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Impact of ZATCA e-Invoicing on Saudi Arabia Businesses

Updated on: Sep 14th, 2023

4 min read

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The Kingdom of Saudi Arabia (KSA) implemented phase-1 of e-invoicing through Zakat, Tax and Customs Authority (ZATCA) on 4th December 2021. Phase 1 of the e-invoicing applies to all resident taxpayers except non-residents (for VAT purposes).

Also, ZATCA plans to implement phase 2 of e-invoicing in waves in Saudi Arabia. Accordingly, it notified that businesses having more than SAR 3 billion in 2021 shall integrate with Fatoora portal starting from 1st January 2023. Also, ZATCA announced below waves under phase 2 till now:

This article explains the impact of e-invoicing on business and how it creates opportunities for taxpayers.

Impact of e-invoicing on the invoicing process

e-Invoicing (Fatoorah) in Saudi Arabia will greatly impact how the invoices are documented, stored and delivered to the buyers/recipients. The below table shows the major differences between manual invoice and e-invoice flows.

S No	Manual Invoice Flow	e-Invoice (Fatoorah) Flow
1	The invoice needs to be prepared manually, and the entire invoice handling flow is manual.	The invoice needs to be prepared using a compliant e-invoicing solution; however, businesses can automate their entire invoice flow using e-invoices.
2	It involves tedious work.	It leads to faster cycle time.
3	Material and delivery costs are involved in the manual invoicing process.	Material costs can be saved with e-invoices, and they involve zero delivery costs. Also, e-invoices have a low environmental impact compared to manual invoices.
4	Delivery of manual invoices is slow and untraceable.	e-Invoices can be delivered within seconds and are traceable. Also, it leads to faster communication control.
5	Manual invoices can be error-prone.	e-Invoices are error-free as the issuer need to validate them mandatorily before sharing them with the buyer/recipient.
6	Manual invoices require manual validation.	ZATCA validates e-invoices at the initial stage. Hence, no need for manual validation. Also, e-invoicing leads to increased financial control.

The research shows that the amount spent on e-invoices will be reduced by more than 70% compared to manual invoices. Also, businesses have to spend only 10% of manual invoice processing time after implementing e-invoicing.

How will e-invoicing affect tax reporting in KSA?

In the present tax reporting structure, taxpayers ‘e-file’ the returns using a standardised electronic form for filing Value Added Tax (VAT) returns. Also, they abide by the ‘e-contract’ in which they use a standardised electronic format to upload data on the ZATCA portal.

However, e-invoicing brings a paradigm shift to the tax reporting structure, and data becomes disruptive. Using an e-invoicing mechanism leads to ‘e-match’ where ZATCA can match data across tax types, taxpayers and jurisdictions in real time.

Also, with ‘e-audit’, ZATCA can analyse and cross-check the data submitted in tax returns in real-time and issue the electronic audit assessments to taxpayers specifying a time limit to respond. Further, ZATCA can use the ‘e-assess’ function to assess the tax liability without even submitting the tax forms and provide a specific time limit for taxpayers to check the tax calculated by the government.

Below are the benefits of e-invoicing on tax reporting: