Zakat, Tax and Customs Authority (ZATCA) issued the final electronic invoicing (e-invoicing) regulations in Arabic on 4 December 2020, setting out that it will be mandatory for resident taxpayers to be fully equipped to issue, save, and modify e-invoices moving forward.
It is important to note that the e-invoicing regulations will attract all the provisions related to a tax invoice in the VAT legislation, and any non-compliance will result in penalties from ZATCA.
To ensure that your company is equipped and well-informed about e-invoicing in the Kingdom, our team has compiled a guide that discusses the following:
E-invoicing is the process of generating invoices in a digital format, so you can issue and store them electronically. ZATCA in KSA has rolled out regulations mandating businesses to adopt an e-invoicing process in two phases, from December 4, 2021.
For KSA VAT taxpayers, e-invoices will resemble the VAT invoices that are generally issued but will be generated through an online system. Note that a paper invoice that is copied or scanned is not considered an e-invoice.
Once issued, an e-invoice cannot be edited. However, you can issue electronic notes (debit and credit notes that are VAT-compliant and issued through an electronic system). These should be issued with reference to the original invoice that was issued. All your invoicing and note-issuing transactions will have to be done through the same e-invoicing system and must be compliant with ZATCA’s regulations. This standardizes the way transactions are made, ensuring that everything is done uniformly, and information is stored securely.
You will have to issue e-invoices for sales made within the country, exports made from KSA to other countries, and goods and services for which you have received advanced payments.
These regulations are being rolled out so that businesses can work more efficiently and securely. The goal of this move is to integrate your business data with the ZATCA system to increase transparency in transactions undertaken by businesses and improve the level of efficiency by companies and government departments situated in the Kingdom.
Other benefits of e-invoicing for taxpayers:
E-invoicing will be applicable to all taxable individuals residing in Saudi Arabia. These taxable residents refer to any of the following legal individuals:
Businesses issuing invoices on behalf of a third party will fall under the scope of e-invoicing. Processes for e-invoicing will apply to all VAT-taxable goods and services whether at a standard rate or at zero rate. It is also important to note that e-invoices are required to be issued in Arabic. Your company is permitted to issue invoices in other languages provided that the Arabic e-invoice requirement is fulfilled.
From December 4, 2021, a taxpayer in Saudi Arabia was mandated to issue and store e-invoices and electronic notes instead of physical invoices, credit, and debit notes.
This required a taxpayer in KSA to start using an e-invoicing system that has internet connectivity and is compliant with ZATCA. The e-invoicing system can be an online cash register, e-invoicing software installed on your computer, or a cloud-based e-invoicing solution.
All elements and mandatory fields of the tax invoice must be included while issuing an e-invoice, such as the seller’s name and VAT registration number, the time the invoice is being issued, the VAT total, and the overall value of the invoice inclusive of VAT.
Since January 1, 2023, this phase was implemented in different stages for targeted taxpayer groups. It is now required to integrate your e-invoicing solution with ZATCA’s system to send the e-invoices generated to the portal for verification and validation.
This phase also have more technical requirements, so it is best to have a system that has built-in compliance with ZATCA’s guidelines. Your system must be able to connect to external systems with Application Programming Interfaces (APIs), and generate a Universally Unique Identifier (UUID), a digital signature, a sequential number that differentiates each e-invoice, and a cryptographic stamp.
The ‘first wave’ of Phase 2 is applicable for those businesses with revenues exceeding SAR 3 billion (USD 800 million). The second wave of the project includes all VAT-registered taxpayers having revenues exceeding SAR 500 million (USD 133 million) in 2021. These taxpayers are required to integrate their e-invoicing solution into the Fatoora portal by 1 July 2023.
|1||4 December 2020||Businesses required to store their invoices electronically.|
|2||1 January 2023||Businesses need to integrate their systems of invoicing with Zakat, Tax and Customs Authority (ZAKAT) and should upload their invoices on the portal.|
An electronic invoice is issued for most B2B and B2G transactions. This type of document is used for claiming input VAT deduction by consumers. Standard e-invoices are shared by the companies with the consumers in an agreed format. The standard e-invoice is then issued to the buyers after being cryptographically stamped and cleared by ZATCA in the future (integration with the ZATCA portal is applicable after the implementation of the integration phase starting from January 2023).
