In recent years, the Kingdom of Saudi Arabia (KSA) has witnessed a significant digital transformation across various sectors. One area that has experienced remarkable progress is KSA e-invoicing or e-invoicing. E-invoicing refers to the process of generating, transmitting, and archiving invoices electronically, eliminating the need for traditional paper-based invoicing systems.
The adoption of e-invoicing in Saudi Arabia aims to streamline business processes, enhance efficiency, reduce costs, and improve tax compliance. This article serves as a comprehensive guide to understanding e-invoicing VAT in Saudi Arabia.
What is E-invoicing in Saudi Arabia?
Electronic invoicing is a system that tries to transform the issuance of paper invoices as well as credit and debit notes into an electronic process that allows the buyer and seller to exchange and process invoices, credit and debit notes in a structured electronic format.
The e-invoicing is aimed to regulate VAT invoice submission in a more accurate and clear format that is more similar to the UAE's VAT invoice in UAE. It ensures that businesses generate VAT-compliant invoices, reducing the risk of errors and omissions in VAT reporting. By simplifying VAT compliance, e-invoicing allows businesses to focus more on their core operations and reduce the administrative burden associated with tax compliance.
Organizations are required to integrate their systems with ZATCA under e-invoicing in order to increase trade transparency. As taxpayers are required to push every purchase to the Fatoora portal, government agencies may regulate how invoices are submitted to the platform with this action using a common, machine-readable format.
Why e-invoicing in Saudi Arabia?
The adoption of e-invoicing in Saudi Arabia is driven by several compelling reasons. Firstly, the General Authority for Zakat and Tax (GAZT) has recognized the potential of e-invoicing as a key tool in modernizing tax administration and combating tax evasion.
By shifting from traditional paper-based invoicing systems to electronic invoicing, the GAZT aims to establish a transparent and efficient tax ecosystem. E-invoicing enables accurate reporting of transactions, enhances tax compliance, and facilitates timely payment of taxes.
Secondly, e-invoicing simplifies the process of Value Added Tax compliance for businesses in Saudi Arabia. With the implementation of VAT in the country, businesses are required to accurately calculate and report their VAT liabilities. E-invoicing automates this process by providing a standardized format for invoices and integrating directly with the GAZT's system.
ZATCA can therefore quickly identify fraudulent activities. E-invoicing also produces a shared database for audits. It is an electronic invoice that has been issued, saved, and generated by a computer system.
Key Features and Benefits of E-invoicing
Electronic invoicing provides various advantages for both individuals subject to E-Invoicing Regulations and the national economy, which include, but are not limited to,
- Increases tax compliance by improving business transaction verification
- Lowers the cost of the invoicing process
- Improves supply chain digitization
- Reduces transactions in the shadow economy
- Helps with accounting and bookkeeping
- Improves the customer experience by digitizing the consumer-supplier connection
- Prevents human mistakes in the invoicing process
- Reduces commercial deception by raising invoicing monitoring and data preservation regulations.
- Improves the business environment by enhancing fair competition and consumer protection through the implementation of a single mechanism for approving and auditing invoices.
E-invoicing Phases in Saudi Arabia
The following stages of e-invoicing are described in the Saudi Arabian Detailed Guidelines for E-Invoicing:
- Registration Phase: Taxpayers have to register with ZATCA during the registration phase in order to receive an E-Invoicing Registration Number (ERN). Additionally, taxpayers must make sure that their e-invoicing solution complies with ZATCA's technical specifications.
- Testing Phase: Taxpayers have to evaluate their e-invoicing solution during this phase to make sure it complies with ZATCA's technical specifications. ZATCA must be provided with a sample invoice from the taxpayer for testing and authorization.
- Integration Phase: During this phase, taxpayers have to link their e-invoicing solution to their ERP or accounting software. Additionally, taxpayers have a responsibility to make sure that their e-invoices are generated, saved, and adhere to all technical specifications established by ZATCA.
- The implementation phase: Taxpayers can then begin delivering their clients' e-invoices for transactions of products and services that are tax deductible. Before making them available to the consumers and such Electronic Invoices must be regarded to be valid and legal. Taxpayers are responsible for ensuring that the Authority has approved each Tax Invoice generated electronically.
