6 Days a Week
Free On Premise
Accounts & VAT
The e-invoicing in Saudi Arabia has now become an essential part of the kingdom’s tax reform process which is aimed at simplifying the tax compliance process, minimize tax evasion and improve business operations. The Zakat, Tax, and Customs Authority (ZATCA) has been implementing its e-invoicing regulations gradually and started the first phase on the 1st of January 2023. These regulations apply new rules for all businesses in the kingdom to adhere to new Simplified Invoice Reporting and Standard Tax Invoice Clearance to make the invoicing system more clear and effective. The transition to e-invoicing is one of the critical components of Saudi Arabia’s Vision 2030 that focuses on the advancement of the country’s economy and financial management.
The e-invoicing system is divided into two main processes: For the B2C transactions, the use of Simplified Invoice Reporting while for B2B and B2G transactions the use of Standard Tax Invoice Clearance. The Simplified Invoice Reporting process requires that all simplified e-invoices be reported to ZATCA within 24 hours of their issue. These invoices are then verified by ZATCA’s system and must contain a QR code for validation. On the other hand, Standard Tax Invoice Clearance entails the direct uploading of B2B and B2G invoices to ZATCA’s portal for verification and clearance for onward transmission to customers or clients.
Thus, Saudi Arabia plans to improve the country’s tax system with the help of e-invoicing and receive more accurate and timely data for taxation. Not only does this system guarantee that businesses will be compliant, but it also assists with enhancing the invoicing processes. When companies connect with ZATCA through their systems, they can avoid penalties and integrate their processes into the platform. This paper will explain the key points of Simplified Invoice Reporting and Standard Tax Invoice Clearance to enlighten businesses about the proper ways of following the e-invoicing system and getting all the possible advantages.
The E-Invoicing Phases in Saudi Arabia
The ZATCA regulations have made it mandatory for all sorts of businesses operating in Saudi Arabia to adopt e-invoicing in Riyadh and throughout the kingdom from January 1, 2023. The regulations are divided into two waves, starting with:
Wave 1: Companies with a turnover of more than SAR 3 billion in 2021 have to comply from January 1, 2023.
Wave 2: Large firms with a turnover of more than SAR 500 million in 2021 will be required to follow the rules from July 1, 2023.
E-invoicing in Saudi Arabia and particularly for VAT registered companies, means that these organizations have to connect with ZATCA for real-time invoice validation and return. This shift is targeting to improve on tax collection, minimize fraud cases within the sectors and improve efficiency.
Simplified Invoice Reporting means that any business – B2C especially – has to report e-invoices to ZATCA within 24 hours from their issue. This regulation is crucial in enhancing compliance and disclosure for all B2C transaction under the e-invoicing in KSA system.
These simplified invoices must bear a cryptographic stamp as stipulated by ZATCA, and the process involves:
While Simplified Invoices do not require clearance through ZATCA’s platform, Standard Tax Invoice Clearance is required for B2B and B2G transactions. This process is more complex and entails real time data submission to ZATCA to check for validation.
Here’s the clearance process for standard tax invoices:
E-invoicing for Saudi Arabia is still progressive, and the businesses must adhere to the simplified invoice reporting and the standard tax invoice clearance as prescribed by the ZATCA. Further, the business needs to be aware of any changes in the regulations in order to run smoothly.
Some of the new development from ZATCA is new waves of e-invoising compliance for companies with turnover above SAR 2 million, thus increasing the range of e-invoising compliance. This means that for businesses to remain complaint they must connect their ERP or POS system to the Fatoora portal by the set dates.
Here’s a more detailed comparison between Simplified Invoice Reporting and Standard Tax Invoice Clearance under the e-invoicing system in Saudi Arabia:
Clearance (B2B/B2G):
The Standard Tax Invoice Clearance is used in Business to Business (B2B) and Business to Government (B2G) environments. These invoices are normally associated with more complicated operations and can be regulated by VAT. Such transactions have to be cleared through the ZATCA portal to verify their authenticity before being passed to the buyer.
