E-invoicing is a process of converting traditional and paper bills into digital format. You can generate, issue and store an e-invoice for several critical business purposes.
The Zakat, Tax and Customs Authority (ZATCA) in The Kingdom of Saudi Arabia (KSA) has rolled out an update that mandates every business to adopt the e-invoice process in two phases.
If you are a tax-paying person in Saudi Arabia, it will be akin to the VAT TAX invoice being issued to you. The only discerning difference is that it will be generated through an online portal starting from 4th December 2021. Mind you, a copied or scanned invoice shall not be considered legal.
Furthermore, you cannot edit an e-invoice once it is issued. Nevertheless, you can always issue electronic notes (containing VAT-compliant debit and credit notes). However, it should be with reference to the original invoice issued.
For example, if a buyer wants to return your product, you cannot alter the original invoice. You are supposed to issue a credit note through your electronic invoicing system and it must comply with ZATCA regulations. It will standardize the business transaction, maintain uniformity, and securely store information.
These regulations are ubiquitous and they affect every sale made within the KSA, exports made from Saudi Arabia to other countries as well as goods and services for which you have received the advanced payment. The only exceptions are the supplies that are exempted from VAT and imports to Saudi Arabia subject to reverse charge mechanism.
The purpose of introducing an e-invoice
The real intention behind rolling out these regulations is to enable businesses to function with more efficiency and transparency. Integrating your business data with ZATCA makes it more transparent for your businesses to function.
The KSA government is entitled to standardize or amend the invoice format and at the same time keep track of transactions being updated on its portal. Paper bills and handwritten invoices will eventually be ceased.
Every transaction will be authorized on the ZATCA portal and it will trace down fraudulent activities and fake invoices. Additionally, the common portal will create a centralized database for easy audit. It will come as great relief for Tax authorities as it helps them get rid of the cumbersome activity of frequent audits with all information at their disposal.
Key benefits of e-invoicing
- A better experience for both parties. It speeds up the entire process for sellers and buyers
- Real-time invoice generation to process tax credits faster
- Robust data security
- Error-free records
- Minimum slip-ups and other inconvenience for business owners
- Faster payments
- Enhanced business ecosystem through a unified process
- Reduced hidden economy transactions
The guidelines for e-invoicing in the KSA
- The new e-invoice regulations will apply to all taxable goods and services subject to VAT
- Every VAT registration business is supposed to comply with the e-invoice policy and adopt the new process.
- It also applies to the third party issuing a tax invoice on behalf of a taxable person. For instance, if you are an accounting firm and issuing invoices for a manufacturing company, you will have to adopt these e-invoice regulations.
- It is compulsory for B2B, B2C, and B2G transactions. Please make sure that you provide a printed copy too while issuing an e-invoice
- Last but not the least, the e-invoice must have to be Arabic. You may include or translate the details into another language but an e-invoice has to be issued in Arabic.
Let’s walk through two phases of e-invoicing regulations in the KSA
Phase 1 starting from 4th December 2021
The initial phase is primarily about issuing and storing e-invoices. It also includes turning credit and debit notes into electronic notes.
In phase 1, every business will use an e-invoicing system compliant with ZATCA. The electronic billing portal can be either an online cash register or an e-invoice software installed on your computer or a cloud-based e-invoice software.
Your e-invoice must have all the mandatory details such as the name of a seller, VAT registration number, the time of issuance, the total VAT amount, and the overall invoice value including VAT.
Please note that you will not have to share your data and invoices with ZATCA in phase 1.
Phase 2 starting from 1st january 2023
The second phase begins on 1st January 2023. Given its considerable importance, phase 2 shall be implemented in several stages to ensure the seamless integration of e-invoicing data to the ZATCA system.
This phase will be technical in nature. In a nutshell, you will be supposed to integrate your e-invoicing system with ZATCA’s portal from 1st January 2023. ZATCA will validate and verify your transactions.