- Phase of Compliance Monitoring: During this phase, ZATCA may carry out compliance audits to make sure taxpayers are adhering to the e-invoicing specifications. During these audits, taxpayers must cooperate with ZATCA and supply all required data and paperwork.
Phase 2 Integration Timeline of E-Invoicing
ZATCA posted the announcement of the Integration Phase portal on June 24, 2022, which stated that it will be implemented in stages. Businesses that fall under the first phase and had taxable sales of more than SAR3 billion in 2021 are subject to the Phase 2 e-invoicing prerequisites from January 1, 2023, to June 30, 2023. The table indicates the Phase2 timeline for 4 Waves for such case,
| Integration Waves | Tax Payer’s Annual Income Range | Integration Period |
|---|---|---|
| Wave 1 | Above 3Bn in 2021 | 1Jan – 30 Jun 2023 |
| Wave 2 | Above 0.5Bn in 2021 | 1Jul – 31 Dec 2023 |
| Wave 3 | Above 250M in 2021 or 2022 | 1Oct 2023 – 31Jan 2024 |
| Wave 4 | Above 150M in 2021 or 2022 | 1Nov 2023 – 29Feb 2024 |
The Phase 2 Regulations, which outline the functional and technical specifications for the Saudi Arabian e-invoicing structure, have been finalized. Taxpayers have to cooperate with ZATCA's system which is Fatoora Portal and adhere to Phase 2's technical and business standards for electronic bills and e-invoice solutions at this stage.
Until now, Phase 2 has been carried out by selected taxpayers in waves beginning on January 1, 2023. Phase 2 includes the development and storing of e-invoices in the format needed i.e, XML or PDF/A3 with embedded XML, the addition of new technical specifications that e-invoicing solutions must meet, and the incorporation of taxpayer e-invoicing ways with ZATCA's systems.
Who is Subject to E-invoicing in Saudi Arabia?
All residing taxpayers that issue invoices for tax-deductible purchases of goods and services are required to use e-invoicing, per the Detailed Guidelines for E-Invoicing in Saudi Arabia. This applies to both taxpayers who have registered for VAT or must sign up for it in addition to taxpayers who are exempt from registration requirements but have a yearly income of at least SAR 1 million.
There are a few exemptions to this law, like taxpayers who generate invoices manually or use technology that doesn't adhere to ZATCA's technical specifications.
Types of E-invoicing in Saudi Arabia
There are various types of E-invoices in KSA. They are as follows:
Tax Invoice
In order for consumers to be eligible for a claim VAT deduction under the VAT Implementing Regulations, both Businesses to Government (B2G) as well as Business to Business (B2B) transactions need to include a standard e-invoice. These invoices should be presented by vendors in a manner that is officially authorized by the government.
Standard invoices cannot be issued beginning in January 2023 until they have been validated and signed by the Fatoora portal as part of its association via the ZATCA portal. VAT legislation asks for information like seller or buyer details, transaction information, and technical information, which must be included in all standard e-invoices.
Simplified Tax Invoice
In KSA, a simplified tax invoice is prepared and kept in a structured electronic format and is often issued for a B2C (business to consumer) transaction. It does not typically include the buyer's information. Simplified Tax Invoices may also be produced for business-to-business transactions if the supply value is less than SAR 1,000.
In making a simplified tax invoice, the customer does not require an invoice for VAT deduction purposes using simplified e-invoices. The information listed in Article 53(8) of the VAT Implementing Regulations and e-Invoicing Resolution should be included in the e-invoice for Business to Customer B2C transactions.
Customers should receive a streamlined e-invoice at the moment of sale, and an extra copy of the invoice must be stored and kept on file. Taxpayers are only required to provide an electronic invoice in the first phase. But taxpayers must report the streamlined e-invoice in the second phase on the ZATCA portal within 24 hours of its issuance.
What is the E-invoice Format in Saudi Arabia?
According to Saudi Arabia's Detailed Guidelines for E-Invoicing, electronic invoices must be created and saved in the appropriate format, such as either XML or PDF/A3 with embedded XML. The XML format has to conform to the ZATCA's technical requirements, which include using certain tags and elements.
