E-invoicing is the process in which your business will issue invoices in a digital format and store them electronically. In Saudi Arabia, The General Authority of Zakat and Tax (GAZT) issued the regulations for mandatory e-invoicing on 4 December 2020. 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:
- Reasons for the introduction of e-invoicing in Saudi Arabia
- Which businesses does e-invoicing apply to?
- Timelines for businesses to comply with e-invoicing procedures
- Requirements for e-invoicing
- Fines and penalties for non-compliance for e-invoicing
- Guidelines of e-invoicing compliance
WHY WAS E-INVOICING INTRODUCED TO SAUDI ARABIA?
Saudi Arabia introduced e-invoicing to facilitate an increase of transparency in transactions undertaken by businesses and improve the level of efficiency by companies and government departments situated in the Kingdom.
WHICH BUSINESSES DOES E-INVOICING APPLY TO?
E-invoicing will be applicable to all taxable individuals residing in Saudi Arabia. These taxable residents refer to any of the following legal individuals:
- Those who trade either within or outside of Saudi Arabia
- Entities registered for VAT in Saudi Arabia or are required to be registered for VAT in Saudi Arabia
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 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.
TIMELINE OF IMPLEMENTATION FOR E-INVOICING
The timeline for businesses to comply with e-invoicing procedures is introduced via two phases.
|1||4 December 2020||Businesses are 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 will be required to upload their invoices on the portal.|
REQUIREMENTS FOR E-INVOICING
The two types of invoices can be issued by your business are as follows:
ELECTRONIC INVOICE (STANDARD INVOICE)
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 to 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 legislations which include information of the seller and buyer, transaction, details of products/services, and other technical fields that are to be generated by the electronic invoicing solution.
SIMPLIFIED ELECTRONIC INVOICE
Simplified electronic invoices are designed for most B2C transactions that are instant and does 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 afterwards. 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.
E-INVOICING PENALTIES FOR NON-COMPLIANCE
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 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 penalizing 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.
Fines for each additional repetition time will be as follows:
- 5,000 SAR for the third time
- 10,000 SAR for the fourth time
- 40,000 SAR for the fifth time
- If the same violation is repeated 12 months after its discovery, it is considered a new violation. The process will begin again starting with a warning without a fine
GUIDELINES FOR E-INVOICING COMPLIANCE
Below are the guidelines that your company needs to be aware of to ensure your organization is prepared for e-invoicing in Saudi Arabia:
- Businesses should ensure integration of their e-invoicing system to ZATCA portal to be notified 6 months in advance before it affects their business.
- Businesses must ensure system can be securely connected through Application Programming Interface (API) and create a Universally Unique Identifier (UUID) and a digital signature.
- E-invoicing system should also be able to distinguish between an electronic invoice, a hash, and a cryptographic stamp with a sequential number and anti-tampering capabilities. It is important to note that these features are not required in phase 1 but must all be present in phase 2.
As a good practice, it is suggested for your company to design a system that follows ZATCA’s recommendations from the onset, ensuring all technical requirements are met for future integration. Creation Business Consultants liaises 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 team on firstname.lastname@example.org or call Saudi Arabia – +966 56 865 2329 United Arab Emirates – +971 4 878 6240.