The Kingdom of Saudi Arabia (KSA) started e-invoicing as one of the initiatives to move the economy towards digitalisation. The Zakat, Tax and Customs Authority (ZATCA) in the KSA implemented phase-1 of e-invoicing on 4th December 2021.
The first phase of the e-invoicing system applies to all resident taxpayers. It also covers the customers or third-party persons who issue a tax invoice on behalf of the resident taxable person. However, ZATCA excluded non-residents for VAT purposes from e-invoicing.
Also, ZATCA plans to implement phase 2 of e-invoicing in waves in Saudi Arabia. Accordingly, on 24th June 2022, it notified the businesses having turnover of more than SAR 3 billion in 2021 to implement phase 2 from 1st January 2023.
This article explains actions to be taken by the taxpayers and e-invoicing readiness steps.
Actions to be taken by the taxpayers
The following are the actions to be taken by taxpayers for phase 1 of Saudi e-invoicing:
- Avoid manual invoices: The e-Invoicing Regulations mandated to issue e-invoices from phase 1. Hence, the taxpayer should stop issuing handwritten invoices and invoices written using text editing tools.
- Adapt a compliant e-invoicing solution: The e-invoicing applicable taxpayer should adopt an e-invoicing solution that complies with the requirements and specifications mentioned in e-Invoicing Regulations. The e-invoicing solution should generate e-invoices with the mandatory fields with QR codes and timestamp the e-invoice copies archived in the solution. Also, the e-invoicing solution should not contain the following prohibited functionalities:
- Uncontrolled access
- Software time change
- Tampering with e-invoices or logs
- Multiple invoice sequences
- Mention additional fields in invoices: The taxpayer should mention the invoice type as a title in both standard and simplified tax invoices. However, the following additional details are to be mentioned mandatorily:
- In a standard tax invoice: the VAT registration number of the buyer if the buyer is a registered VAT taxpayer.
- In a simplified tax invoice: Mandatory QR code generated by the taxpayer’s e-invoicing solution.
In addition to the above, the taxpayers should take the following actions to comply with phase 2 of Saudi e-invoicing:
- Integrate the e-invoicing solution with the Fatoora portal.
- Ensure the e-invoicing solution complies with the e-invoicing requirements, including the ability to connect to the internet.
- Use a compliant invoicing solution that generates and stores e-invoices in XML or PDF/A3 with embedded XML format.
- Ensure all phase 2 required additional fields are fulfilled.
e-Invoicing readiness steps
The taxpayers are suggested to follow the below four steps to ensure timely readiness for e-invoicing:
- The taxpayers should understand the e-invoicing requirements and familiarise themselves with the e-invoicing process by reading the materials available on the ZATCA website or other reliable websites.
- Businesses should approach e-invoicing software providers or internal technical teams to adopt a solution compliant with e-Invoicing Regulations.
- The businesses should test their e-invoicing solution before 1st January 2023 to check the correctness of e-invoices and ensure smooth implementation of e-invoicing.
- Businesses should create awareness amongst employees who have to work around e-invoicing. Businesses should conduct workshops with employees at regular intervals to train them through the e-invoicing process.