A Complete Guide To E-invoicing in Saudi Arabia

e-invoicing in Saudi Arabia

E-invoicing is a process of converting traditional and paper bills into digital ones. You can generate, issue, and store an e-invoice for several crucial business purposes.

The Zakat, Tax and Customs Authority (ZATCA) in The Kingdom of Saudi Arabia (KSA) has rolled out a new update. As per the new update, every business will have to adopt the e-invoice process in 2 phases.

Thanks to this update, e-invoicing in Saudi Arabia will become a reality. Tax-paying individuals in Saudi Arabia who are familiar with the VAT TAX invoice will find that the e-invoice is similar.

The only notable difference is that an online portal will generate such invoices from 4th December 2021. Note that a copied or scanned invoice will 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) with the condition that it should be as per 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. Following this procedure will ensure compliance with ZATCA regulations, standardize business transactions, maintain uniformity, and securely store information.

These regulations are uniform, and they affect all sales made within the KSA, exports made from Saudi Arabia to other countries, and goods and services for which you have received advance payment. The only exceptions are the VAT exempt supplies and imports to Saudi Arabia, subject to a reverse charge mechanism.

The Purpose of Introducing an E-invoicing in Saudi Arabia

The main objective of introducing e-invoicing in Saudi Arabia is to enable businesses to function with greater efficiency and transparency. Integrating your business data with ZATCA ensures transparency and smooth operations.

The KSA government has the right to standardize or amend the invoice format while monitoring updated transactions on its portal. Paper bills and handwritten invoices will eventually be discontinued.

The ZATCA portal will scrutinize every transaction while tracking down fraudulent activities and fake invoices. Additionally, the portal will create a centralized database for easy audit. It will be a massive relief for tax authorities as it will end laborious and excruciating audits because all the information will be at their disposal.

Key Benefits of E-invoicing in Saudi Arabia

  1. A better experience for both parties. It speeds up the entire process for sellers and buyers
  2. Real-time invoice generation to process tax credits faster
  3. Robust data security
  4. Error-free records
  5. Minimum slip-ups and other inconveniences for business owners
  6. Faster payments
  7. Enhanced business ecosystem through a unified process
  8. Reduced hidden economy transactions

The Guidelines for E-invoicing in Saudi Arabia

  1. The new e-invoice regulations apply to all taxable goods and services subject to VAT
  2. Every VAT registered business is expected to comply with the e-invoice policy and adopt the new process
  3. It also applies to third parties issuing tax invoices on behalf of taxable individuals. For instance, if you are an accounting firm issuing invoices for a manufacturing company, you must adhere to these e-invoice regulations
  4. It is compulsory for B2B, B2C, and B2G transactions. Please make sure that you also provide a printed copy while issuing an e-invoice
  5. Finally, the e-invoice must be in Arabic. You may include or translate the details into another language, but an e-invoice must be issued in Arabic

Let us walk you through the two-phase process of e-invoicing in Saudi Arabia.

Phase 1 Starting from 4th December 2021

The initial phase is primarily about issuing and storing e-invoices, and it also includes turning credit and debit notes into electronic notes.

In the first phase, every business will use an e-invoicing system compliant with ZATCA.

The electronic billing system can be one of the three options mentioned below.

  • An online cash register
  • An e-invoicing Saudi Arabian software
  • A cloud-based e-invoicing software

Your e-invoice must have all the mandatory fields such as the seller’s name, 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 during phase 1.

Phase 2 Starting from 1st January 2023

The second phase will begin from 1st January 2023. Given its considerable importance, phase 2 will be implemented in several stages to ensure the seamless integration of e-invoicing data into the ZATCA system.

This phase will be technical as you need to integrate your existing e-invoicing system with ZATCA’s portal from 1st January 2023. ZATCA will validate and verify your transactions.

Keeping the process’s complexities in mind, it is safe to say that the second phase of e-invoicing in Saudi Arabia will affect your business at various stages. You will receive notifications six months beforehand to avoid any complications. 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 prepare your system to connect with external software effectively & securely through APIs (Application Programming Interface) while creating a UUID (Universally Unique Identifier) plus a digital signature.

It should also be able to differentiate an e-invoice, a hash, and a cryptographic stamp with a sequential number while possessing 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 develop a system that meets all the technical requirements and complies with ZATCA’s guidelines from the beginning for hassle-free integration in the future.

E-invoice types -:

1) Tax E-invoice aka Standard Invoice

Tax e-invoices are for B2B or B2G transactions, and buyers use them to claim VAT input deduction. These e-invoices will have tax invoices in a defined format during the first phase. However, in the phase 2 of e-invoicing in Saudi Arabia, these invoices will have to be cryptographically stamped and approved by ZATCA before being shared with buyers.

You need to display the VAT registration number on the invoice for VAT registered buyers. It would be best if you also considered adding a QR code. Have a look at the sample e-invoice below (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).

e-invoicing in Saudi Arabia

2) Simplified E-invoice

Simplified invoices are issued for the B2C transaction at the point of sale, and buyers do not need simplified e-invoices for input VAT deduction. Nevertheless, while issuing simplified e-invoices, your system must generate a QR code to verify them.

It is not compulsory for you to share these simplified 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, and you will be held accountable if the invoice is self-billed. The e-invoice will have the electronic market to indicate whether it is self-billed or billed by a third party.

TransactionThe e-invoice to be issued
Taxable supplies priced at SAR 1,000 or moreStandard e-invoice
Taxable supplies priced less than 1,000 (Excluding exports)Standard and Simplified e-invoices
Taxable supplies (Excluding exports) to non-taxable personsSimplified e-invoice
Zero-rated supplies priced at SAR 1,000 or moreStandard e-invoice
Exports of goodsStandard e-invoice
Intra-GCC suppliesStandard e-invoice
Nominal supplies (For audit purposes)Standard e-invoice

How does the E-invoicing in Saudi Arabia Process Works?

The good news is that the process of e-invoicing in Saudi Arabia is like the normal invoicing process. The only notable difference is that it will allow business owners to accomplish e-invoicing with greater transparency, safety, and efficiency.

What do you need to do for every transaction? Refer to the points below.

Here is 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 e-invoice, you can send it to your buyer.

Save the invoice for future reference. A cloud-based solution is preferred with easy storage and valuable e-invoicing features.

Final Thoughts

As a Saudi Arabian taxpayer, you have two options –

A) Choose your e-invoicing system

B) Find an expert who can develop a VAT-compliant e-invoicing system in Saudi Arabia for your business.

Once the system is ready, perform a test run before 4th December 2021 to ensure it aligns with ZATCA’s guidelines. If you have a technical team, get help from them to build a robust and secure e-invoicing system that complies with ZATCA regulations.

It is equally vital to have a well-trained staff who understand how to use the system for effectively smooth transactions of your business. While selecting the e-invoicing system, make sure that you ensure the following –

  • Prevent Unauthorized access
  • The e-invoicing system must have user management functionalities.
  • Eliminate Loopholes that allow people to tamper with invoices and debit/credit notes or export the stamping key.

Are you looking for a customized e-invoicing software in Saudi Arabia to handle your VAT and e-invoice-related issues? Ideally, you should have a SAAS-based accounting solution to manage the entire e-invoicing process. We have a formidable team of technical experts to ensure VAT compliance and keep up with the latest e-invoicing regulations.

Rest assured, our experienced and reputable accounting company will even handle your security and technical requirements. Contact us at enquiries@nrdoshi.ae. Our VAT experts will be glad to assist you.

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