6 Days a Week
Free On Premise
Accounts & VAT
In the last few years, KSA has indeed embarked on the journey towards digital transformation of its economy and one of the major shifts has been towards e-invoicing solutions for Saudi Arabia. The Zakat, Tax, and Customs Authority (ZATCA), formerly called the General Authority of Zakat and Tax (GAZT), has initiated the program under the Value Added Tax (VAT) rules. This move will help the Kingdom to achieve some of its goals outlined under the Vision 2030 program that seeks to enhance business processes while at the same improving on the efficiency and transparency of the processes involved.
Saudi Arabia has made e-invoicing solutions Saudi Arabia mandatory for most organizations, and it is vital for organizations to find out how to go about it. ZATCA established the e-invoicing process in Phase 1 starting from 1 st January 2023, and the second phase requires businesses to interface with the ZATCA platform. This phase is being gradually rolled out based on the business turnover and the compliance is expected by 1 April 2025 for businesses with a turnover above SAR 3 million. This guide will help you through the steps of moving to e-invoicing, from the types of invoices to waves and phases of implementation.
To the businesses, e-invoicing solutions for Saudi Arabia are not just about legal requirements, but about improving the performance and cutting costs. In this guide, we will outline the basics of e-invoicing in Riyadh which include the following; the advantages of e-invoicing; and how to plan for the implementation of e-invoicing in your organization.
FATOORA is the Saudi Arabian term used to refer to the electronic process of creating and processing invoices. This system aims at eliminating conventional paper based invoices, Credit & Debit Notes (CDNs), which are exchanged between buyers and sellers. In the light of using an online integrated solution, the businesses can make sure that this process of invoicing is fast, effective, secure and transparent. The move to e-invoicing is part of a broader modernization process of the Kingdom’s tax system and business processes.
An electronic invoice in Saudi Arabia is an original document that has been prepared in electronic form by using an automated system. This makes it easy to validate the invoice data in the event that the organization needs to defend the data against other parties such as auditors or other authorities. In this respect, e-invoicing has a potential to improve billing processes, eliminate mistakes and meet the requirements of the Saudi Arabian Value Added Tax Act, as well as to support the concept of Saudi Arabia’s digitalisation e-invoicing software Saudi Arabia.
Scope of E-Invoicing in Saudi Arabia
Taxable Persons:
The Saudi Arabia has put some rules and regulation regarding e-invoicing, which is compulsory for every taxable persons and business that is engaged in economic operations for earning revenue. This comprises all individuals who are registered with the value added tax, or those that are required to register under the value added tax law. Further, organizations involved in business both at the national and international level are required to abide by these rules. This also applies to customers or any third party who issues tax invoices for taxable persons in the Kingdom in compliance with e-invoicing.
Obligations:
The regulated taxable persons are bound to issue e-invoices for all the activities that need a tax invoice as per the provisions of the VAT Law and the regulations made there under. The obligation of e-invoicing applies to all types of VAT-taxable goods and services irrespective of the standard or zero rate of VAT. This makes sure that different invoices are dealt with in a similar manner hence making the reporting and compliance a lot easier for companies operating in Saudi Arabia.
Exemption:
Non-residents taxable persons who do not carry out any economic activity within the territory of Saudi Arabia are released from the obligation to issue e-invoices or electronic notes in respect of supplies or amounts received which are chargeable to tax in Saudi Arabia. This exemption makes it easier for non-resident business entities, while at the same time only requiring that those business entities who are directly operating in the Kingdom follow the e-invoicing rules to help to enhance the efficiency of the tax system for domestic and cross border trading.
ZATCA E-Invoicing Compliance Guidelines
Down below are some guidelines that must be followed to the letter in order to meet Saudi Arabia’s ZATCA’s e-invoicing regulations in full. E-invoicing requirements concern all types of VAT-taxable goods and services at standard and zero rates, and must be followed for B2B, B2G, and B2C sales, as well as for other documents such as debit/credit notes.
All invoices must be accompanied by an Arabic text, and the translation in other languages is allowed. They have to be provided in XML or PDF/A-3 formats with XML files being embedded. Also, the e-invoicing systems should be connected to the ZATCA portal through secure APIs, and satisfy technical specifications such as creating a UUID, applying a digital signature, as well as anti-manipulation measures. This integration ensures compliance with the set standards by businesses and also ensures safe processing of invoices.
Types of E-invoices in Saudi Arabia
Standard Tax Invoice:
A standard tax invoice is one which is issued between two businesses (B2B) or between a business and the government (B2G) and contains all the features of a tax invoice, particularly the registration numbers for both the buyer and the seller. This kind of invoice assists buyers to make input VAT recovery, and thus it is important for business transactions. Standard tax invoices are also cryptographically stamped for security purpose and must be cleared through ZATCA in real time verification process and this makes full compliance and transparency in transactions.
Key Attributes of Standard Tax Invoice:
Standard tax invoices offer information on the nature of the transaction, details of the seller and buyer and where necessary details of the goods or service sold. Further, these invoices must be cryptographically signed, further increasing their protection from tampering. They are connected to ZATCA’s portal to which they are sent in real time for checking whether each invoice is compliant with ZATCA’s regulations in terms of accuracy and otherwise e-Invoicing Solutions for Saudi.
Simplified Tax Invoice:
A simplified tax invoice is usually applied to the B2C type of operations and contains the main components prescribed by ZATCA. Simplified invoices differ from standard tax invoices in the sense that the buyer cannot use the invoice to recover VAT. Such an invoice is suitable for the simple consumer products and make a simple way for documenting the sales without many details.
