Impact of Saudi e-Invoicing on VAT Return Filing

The Kingdom of Saudi Arabia (KSA) planned to implement e-invoicing in two phases. Accordingly, ZATCA, the tax authority, implemented the first and second phases, i.e., 4th December 2021 and 1st January 2023, respectively.

e-Invoicing has impacted many business processes; the significant impact is VAT return filing. Hence, businesses implementing e-invoicing must streamline their VAT return processes once they successfully implement e-invoicing.

This article explains the reasons for the differences between e-invoicing & VAT records and the need for a seamless VAT filing process.

Reasons for differences between e-invoicing and VAT records

Despite the successful implementation of e-invoicing, the VAT filing of a business might still be broken. This scenario can lead to differences between e-invoicing and VAT records in Saudi Arabia. Below are a few scenarios:

• Non-reporting to ZATCA: Invoices are posted in the ERP, accounting system, or central database but not sent for e-invoice creation.
• Missing invoices in ERP: e-Invoices are directly generated through the e-invoicing platform but not recorded in ERP.
• Failed e-invoices: Invoices were sent to ZATCA for e-invoice creation but were not generated due to errors
• Date differences: Different dates for the same transaction between sales/ GL record and e-invoice. It happens as e-invoices are issued after the sales are recorded in books. It is quite common for month-end sales transactions.
• Non-reporting of credit notes: Generated credit notes for cancelled transactions but never reported to ZATCA.

These differences can result in up to 30% deviations in VAT reported in returns compared to VAT reported through e-invoices. Further, these differences result in notices from ZATCA, and the businesses end up paying penalties for misreporting. Hence, they should streamline their VAT return filing with e-invoices records.

What is needed for a seamless VAT filing process?

The list below explains the requirements for a seamless VAT return filing process in Saudi Arabia

• Seamless integrations: This move ensures all sales transactions are reported to the e-invoicing solution provider for ZATCA reporting.
• Frequent reconciliations: Run periodic reconciliations on large amounts of data from multiple sources to identify mismatches between the sales records and e-invoices.
• Categorisation of differences: Set up acceptable deviations in VAT filing and categorise mismates such as perfect match, partial match, and no match.
• Easy identification of mismatches: Set up alerting mechanisms to highlight actions corresponding to mismatches in the ERP or e-invoicing solution.
• Service Level Agreements (SLAs): Set up SLAs and governance on completion of actions from recon and monitor acceptable deviations in final VAT filing.

Hence, it is recommended for businesses to opt for a smart e-invoicing solution that can help with reconciliations to ensure accurate VAT reporting.