Standard electronic invoices contain fields as per VAT legislation which include information about the seller and buyer, transactions, details of products/services, and other technical fields that are to be generated by the electronic invoicing solution.
Simplified electronic invoices are designed for most B2C transactions that are instant and do not require the buyer to use the invoice for input VAT deduction.
During the generation phase, it is sufficient for individuals that are subject to the e-invoicing regulation to share the simplified invoices with customers and require no further action afterward. In the integration phase, simplified e-invoices need to be reported to the authority within 24 hours of issuance.
The credit/debit note types follow the type of invoice that they are issued for e.g., a standard electronic note is issued for a standard e-invoice and a simplified electronic note is issued for a simplified e-invoice.
In phase 1, all you will have to do is share the simplified e-invoices with your customers. However, in phase 2, these invoices will have to be reported to ZATCA within 24 hours of issuing them.
Find below the breakdown of the transaction type and the type of e-invoice needed to be issued respectively:
|Transaction type||Type of e-invoice to be issued|
|Taxable supplies valued at SAR 1,000 or more (issued to a taxable person or non-taxable legal person)||Standard e-invoice|
|Taxable supplies, excluding exports, valued at less than SAR 1,000 (issued to a taxable person or non-taxable legal person)||Both (Standard e-invoice or Simplified e-invoice)|
|Taxable supplies (excluding exports) issued to a non-taxable person||Simplified e-invoice|
|Zero-rated supplies valued at SAR 1,000 or more (issued to a taxable person or non-taxable legal person)||Standard e-invoice|
|Export of goods||Standard e-invoice|
|Intra-GCC supplies||Standard e-invoice|
|Nominal supplies (not presented to a customer, but kept for audit purposes)||Standard e-invoice|
Penalties for non-compliance are determined by the type of offense and the number of times it is committed. As a result, initial offenses are more likely to be treated leniently, whereas recurring offenses will be subject to harsher sanctions. Penalties for non-compliance are listed below.
NATURE OF NON-COMPLIANCE
|Non-issuance of e-invoicing or non-archiving.||From SAR 5-50k|
|Amendment or cancellation of already generated e-invoice other than e-note.||From SAR 10-50k|
|Absence of QR code in the simplified invoice.||Warning from ZATCA|
|Not informing ZATCA on system-related issues which prevent the taxpayer from issuing an e-invoice.||Warning from ZATCA|
|Absence of buyer VAT registration number on e-invoice (B2B).||Warning from ZATCA|
If ZATCA inspectors discover a violation during a field visit in your company, a warning will be issued before facing any penalties. ZATCA aims to raise awareness instead of penalising companies for their first infringement. Your business will then have three months to comply with the law and make any required changes to your systems.
If noncompliance persists after the initial inspection, you will be subject to a penalty of SAR 1,000. In such cases that your company fails to comply with the requirements and does not make the necessary modifications within three months of receiving the notice, the penalty fee will gradually increase.
Below are the guidelines that your company needs to be aware of to ensure your organisation is prepared for e-invoicing in Saudi Arabia:
E-invoicing is quite like the usual invoicing process. It is the same process but conducted in a more efficient and secure manner.
Here is what you are required to do for each transaction:
As a good practice, it is suggested that your company design a system that follows ZATCA’s recommendations from the onset, ensuring all technical requirements are met for future integration. Creation Business Consultants liaise with government departments to get the most up-to-date laws and government procedures. Should you require assistance with guaranteeing that your business is compliant with e-invoicing processes, contact our Corporate Structuring Department on [email protected] or call Saudi Arabia +966 54 995 2676 UAE +971 4 878 6240.