Key Attributes of Simplified Tax Invoice:
Even during the initial stage of implementing e-invoicing, businesses only have to issue a simplified version of invoices to their customers. However, in Phase 2, such invoices must be reported to ZATCA within 24 hours of issuance to track consumer transactions in real-time. This timely reporting requirement also improves compliance and ensures that ZATCA has a record of B2C transactions in the Kingdom at any one time.
Phases of E-invoicing in Saudi Arabia
Phase 1: Generation
The Generation phase began on December 4, 2021, and is the first phase of e-invoicing in Saudi Arabia, where taxpayers must issue invoices electronically. In this phase, taxpayers must make sure that their invoices, along with the credit and debit notes are issued through a solution that is compliant with e-invoicing regime by ZATCA. This requirement is applicable to all the VAT registered taxpayers provided they are resident in the member state and to any third party who issues invoices on behalf of those taxpayers. Though the process resembles today’s invoicing procedures, the process requires the use of compatible electronic systems, which can be online cash registers and e- invoicing systems, on-premise, or in the cloud e-Invoicing Solutions for Saudi.
Phase 1 Features
Phase 1 does not include interaction with ZATCA system hence taxpayers are not compelled to interface or relay their invoices to ZATCA. Instead, the emphasis is placed on creating and storing e-invoices within an organization and preparing the ground for efficient invoicing that does not go outside the business. This first phase enables organizations to implement e-invoicing with little interference with their operations while preparing them for integration obligations that may arise in Phase 2.
Phase 2: Integration
The second phase of e-invoicing started on 1st January 2023 and is centered on connecting business applications to ZATCA’s platform named FATOORAH. This phase, rolled out in waves depending on the business turnover, necessitates that e-invoices should be pre-audited by ZATCA before they are released to the public – a real-time compliance check. To integrate with FATOORAH, businesses must use secure APIs, and each invoice must contain a UUID, digital signature, a sequential number and a cryptographic stamp to improve authenticity and traceability.
Phase 2 Features
In phase 2, the sellers are mandated to make real-time tax clearance on every tax invoice to ZATCA before a validated e-invoice can be forwarded to the buyer. In the case of B2C simplified invoices, the business must lodge such with ZATCA not later than 24 hours from the time of creation. This phase started with the companies that have a turnover of more than SAR 3 billion and then broadened the list of the taxpayers to guarantee the gradual transition towards full electronic invoicing throughout the Kingdom.
Who Implements E-Invoicing in Saudi Arabia?
The Zakat, Tax, and Customs Authority (ZATCA) which was previously known as the General Authority of Zakat and Tax (GAZT) is the overseeing authority that is responsible for the e-invoicing rules in the Kingdom of Saudi Arabia. ZATCA proposed the first draft of the e-invoicing regulations in March 2021 and allowed public and industry stakeholders’ feedback until April 17, 2021. After this consultation, the final regulations were issued on 28 May 2021, which is a major step forward towards digital transformation of the Saudi Arabia’s tax system to increase efficiency and simplicity of the tax compliance.
ZATCA’s Role and Timeline
ZATCA has been overseeing a phased approach to implementing e-invoicing. From the public and other industry stakeholders, ZATCA crafted the regulations to take into consideration the realities of the market in order to maintain compliance with the VAT regulations. It involves coming up with the regulations, operating the FATOORAH portal where organizations can register their compliance, and other tools that would facilitate the integration of companies’ invoicing systems to the new system e-Invoicing Solutions for Saudi.
What is the process flow for E-Invoicing in Saudi Arabia?
The process flow of an e-invoice in KSA varies depending on the type of invoice; that is, the tax invoice or the simplified tax invoice. In case of standard tax invoice related to B2B or B2G transaction the detail which must be mentioned in the invoice include the buying and selling’s VAT registration number and undergo a real time validation with ZATCA. This means that every transaction is checked before the invoice is legally sent to the buyer making the reporting of VAT highly accurate.
E-Invoicing for B2C Transactions
The e-invoicing process is actually somewhat less complicated for simplified tax invoices in B2C transactions. This is because in Phase 1, the businesses are free to issue such invoices to the customers without having to report in real time. However, with the Phase 2 requirements, these simplified invoices must be reported to ZATCA within 24 hours of issuance. Such timely reporting helps to capture even such simple consumers’ transactions immediately and this increases the overall business integrity of all transactions throughout the Kingdom.
Conclusion:
Therefore, the implementation of e-Invoicing Solutions for Saudi businesses is a major step towards the vision of a smooth and transparent taxation system. The phased implementation of e-invoicing by ZATCA guarantees that all taxable entities can adapt to the new e-invoicing framework over time thus minimizing on the possibility of making mistakes or non-compliance, in addition to providing real-time validation of transactions. The introduction of e-invoicing in KSA has made it easier to deal with the companies and at the same time meeting the VAT requirements making it easy for the consumers and the companies.
As the e-invoicing environment changes, e-Invoicing Solutions for Saudi Arabia businesses will become more and more important for performing functions related to compliance and documentation. This modernized system not only prevents fraud and tax evasion but also supports the goals of Saudi Arabia Vision 2030 in the field of digitization of the economy. For businesses, it will be necessary to acquire compliant e-invoicing software and to learn the requirements for each phase to smoothly implement ZATCA’s guidelines to have a strong and clear tax scenario in the Kingdom.
Comments are closed