Provided the complexities of the task, it will affect different businesses at different times. You will be notified beforehand 6 months before it affects your business. Moreover, by the time you reach phase 2, you will have to issue e-invoices in specific formats. (XML and PDF/A-3 with embedded XML)
Please make sure your system can be easily and securely connected with external software through APIs (Application Programming Interface) and create a UUID (Universally Unique Identifier) and a digital signature.
It should also be able to differentiate an e-invoice, a hash, and a cryptographic stamp with a sequential number and have anti-tampering features. These features are not mandatory in phase 1 but you must have them all in Phase 2. Therefore, we advise you to build a system that complies with ZATCA’s guidelines from the start for hassle-free integration in the future by meeting all technical requirements.
Tax e-invoice aka Standard invoice
These invoices are for B2B or B2G transactions. Buyers use them to claim VAT input deduction. They will have Tax invoices in the defined format in phase 1. However, these invoices will have to be cryptographically stamped and approved by ZATCA before sharing with buyers in phase 2.
In the case of VAT registered buyers, you must have their VAT registration number on the invoice. You can also add a QR code. Have a look at the sample e-invoice. (Please note that the image below is reduced in size to fit in the document. While uploading the blog on the website, we ensure that it is properly visible.)
These invoices are issued for the B2C transaction at the point of sale. Buyers don’t need simplified e-invoice for input VAT deduction. Nevertheless, while issuing simplified e-invoices, your system must generate a QR code to verify them.
You are not required to share these invoices with buyers in phase 1. However, you must send simplified e-invoices to ZATCA in phase 2 within 24 hours of issuance. Both invoices can be either self-billed or billed by a third party. You shall be held accountable if the invoice is self-billed. The e-invoice will anyway have the electronic market to indicate whether it is self-billed or billed by a third party.
|Transaction||The e-invoice to be issued|
|Taxable supplies priced at SAR 1,000 or more||Standard e-invoice|
|Taxable supplies priced less than 1,000 (Excluding exports)||Standard and Simplified e-invoices|
|Taxable supplies (Excluding exports) to non-taxable persons||Simplified e-invoice|
|Zero-rated supplies priced at SAR 1,000 or more||Standard e-invoice|
|Exports of goods||Standard e-invoice|
|Intra-GCC supplies||Standard e-invoice|
|Nominal supplies (For audit purposes)||Standard e-invoice|
How the e-invoicing process works
The good news is that e-invoicing is not much different than regular invoicing processes. The only discerning difference is that it will be done with more transparency, safely, and effectively.
Here’s what you are supposed to do for every transaction
- Have a VAT compliant system with all mandatory fields
- Issue a copy to a buyer. By phase 2, you will have to send it to ZATCA. Once the portal validates the invoice, send it to your buyer.
Save the invoice for future reference. A cloud-based solution is a preferred choice with easy storage and salient e-invoicing features
As a taxpayer in Saudi Arabia, you have two options – A) Choose your own e-invoicing system B) Find an expert who can build a VAT-compliant e-invoicing system for you.
Once you have the system ready, perform a test run it before 4th December 2021 to ensure it is in line with ZATCA’s guidelines. If you have a technical team, get help from them to build a robust and secure e-invoicing system to comply fully with ZATCA regulations.
It is equally paramount to have a well-trained staff who understands how to properly use the system for smooth transactions of your business. While selecting the e-invoicing system, makes sure that it does not have
- Any unauthorized access
- User management functionalities
- Loopholes to temper with invoices and debit/credit notes or export the stamping key
You should ideally have a SAAS-based accounting solution to take care of the entire e-invoicing process. We have a strong team of technical experts to ensure VAT compliance and keep up with the latest e-invoicing regulations. If you are looking for an established accounting company to handle your VAT and e-invoice related issues considering all security and technical requirements, look no further than us. Get in touch with us on email@example.com, our VAT experts will reach out to you.