The e-invoicing transition process for KSA Banks is crucial with the system starting from 4th December 2021. The e-invoicing system shall impact the banks in Saudi Arabia, affecting their operations for a brief time. However, a better, tested, and advanced preparation for the change will ensure the least disruption in its services to customers.
Impact of KSA’s e-invoicing system on banks
With the first phase e-invoicing mandate from 4th December 2021, all business entities registered under VAT in the KSA are subject to e-invoicing requirements. It also includes banks and financial institutions.
e-Invoicing ensures to bring down errors, check tax compliance, and gradually eliminate the shadow economy. Also, the transition to an electronic invoicing system is unavoidable. The government is taking measures to modernise its taxation and invoicing laws and assure better regulatory compliance. The e-invoicing system closes loopholes in their legacy frameworks. It creates a new drive toward a digital economic base worldwide.
It will assist the Kingdom of Saudi Arabia in simplifying and streamlining reporting standards between taxpayers and authorities, preventing tax evasion, and ensuring honest and fair business operations. It is a win-win situation for all market participants, including banks and financial institutions, and will significantly enhance the economy.
However, banks may find the transfer to the new system difficult because they must maintain uninterrupted operations and a consistent customer experience. It is a significant shift for banks and will require extensive IT platforms and a well-thought-out strategy to ensure minimal interruption and maximum compliance.
The shift to digitalisation and open taxation structures is not new to Saudi Arabian banks. Similar change management and adaptation were required when the VAT compliance regulations were modified a few years ago.
Banks must be ready to issue, receive, and keep e-invoices as of this date. It is a significant step forward in the Kingdom’s digital transformation, and e-invoicing will also improve payment efficiency.
Tips for a smooth transition to e-invoicing system for banks in Saudi Arabia
- Move away from legacy systems to adopt e-invoicing: Banks are highly dependent on their outdated systems. Several KSA banks use complex infrastructures with legacy systems, core banking systems, processes, DRP, and various support systems. The systems chosen by banks in KSA must be flexible and scalable to adopt and adapt to the change in compliance quickly.
- Self-evaluation: A deep evaluation of the capacities and capabilities of the existing systems and draw a comparison against the requirements of the ZATCA’s e-Invoicing Regulations and technical requirements.
- Building awareness and establishing continuous training of teams: The banks should set up an ongoing training process to educate and create awareness of the e-invoicing laws, regulations and technical requirements among its operating team members.
- Choosing a compliant e-invoice solution ideal for Saudi Arabia’s banking system:
- Banks’ compliant e-invoice solution must be able to integrate with ZATCA’s e-invoicing portal through APIs. Banks need a seamless solution to streamline the invoicing process. In turn, it should be capable of allowing a clearance-based compliance system for real-time data sharing.
- The chosen solution should be compliant with the technical requirements outlined by the ZATCA.
- Banks’ systems should continuously handle ZATCA’s updates on laws and regulations with the least possible business disruption.
- Take assistance from the third-party solution provider familiar with the technology functioning in the financial service sector and who can help you understand the use of middleware and recommend an ideal solution for banks that can least affect their core banking.
- Invest in solutions that are overarching the core banking system, update itself for changing regulations, are agile and are mainly designed for the banking sector.
- The compliant e-invoice solution should be able to store and take backup of e-invoices and notes.
- The chosen system or vendor should ensure secured transactions and allow data encryption at all stages. The e-Invoices generated have to be securely shared and stored without compromising the integrity or authenticity of the electronic data.
- The system should have the ability to standardise the e-invoicing format for the entire bank.
- Banks have the option of in-house development versus the third-party software vendor. With the tight deadlines set for implementation, it is advised that banks go for trusted third-party software providers, preferably experienced in VAT implementation.
- The solution provider that banks choose should provide open APIs for authorisation, payments and accounts.
- The solution must be capable of identifying and sorting B2B, B2G and B2C transactions to accordingly comply with the clearance or reporting, as the case may be.
- Testing and continuous improvement: After choosing the best solution provider or partner, implementing the e-invoicing system must be done in stages. It involves testing in parts and the whole system, initially on a few branches of the banks, before being taken live on production for the entire bank. Further, as it is being implemented, it must undergo regular updates for the changes in law and compliance requirements announced by the ZATCA.
Banks can bring positive changes by leveraging the e-Invoicing Regulations to rationalise the working capital management in the financial supply chain. It will help them in cost optimisation for their customers.