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All About e-Invoicing in the Kingdom of Saudi Arabia (KSA)

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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 Saudi Arabia 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.

What is e-invoicing (Fatoorah) in Saudi Arabia?

The people of KSA refer to e-invoicing widely as Fatoorah, and e-invoicing software is called 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 of 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 ZATCA. 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.

Why is e-invoicing being introduced in KSA?

The Saudi government intends to phase out hand-written invoices and move towards a paperless digital environment. Accordingly, it rolled out e-invoicing in Saudi Arabia so businesses can work more efficiently and securely.

Under e-invoicing, businesses must integrate their systems with ZATCA to make trade more transparent. With this move, the government can standardise how invoices are reported to the system with a common, machine-readable format, as taxpayers shall push all transactions to the Fatoora portal.

Accordingly, ZATCA can easily detect fraudulent activities. Also, e-invoicing creates a common database for audits. Hence, tax authorities can track the transaction in real time and reduce the frequency of audits.

Who implements e-invoicing in Saudi Arabia?

The Zakat, Tax and Customs Authority (ZATCA) is the authority for e-invoicing in Saudi Arabia. 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 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 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. Also, ZATCA has released detailed guidelines on e-invoicing for smooth implementation.

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:

  • Standard 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 the 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.

Applicability of e-invoicing in Saudi Arabia

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 to 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 a complaint e-invoicing solution. ZATCA implemented this phase on 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 is rolled out in waves by the targeted taxpayer group. Phase 2 will begin on 1st January 2023. Accordingly, ZATCA notified that the VAT taxpayers with more than SAR 3 billion turnover in 2021 must implement phase 2 from 1st January 2023.

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.

What is the process flow of e-invoicing in KSA?

The process flow for generating an e-invoice in Saudi Arabia differs based on the type of invoice. With the phase 2 implementation date approaching, it is important to understand the process of generating electronic invoices.

Let’s go through them one by one.

Here’s the step-by-step process flow of standard tax invoices in phase II:

Here’s the step-by-step process flow of simplified tax invoices in phase II:

Benefits of e-invoicing for KSA

The following are a 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 data standardisation, seamless trade, speedy communication, faster payments and reduced costs.
  • The generation of invoices electronically will reduce the usage of paper invoices and is environmentally friendly.
  • e-Invoicing in Saudi Arabia allows the tax authorities to detect fake invoices or related malpractices and keep a check on the shadow economy.

FAQs

Is e-invoicing mandatory for export?

Yes, e-invoicing is applicable to export transactions.

What is API in e-invoicing?

API stands for Application Programme Interface. It facilitates the communication and exchange of data between taxpayers or e-invoicing solution providers and the ZATCA’s Fatoora portal.

Is there VAT in Saudi Arabia?

Yes, the Saudi Arabia government introduced VAT effective from 1st January 2018.

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  54. This article explains the mandatory technical functionalities for 1st phase of e-invoicing in KSA, such as format, structure, data processing, security etc.
  55. This article explains all about QR codes on e-invoices in KSA, including purpose, applicability, contents, and generation.
  56. This article explains the impact of e-invoicing on third-party billing in KSA, including how it works, requirements, liability and examples.
  57. All taxpayers must adopt ZATCA defined compliant e-invoice solution in KSA. This article includes types, examples and features.
  58. Phase 2 of e-invoicing starts on 1st January 2023 in KSA. This article explains the actions to be taken and how to prepare for e-invoicing in Saudi Arabia.
  59. This article explains the mandatory fields in e-invoices such as UUID, cryptographic stamp, identifier, invoice hash, QR code and invoice counter.
  60. This article explains all aspects of simplified e-invoices in KSA including, who is liable, how to issue, current vs proposed process, key fields etc.
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  62. The e-Invoicing solution should comply with KSA VAT Regulations. This article explains the key considerations while choosing an e-invoicing solution in KSA.
  63. This article explains the clearance of tax e-invoices and reporting of simplified e-invoices under Saudi Arabia e-invoicing.
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