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E-invoicing particularly the use of simple e-invoice is now a critical element in the Saudi Arabia tax regime. The adoption of these electronic invoices is meant to improve efficiency of B2C transactions while at the same time meeting ZATCA requirements. Simplified E-Invoices in KSA do not contain the buyer details and are easier for retail and service industries who sell directly to the consumers. These invoices are very important in sectors such as retail shops, hotels, grocery shops and transport companies where end consumers cannot reclaim the input VAT.
As the implementation of e-invoicing in Saudi Arabia is gradually being done in phases, companies are now forced to work with a more electronic billing system. In Phase 1, companies are obliged to generate and provide the buyer with a basic e-invoice at the POS that contains a QR code, but does not need to report immediately to ZATCA. However, as Phase 2 from January 2023 began, the rules have tightened, and now companies must notify ZATCA about such invoices within one day. This shift emphasizes the need to integrate with the Fatoora portal which is a system that has been developed to support the compliance with the new invoicing regime.
It is, therefore, important for business owners in Saudi Arabia to keep abreast with the changes in the e-invoicing in Riyadh regulations to avoid incurring penalties and to run efficient businesses. The legal elements of e-invoices include the UUIDs, cryptographic stamps, and QR codes that must be part of Simplified E-Invoices in KSA for them to meet the legal requirements. When using a compliant e-invoicing solution, these requirements can easily be incorporated into business processes so that they remain in compliance with ZATCA regulations and remain at the forefront of digital transformation of the kingdom’s tax system.
Simplified e-invoices in KSA refer to an e-invoice that is accepted for B2C transactions in the Kingdom of Saudi Arabia. Simplified e-invoices exclude the detailed information of the buyer as the consumer cannot reclaim the input VAT. These invoices are generated at the time of sale (POS), as in retail shops, supermarkets, restaurants and hotels, transport stations, stadiums and any other service providers who are in direct contact with customers.
However, there are exceptions. If the services offered are in special categories such as medical or educational services, the buyer’s details are required since these are taxed according to the laws set by the Zakat, Tax, and Customs Authority (ZATCA).
In Saudi Arabia, all taxable individuals (except non-resident taxable individuals) who fall under the ambit of e-invoicing rules have to issue simplified e-invoices for B2C transactions. This includes:
The process of issuing the Simplified E-Invoices in KSA is done in two phases. Here’s a breakdown of both phases:
Phase 1: The idea is to issue Simplified E-Invoices at the Point of Sale.
In the first phase of the e-invoicing regulation, business entities are required to issue simple e-invoices at the time of sale. These invoices should bear a QR code and these should be preserved in electronic form for future use. There are no further reports to ZATCA at this point.
Phase 2: Submitting Simplified E-Invoices to ZATCA
Phase 2, which started on January 1, 2023, introduced a new requirement: businesses are now required to submit the simplified e-invoices to ZATCA within 24 hours of the transaction. For this purpose, businesses are required to connect their ERP or POS with the Fatoora portal which was developed by ZATCA for this purpose.
For instance, Al Salim Company owns three retail stores in Riyadh. In Phase 1, Al Salim will send out easy to read e-invoices with a QR code via an e-invoicing tool. These invoices will be stored in electronic form. In Phase 2, such invoices must be submitted to ZATCA within 24 hours of issuance to the customer.
The only difference between the traditional and the new simplified invoices is that the Simplified E-Invoices in KSA contains a QR code. ZATCA mandates that the QR code include specific details such as:
Furthermore, other fields in the e-invoice simple view will be; UUID, cryptographic stamps, and previous invoice hashes, which are in the integration specifications in phase 2.
For compliance with the e-invoicing regulations, businesses must ensure the following fields are included in each simplified e-invoice:
UUID: This is again an Integration – Phase 2, which provides a unique identifier for the invoice.
Cryptographic Stamp: Virtual and incorporated into the invoice without the need to be manually inputted (Automated – Part 2)
Previous Invoice Hash: The hash of the previous invoice (Integration – Phase 2)
QR Code: Contains information such as:
As a retail business owner, here’s what you need to do to comply with simplified e-invoicing regulations:
• Determine Applicability: First, make sure that the e-invoicing rules concern your company. This is important from the compliance perspective.
• Identify Impacted Transactions: Find out which transactions are likely to be affected by the new e-invoicing rules.
• Select a Compliant E-Invoicing Solution: Select an e-invoicing solution that will best work for ZATCA. There are two options – acquire a solution or build it in-house.
• Issue and Store E-Invoices: All relevant transactions should produce their invoices in electronic form and these invoices should be retained for future use.
Basic e-invoices in KSA are important for enterprises to conform to the Saudi Arabia e-invoicing rules. In any business, especially one in the service sector or retail, it is crucial to know how to issue such invoices and what reports need to be submitted to ZATCA to prevent issues with fines. This is because the use of e-invoicing in Saudi Arabia is still relatively new and therefore all the regulations as well as the best practices in efficient tax reporting and compliance should be updated regularly.