Reporting (B2C):
Simplified Invoice Reporting applies to Business to Consumer (B2C) sales where most of the transactions are generally small and less complicated. For these invoices, the e-invoicing system does not include the clearance process but the invoices must be reported to ZATCA within one business day of their issuance.
Clearance (B2B/B2G):
As part of the Standard Tax Invoice Clearance procedure, companies need to send invoice data to ZATCA in real time for verification and validation. This submission takes place before the invoice can be forwarded to the buyer. Real time submission of data makes the transaction validated at the point of occurrence, thus providing more security and compliance.
Reporting (B2C):
Under Simplified Invoice Reporting, businesses must submit the invoice data to ZATCA within one business day of its issue. Although not as instant as the clearance, the reporting plays its part in enabling the submission and validation by ZATCA within a reasonable time and keeps businesses legal.
Clearance (B2B/B2G):
For Standard Tax Invoices, the QR code is created by ZATCA during the clearance process of the goods. Upon submitting the invoice to ZATCA and validation, a cryptographic stamp and a QR code are affixed. Customers can use this code to verify the authenticity of the invoice since the code is printed on the invoice.
Reporting (B2C):
In the Simplified Invoice Reporting process, the QR code is created in the EGS (Electronic Generation Solution) before the invoice is passed to the buyer. This QR code is placed on the invoice when it is sent to the customer. The buyer can then use a scanning device to obtain information about the invoice or check its validity with ZATCA system.
Clearance (B2B/B2G):
The Standard Tax Invoice Clearance requires that the business make the invoice available to ZATCA before presenting it to the buyer. This means that ZATCA checks and approves the invoice before it is presented to the customer. The invoice can only be lawfully forwarded to the buyer upon the approval of ZATCA.
Reporting (B2C):
In Simplified Invoice Reporting, the business can forward the invoice to the buyer and then report the same to ZATCA. Once the invoice is shared, the business has a window of 24 hours to report the transaction to ZATCA for purposes of validation. This process is relatively easier for consumer transactions.
5. Compliance Timeframe
Clearance (B2B/B2G):
In the case of Standard Tax Invoices the invoice has to be authenticated by ZATCA before it is delivered to the buyer. The clearance process entails confirming all the details of the invoice in real-time and ensuring that the transaction is correct and adheres to the set VAT rules before sending the invoice to the customer.
Reporting (B2C):
Simplified Invoice Reporting gives businesses additional flexibility. Issued e-invoice must be reported to ZATCA within 24 hours after issuance of the e-invoice. This creates a small time frame within which businesses can check on the correctness and legal compliance of the invoicing process before completing the reporting.
Clearance (B2B/B2G):
The clearance and reporting process is real-time, this is because when an invoice is submitted to ZATCA it is cleared in real time. Such real-time validation means that businesses are quickly informed whether or not their invoices are compliant or require adjustments.
Reporting (B2C):
The Simplified Invoice Reporting process works in real-time like environment where the e-invoice is reported to ZATCA within a day of its issuance. Unlike clearance, this method does not give an immediate acknowledgment of the transaction but at least there is compliance to VAT.
Clearance (B2B/B2G):
The Standard Tax Invoice Clearance process requires even more integration of businesses’ invoicing systems with ZATCA’s platform. Such invoicing solutions (ESG) must integrate with ZATCA’s API to enable the real-time sharing of information. This may be costly but it guarantees that business transactions are VAT compliant to the last detail.
Reporting (B2C):
Simplified Invoice Reporting is slightly easier than the clearance process. After the invoice has been issued, the transaction data has to be reported and this gives a little more leeway when it comes to submission. The compliance requirements remain high, but the emphasis is made on the time-sensitive reporting, not the clearance.
The Saudi Arabia e-invoicing is essential for enhancing the tax system of the country and to make it easier for the businesses. In simplified invoice reporting or standard tax invoice clearance, companies have no option than to embrace and incorporate these systems into their business. In this way, businesses can fulfill their obligations to ZATCA, streamline their invoicing, and support KSA’s vision of a digital economy.
