Mandatory Technical Functionalities for 1st Phase of e-Invoicing in KSA

The first phase of the e-invoicing system begins on 4th December 2021, covering all the resident taxpayers. These taxpayers need to perform the generation, processing and storing of e-invoices and related Credit and Debit Notes (CDNs) by the e-invoicing regulations in the Kingdom of Saudi Arabia (KSA).

Also, Zakat, Tax and Customs Authority (ZATCA), the tax authority in KSA, announced that phase 2 (integration phase) would be rolled out in waves beginning on 1st January 2023. Accordingly, ZATCA notified targeted groups/ waves under phase 2 of Saudi e-invoicing as follows:

1. Wave 1 under phase 2: VAT-registered businesses in KSA having more than SAR 3 billion in 2021 fall under wave 1 shall begin integration from 1st January 2023.
2. Wave 2 under phase 2: Businesses registered under KSA VAT, whose turnover is more than SAR 500 million in 2021, shall start integration from 1st July 2023.

As per the recent guidelines by the ZATCA, there are certain mandatory technical requirements that the e-invoicing solution should be compliant with, which are:

Types of invoices and notes

The solution should have the ability to generate the tax invoice and the related CDN as per Article 53(5) of VAT Implementing Regulation. Also, it should be able to generate simplified tax invoices and related CDNs as per Article 53(8) of VAT Implementing Regulation.

Invoice and credit/debit note format

There is no requirement to follow a specific format as long as the required data are present in the invoices and related CDNs.

Invoice and credit/debit note structure

The fields to be included within each electronic invoice type are represented by three levels of obligation. These obligations are:

1. Mandatory: These are to be necessarily included in the electronic invoice and related CDN with its details at all times.
2. Conditional: These are to be included in the electronic invoice and related CDN if certain conditions are satisfied and can be excluded if those conditions are not present. The e-invoices and related CDNs need to comply with the business rules assigned to the conditional fields.
3. Optional: These are not obligatory to be included within the electronic invoice and related CDN. However, it needs to be available in the e-invoice generating solution to give the taxpayer an option to fill them.

Thus, the e-invoices and their related CDNs need to contain the fields mentioned above. Apart from these, it must be ensured that e-invoices and related CDNs are timestamped. 

Data Processing & Security

1. The compliant e-invoice solution should contain functionalities that enable the taxpayer to save/export electronic invoices and related CDN to offline local archival without an internet connection.
2. For simplified tax invoices and related CDNs, the compliant e-invoicing solution must be tamper-resistant. It should also include a mechanism that reveals any tampering attempts that the user or any third party might make. 

Data Storage

The e-invoicing software in Saudi Arabia should have the ability to export generated invoices and related CDNs into an external archival system to enable the taxpayers to comply with storage requirements. Such exported files should be with names which consist of:

• VAT registration number 
• e-Invoice and related CDN issuance date 
• e-Invoice and related CDN issuance time 
• e-Invoice and related CDN reference number (IRN)

QR Code

QR code is a form of Matrix barcode. It has a pattern of black and white squares, which is machine-readable. QR code facilitates the basic validation of e-invoices and related CDNs. It needs to be present in the human-readable format in each invoice to enable their validation. Also, this is one of the mandatory fields in the case of simplified e-invoices. The printed QR code on the simplified e-invoice must contain:

• Seller’s name
• Value Added Tax (VAT) registration number of the seller
• Timestamp of the invoice or related CDN
• Invoice or CDN total including VAT
• VAT total

The ZATCA may prescribe further technical requirements for the mandatory e-invoices and related CDNs. However, as of now, the e-invoices and e-invoicing solutions need to comply with the above requirements.