The Kingdom of Saudi Arabia (KSA) started focusing on several initiatives for the digitalisation of the economy. The General Authority of Zakat and Tax (GAZT), merged with Zakat, Tax and Customs Authority (ZATCA), intended to introduce e-invoicing in KSA and published a draft amendment on 17th September 2020 in line with Value Added Tax Implementing Regulations. The draft covered aspects of e-invoicing rules.
e-Invoicing (Fatoorah) in KSA
The people of KSA refer to e-invoicing widely as Fatoorah and e-invoicing software is referred to as Fatoorah software. e-Invoicing is a procedure that aims to convert issuing invoices from paper into electronic mode. The e-invoicing process allows exchanging and processing invoices, credit notes, and debit notes in a structured electronic format between buyer and seller using an integrated electronic solution.
All the provisions related to a tax invoice in the Value Added Tax (VAT) legislation will apply to an e-invoice, and any non-compliance will result in penalties from GAZT. Apart from this, the provisions related to proof of electronic transactions and electronic signatures in the Electronic Transactions Law of KSA shall apply to e-invoices and electronic notes issued.
e-Invoicing implementing authority in KSA
The Zakat, Tax and Customs Authority (ZATCA) is the authority for e-invoicing in KSA. GAZT, now known as ZATCA, issued the draft e-Invoicing Regulations in KSA in March 2021. The authority allowed the public and stakeholders to provide their feedback on the e-Invoicing Regulations on or before 17th April 2021. The e-Invoicing Regulations were finally published on 28th May 2021.
The regulations stated all the resident taxpayers should mandatorily be fully equipped to issue, save and modify e-invoices by 4th December 2021. These regulations specify the terms, requirements, and conditions of electronic invoices and electronic credit and debit notes.
What is an e-invoice in KSA?
It is an invoice issued and saved in an electronic format generated through an electronic system and contains the tax invoice, simplified tax invoice and respective Credit & Debit Notes (CDNs). It is clarified that a handwritten or scanned invoice will not be considered an electronic invoice. There are two types of tax invoices:
Tax invoice: It is the invoice issued by a Business to another Business (B2B), containing all the elements of a tax invoice, especially the VAT registration number of buyer and seller.
Simplified tax invoice: An invoice often issued by a Business to consumer (B2C) containing the main elements of a simplified tax invoice.
The e-invoices should be issued in the Arabic language. However, additional languages are permitted, apart from the Arabic language.
Who has to issue an e-invoice in KSA?
All entities registered under KSA VAT, the customers and the third parties who issue invoices on behalf of any taxable individuals must use the electronic invoices. All VAT regulations applicable to tax invoices, credit notes and debit notes continue to apply for e-invoices as well. However, non-resident taxpayers under VAT are excluded from the scope of e-invoicing.
Phases of e-invoicing in KSA
The ZATCA is implementing e-invoicing in two phases:
Phase 1: Generation
This phase is known as the ‘Generation Phase’, in which taxpayers have to generate and store tax invoices, simplified tax invoices and respective CDNs through electronic solutions compliant with Phase 1 requirements. Implementation of this phase will start from 4th December 2021. It is to be compiled by all taxpayers (excluding non-resident taxpayers) and any other parties issuing tax invoices on behalf of suppliers subject to VAT.
The procedures of issuing e-invoices will be similar to issuing invoices at present but through a compatible electronic billing system. The e-invoice shall include all the required items based on the type of invoice.
Phase 2: Integration
This phase is known as the ‘Integration Phase’ and rolled out in waves by the targeted taxpayer group. Phase 2 will begin from 1st January 2023, and ZATCA will notify taxpayers of their wave at least six months in advance.
This phase involves introducing technical and business requirements for electronic invoices and electronic solutions and integrating with ZATCA’s systems. In this phase, taxpayers’ must integrate their systems of issuing electronic invoices and debit and credit notes with ZATCA’s systems to share data and information.
The seller has to ‘clear’ the Tax Invoice from ZATCA in real-time and then share it with the buyers as a legally valid e-invoice. However, the seller is required to report simplified invoices to ZATCA within 24 hours from the time of generation.
Benefits of e-invoicing for KSA
The following are the few reasons for introducing e-invoicing or Fatoorah in KSA:
Transparency in commercial transactions helps the government ensure better tax compliance.
Electronically generated invoices help maintain better accuracy and effortless transactions with customers.
e-Invoicing implementation increases efficiency in transactions for both businesses and governments owing to the data standardisation, seamless trade, speedy communication, faster payments and reduced costs.
Generation of invoices electronically will result in reducing the usage of paper invoices and is environment friendly.
e-Invoicing allows the government to detect fake invoices or related malpractices and keep a check on the shadow economy.
The adoption of the e-invoicing system is picking up pace in the Gulf countries. With the Kingdom of Saudi Arabia (KSA) issuing the regulations and announcing the timelines for implementation, the United Arab Emirates (UAE) has also indicated its plans to mandate the system.