Updated on: Apr 6th, 2023
4 min read
Zakat, Tax and Customs Authority (ZATCA) is the Value Added Tax (VAT) and e-invoicing implementing authority in Saudi Arabia (SA). It started implementing phase 1 of e-invoicing on 4th December 2021 and announced that phase 2 of e-invoicing will begin from 1st January 2023. Also, ZATCA clarified that it divides the taxpayers into targeted taxpayer groups and notifies them six months before their wave.
Accordingly, ZATCA announced on 24th June 2022 that the first targeted taxpayer group includes taxpayers whose revenue exceeded 3 billion SAR during the calendar year 2021. Hence, if you fall under the first targeted taxpayer group, you shall start integrating ERP/accounting system and get ready for e-invoicing by 1st January 2023.
However, few transactions are exempted under SA e-invoicing. This article lists the transactions for which you don’t have to generate e-invoices or related Credit Debit Notes (CDNs).
You don’t have to generate e-invoices or related CDNs for the domestic supply of goods or services, such as qualifying financial services or renting residential properties are exempt from VAT under KSA VAT Law and Implementing Regulations.
Suppose the United Company of Arabia sold a life insurance policy to Mohammad. The company don’t have to generate an e-invoice for this transaction as the life insurance services are exempt from VAT.
ZATCA exempted the below transactions from SA e-invoicing:
Suppose Fahd, in March 2022, rented an apartment from XYZ Real Estate Company and paid the advance rent for the first six months. In this transaction, XYZ company is not required to issue an e-invoice for the amount received as the rent on residential property is exempted from VAT.
Under SA VAT, a taxable person receiving the supply of services in KSA from a non-resident supplier must charge VAT under the Reverse Charge Mechanism (RCM). In this case, the non-resident supplier will not generate the e-invoice or related CDNs for the services provided to the resident taxable persons.
Also, the authority does not require the recipient (resident taxable person) to generate an e-invoice to record the supply under the RCM. However, the recipient shall retain the appropriate evidence of these transactions and report them while filing the VAT returns.
For example, Abdullah Consulting Services (ACS) LLC is established in Jordan and has no fixed establishment in KSA. Hence, it is a non-resident in KSA for VAT purposes. ACS LLC provides consulting services to businesses registered under VAT and individuals not registered under VAT but are residents in KSA.
Accordingly, it provided consulting services to Al Ahmed Group, taxpayer residents in the KSA. However, in this case, neither ACS LLC nor Al Ahmed Group needs to issue the e-invoice for the transaction.
You have to pay the VAT on the import of goods as Customs under the Customs clearance process. Also, there is no separate supply of the goods in KSA as the goods are transported from a foreign country. In these cases, the supplier or the importer need not generate e-invoices or related CDNs import transactions.
Suppose Al Zamil LLC, a steel factory in Makkah and imports materials from a supplier established in Germany. It is to be noted that the invoice given by the Egyptian supplier does not qualify as an e-invoice from a KSA perspective.
However, an e-invoice is not required as Al Zamil LLC imports the goods, and the German supplier does not make a supply of the goods within the KSA. Also, Al Zamil LLC can use the information from Customs to avail VAT paid on imports as the input deduction.