businesses of the expected date for the new amendments to go live. The organization sent notifications to the relevant tax groups as the year progressed.
Why was e-invoicing introduced in KSA?
The system generates electronic invoices to simplify the tax process. KSA introduced this regulation for various reasons, the prime one being to ensure complete compliance from resident businesses.
Also known as Fatoorah, the electronic invoicing mechanism was introduced to:
- Help ensure improved tax compliance: This works easily because of the digitized process. The invoices are generated electronically, making it difficult to sidestep tax obligations.
- Achieve high accuracy and seamless transactions with customers: Authorities can conveniently avoid mistakes and inconsistencies using this new option compared to the previous paper option. Ultimately, this new system will ensure seamless integration between the ZATCA system and your business data.
- Increase transactional efficiency: The new invoicing system improves transactional efficiency for the government and businesses. Due to data standardization and speedy processes, transactions can be completed within a shorter period. This combines with other benefits, such as quick payments and cost-effectiveness.
- Avoid fake invoices and related offenses: The new regulation also helps solve the problem of fake invoices or related offenses. The process's data synchronization and electronic aspect make it possible to detect counterfeit invoices and mitigate the effects of the shadow economy. Consequently, this safeguards the economy and reduces adverse malpractices that could affect the country’s integrity.
- Reduce paper wastage: The e-invoicing system will significantly reduce paper wastage, making it a more eco-friendly option. This is a notable improvement for KSA in an environment-conscious world.
How businesses can stay compliant with Saudi Arabia's e-invoicing mandate
To remain compliant with Saudi Arabia's e-invoicing mandate, companies must implement effective strategies that ensure alignment with ZATCA's e-invoicing requirements. These strategies include:
- Adopt compliant e-invoicing software: ZATCA-compliant e-invoicing software is critical for issuing and storing invoices in the required Arabic language or formats such as XML or PDF/A-3. Your chosen software must ensure accuracy, data security, and compatibility.
- Train your staff: Employees must be educated on generating invoices, including all required data fields, and processing them according to ZATCA guidelines. This reduces the likelihood of tax reporting errors and improves the overall efficiency of invoicing operations.
- Partner with a reliable e-invoicing provider: E-invoicing service providers like Storecove offer advanced systems designed to meet ZATCA's requirements, including electronic stamping, secure data storage, and seamless integration with the ZATCA platform. Businesses can minimize technical challenges, avoid errors, and stay updated with regulatory changes by relying on experts.
Takeaway: Partner with Storecove to keep up with the mandatory e-invoicing rule in Saudi Arabia
To make your business seamless in this era of e-invoicing, you must refine your system to accommodate Saudi Arabia's e-invoicing regulations. Integrating solutions that help you easily comply with the latest e-invoicing policy will ensure your business remains secure.
Staying updated with regulations and remaining tax compliant is a great way to avoid regulatory issues concerning e-invoices. Use simplified tax invoice functionalities to fulfill your invoicing and tax obligations.
At Storecove, we can help your business comply with Saudi Arabia's e-invoicing mandate. To fulfill all your invoicing needs, you only need to provide your data and get one API connection. Contact us today to get started!
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