All About e-Invoicing in Saudi Arabia

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 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. 

Types of e-invoices in Saudi Arabia

ZATCA clarified that e-invoices should be issued for all types of tax invoices under VAT. There are different types of e-invoices, and below are the frequently used 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.

Click here to know other types of e-invoices.

Further, ZATCA explained in the guidelines that the e-invoice to be issued varies based on the type of supply. Here’s the table explaining the type of e-invoice to be issued:

*In case of taxable supplies or zero-rated supplies to a taxable person or non-taxable legal person worth less than SAR 1000, seller can issue simplified tax invoices. However, if the respective buyer plans to claim input VAT deduction, he shall request the buyer to issue a standard tax invoice.

^Non-taxable legal person means a business establishment in KSA but not registered under VAT due to the threshold limit.

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 Saudi Arabia

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.

ZATCA e-invoicing guidelines in Saudi Arabia

ZATCA has implemented phase 1 e-invoicing from 4th December 2021 and announced two waves under phase 2 of ZATCA e-invoicing. Also, ZATCA issued e-invoicing guidelines to provide more understanding to taxpayers and smoothly implement e-invoicing in Saudi Arabia.

Click here to know more about ZATCA e-invoicing guidelines.

What is the process flow of e-invoicing in Saudi Arabia?

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:

e-Invoicing sandbox for testing before full integration with the fatoora portal

Businesses can test the e-invoicing system in a sandbox environment amid the integration phase to issue e-invoices from 1st January 2023. Click here to access the sandbox environment.

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.

ClearTax provides ZATCA-compliant e-invoicing software that easily integrates any ERP/POS and generates PDF/A3 e-invoices. ClearTax is trusted by over 4,000 enterprises across the globe; our prowess lies in ensuring 100% compliance, end-to-end integration and process optimisation.

Case studies

Case study 1: How is a leading retail giant in Saudi Arabia easily generating millions of ZATCA Phase II-compliant e-invoices with us?

The client has concerns such as:

• How to generate millions of invoices per month seamlessly?
• How can we ensure real-time response times and seamless integration to ZATCA?
• How will we connect hundreds of stores and all other systems with ZATCA? 
• We have multiple ERP/POS systems across B2B, E-commerce, and retail businesses. Can we get one solution which can work across all systems?

The client has chosen ClearTax as a single solution provider for all its requirements. We provided the below:

• Our solution ensured the generation of e-invoices in a fraction of a second for thousands of concurrent transactions per minute.
• We provided them with an e-invoicing solution to connect all their ERP/POS systems (both online and offline) with ZATCA.
• Our robust infrastructure ensured seamless performance during peak demand (in festive seasons) with 99.9% availability.
• Our solution provided connectors to generate required fields across all systems, like UUID, ICV, PIH, Cryptographic Stamp, XML, PDF A/3, etc.

Click here to know more about this case study.

Case study 2: How have we enabled a large Saudi Arabian conglomerate to generate over 200 million e-invoices annually?

The client has below concerns:

• Will e-invoicing result in any business process changes? 
• How will we connect hundreds of stores and all other systems with ZATCA? 
• How to integrate the retail stores in remote areas with limited internet connectivity with ZATCA?
• Can we get reports and dashboards in a single place?

The client has chosen ClearTax as the preferred e-invoicing solution provider. We provided the below to the client:

• We engaged with the conglomerate’s multiple ERP/ POS partners and vendors to enable a successful ZATCA integration.
• We designed an architecture with 10+ concurrent connections to ZATCA to report 600K invoices daily.
• We scaled up our cloud infrastructure to handle 100 TPS (transactions per second) to ensure 24-hour reporting SLA.
• ClearTax provided a hybrid solution where Phase 2 QR code and XML are generated inside the POS system (without an internet connection).
• ClearTax cloud platform provided dashboards and reports to view each invoice’s success/failure reporting status.

Click here to get more details on this case study.

How can ClearTax help you generate ZATCA-compliant e-invoices?

ClearTax APIs will act as middleware connecting the ERP/POS and ZATCA system, ensuring 100% e-invoicing compliance. It automatically registers hundreds of ERP/POS in a single click with ZATCA and receives a cryptographic stamp for each device.

It comes with below features:

• 150+ smart data validations to ensure invoice data is as per ZATCA regulations, therefore, generating error-free invoices.
• ClearTax generates UUID, invoice hash, invoice counter value, QR code & converts invoices into UBL 2.1 XML format.
• Our API automatically sends invoice data to the ClearTax cloud platform for conversion to ZATCA e-invoice.
• ClearTax adds Phase II QR code & certified XML into the existing invoice to generate the final PDF A/3 invoice.
• We provide e-invoice data archival for up to six years on SLA-based cloud servers.

Click here to explore ClearTax e-invoicing software.

FAQs

Who is liable to issue e-invoices in Saudi Arabia?

Businesses registered under KSA VAT selling goods or providing services and the third parties (who issue invoices on behalf of any taxable individuals) must issue the e-invoices.

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.

What is phase 2 of e-invoicing in Saudi Arabia?

In this phase, taxpayers must integrate their ERP/accounting/ POS systems with ZATCA’s Fatoora portal to report the B2B e-invoices in real-time and report B2C e-invoices within 24 hours of generation.

When will the second wave of the e-invoicing integration phase be announced?

ZATCA already announced that the businesses in KSA with more than SAR 500 million and less than SAR 3 billion turnover fall under wave 2 under phase 2. They must integrate with ZATCA’s Fatoora portal starting 1st July 2023.

What is the best e-invoicing solution for Saudi Arabia?

ClearTax cloud-based e-invoicing software is best for e-invoicing in Saudi Arabia. ClearTax provides ZATCA phase 2-compliant e-invoicing software that easily integrates and generates PDF/A3 e-invoices.

Is there VAT in Saudi Arabia?

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