Updated on: Apr 24th, 2023
17 min read
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.
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.
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.
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.
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.
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:
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:
|Type of Supply||Nature of Buyer||Invoice Value||Type of e-invoice to be issued|
|Taxable supplies||Taxable person||More than or equal to SAR 1000||Standard tax invoice|
|Taxable person||Less than SAR 1000||Standard or simplified tax invoice*|
|Non-taxable legal person^||More than or equal to SAR 1000||Standard tax invoice|
|Non-taxable legal person^||Less than SAR 1000||Standard or simplified tax invoice*|
|Zero-rated supplies||Taxable person||More than or equal to SAR 1000||Standard tax invoice|
|Taxable person||Less than SAR 1000||Standard or simplified tax invoice*|
|Non-taxable legal person||More than or equal to SAR 1000||Standard tax invoice|
|Non-taxable legal person||Less than SAR 1000||Standard or simplified tax invoice*|
|Export or Intra-GCC supplies||Any amount||Standard tax invoice|
|Nominal supplies||Any amount||Standard tax invoice|
|B2C transactions |
(Buyer details to be captured in case of private medical or educational services)
|Any amount||Simplified tax invoice|
|Exempt supplies||Any amount||NA|
|Supplies under Reverse Charge Mechanism (RCM)||Any amount||NA|
|Supplies outside the scope of VAT||Any amount||NA|
*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.
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.
The ZATCA is implementing e-invoicing in two phases:
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.
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 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.
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:
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.
The following are a few reasons for introducing e-invoicing or Fatoorah in KSA:
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.
The client has concerns such as:
The client has chosen ClearTax as a single solution provider for all its requirements. We provided the below:
Click here to know more about this case study.
The client has below concerns:
The client has chosen ClearTax as the preferred e-invoicing solution provider. We provided the below to the client:
Click here to get more details on this case study.
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:
Click here to explore ClearTax e-invoicing software.
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.
Yes, e-invoicing is applicable to export transactions.
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.
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.
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.
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.
Yes, the Saudi Arabia government introduced VAT effective from 1st January 2018.