An ingrained XML file with all the invoice data organized in a structured manner must be included in the PDF/A3 format. Taxpayers must guarantee that their e-invoicing solutions produce invoices in the proper format and adhere to all technical specifications established by ZATCA.
Note: The invoices must be written in Arabic. You may choose to translate them or add another language, but the e-invoice must be sent in Arabic.
Here is what the format of the standard tax invoice and a simplified tax invoice in KSA looks like,
Tax Invoice Format in KSA
Simplified Tax Invoice Format in Saudi Arabia
Clearance and Reporting of E-Invoicing
Each tax invoice produced digitally must be approved by the Authority in accordance with the Detailed Guidelines for E-Invoicing in Saudi Arabia in order to be shared with customers in order to be considered a legitimate and legal document. Clearance is an actual time transactions integration model for tax invoices, in which the taxpayer gives the electronic invoice right away to the customer after integration.
After being verified in a number of different categories with varying degrees, tax invoices are subsequently sent back to the taxpayer to be passed on to the buyer after receiving a stamp from the authority. All Tax Invoices, along with any related credit or debit notes, are subject to clearance.
E-invoicing Compliance Audit in Saudi Arabia
According to the Detailed Guidelines for E-Invoicing in Saudi Arabia, ZATCA may carry out compliance audits to make sure taxpayers are adhering to the rules regarding e-invoicing. These audits might examine the taxpayer's electronic billing system, record-keeping systems of data and retention procedures, and other pertinent documents.
During these audits, taxpayers must collaborate with ZATCA and supply all required data and paperwork. If you do not follow the e-invoicing guidelines or work together with ZATCA during an audit, they risk fines or other legal repercussions.
Prepare Tax (VAT) E-invoice in KSA
With years of experience under our belt in providing excellent Auditing and Documentation services, BMS Auditing guarantees only the most precise services to prepare your VAT E-invoice in compliance with the KSA’s legal regulations.
Our VAT consultants in Saudi Arabia are here to offer the most reliable VAT Services in KSA which includes VAT Registration, VAT Return Filing, VAT Health Check and more. We also offer expert advice and implementation of your E-invoice in the ZATCA portal and make sure you don’t miss out on providing any important documents and getting tax reductions.
What are you waiting for? Call us right away for any queries.
FAQs (Frequently Asked Questions)
1. Is e-invoicing a requirement in Saudi Arabia for all companies?
Yes, businesses in Saudi Arabia that meet the GAZT's (General Authority for Zakat and Tax) threshold must use electronic invoicing. This limit is established using the company's yearly turnover.
2. How do I pick a Saudi Arabian-certified e-invoicing solution provider?
On its official website, the GAZT publishes a list of certified vendors of e-invoicing solutions. To find providers who satisfy the GAZT's requirements, you can look through this list. To make an informed decision, take into account comparing their capabilities, features, compatibility, customer feedback, pricing, customer support, and integration capabilities with your current systems.
3. What are the main advantages of e-invoicing in Saudi Arabia?
Using e-invoicing has a number of advantages. By getting rid of manual procedures, it increases efficiency by lowering information-invoice error rates and making VAT compliance easier. E-invoicing streamlines payment cycles, improves cash flow management, reduces operational costs by doing away with paper, printing, and postage, and encourages environmental sustainability. It also automates reporting to the GAZT's system.
4. Do I have to register with the GAZT in Saudi Arabia before I use e-invoicing?
Yes, in order to use e-invoicing in Saudi Arabia, businesses must first register with the GAZT and obtain a legitimate tax identification number. This registration procedure guarantees adherence to GAZT rules and permits companies to take part in the electronic tax ecosystem.
5. What conditions must be met in Saudi Arabia before e-invoices can be archived?
Guidelines for the electronic archiving of e-invoices in Saudi Arabia are provided by the GAZT. E-invoices must be kept on file for at least five years. To protect the original content and avoid unauthorized modifications, they should be kept in formats that are acceptable, such as PDFs. In order to ensure the long-term preservation and accessibility of e-invoices for audits and legal requirements, it is crucial to maintain an organized and secure system for archiving them.
