A brief explanation of e-Invoicing in Saudi Arabia (KSA):
The Kingdom of Saudi Arabia (KSA) has been focusing on several initiatives for the digitalization of its economy. The Zakat, Tax and Customs Authority (ZATCA), which merged with the GAZT, proposed a draft amendment on 17th September 2020 The draft covered several aspects of e-invoicing.
KSA E-Invoicing (Fatoorah):
Fatoorah is the Saudi term for electronic invoices. An e-Invoice is a method of converting paper invoices into electronic ones. Electronic solutions allow buyers and sellers to exchange invoices, credit notes, and debit notes electronically in a structured format.
A tax invoice is subject to all Value Added Tax (VAT) legislation, and any non-compliance may result in penalties. Furthermore, electronic invoices and electronic notes issued under KSA’s Electronic Transaction Law are subject to electronic signature and proof requirements.
KSA E-Invoicing authority:
ZATCA is responsible for regulating e-invoicing in KSA. GAZT, now known as ZATCA, released the KSA regulations on electronic invoicing in March 2021. In the e-Invoicing Regulations, the authority invited public and stakeholder feedback on or before April 17th, 2021. As a result, May 28th, 2021 marked the official publication of the e-Invoicing Regulations.
Under the regulations, all taxpayers should have full capability to issue, save, and modify electronic invoices by 4th December 2021. The regulations set out the terms, conditions, and requirements for electronic invoices and electronic credit notes.
How do e-invoices work in Saudi Arabia?
The electronic invoice is generated by an electronic system and contains the tax invoice, simplified tax invoice, and respective Credit & Debit Notes (CDNs). E-invoices do not include printed or scanned handwritten invoices. Tax invoices are of two types:
- Tax invoices are invoices from one company to another (B2B) that show both the seller’s and the buyer’s VAT numbers.
- B2C companies distribute simplified tax invoices, which contain the key elements of a tax invoice.
- It is imperative to issue e-invoices in Arabic. However, other languages can be added as well.
NOTE: It is important to implement the best e-invoicing software Saudi Arabia, to get compliant with the requirements of both phases.
Who must issue a KSA e-invoice?
KSA VAT registered entities, customers, and third parties issuing invoices on behalf of taxable individuals must use electronic invoices. E-invoices follow the same VAT rules as tax invoices, credit notes, and debit notes. VAT, however, does not apply to non-resident taxpayers.
KSA’s e-invoicing phases:
Implementation of electronic invoicing will take place in two phases:
First phase: Generation
Under this phase, taxpayers must generate, store, and process tax invoices, simplified tax invoices, and respective CDNs electronically in compliance with Phase 1 requirements. The rollout of this phase started on December 4th, 2021. The requirement applies to all taxpayers (except non-resident taxpayers and those issuing tax invoices on behalf of VAT-liable suppliers).
Creating electronic invoices will be similar to creating paper invoices now, but utilizing a system that is compatible with electronic billing. E-invoices must include all the required items depending on the invoice type.
Integration Phase 2:
Taxpayers targeted by this phase are introduced to the program in waves called the ‘Integration Phase.’ Taxpayers will be notified at least six months in advance of their wave in Phase 2.
The purpose of this phase is to introduce technical and business requirements for electronic invoices and electronic solutions (e-invoicing software) as well as integrate those requirements into ZATCA’s system. ZATCA requires taxpayers to integrate their systems that send electronic invoices and debit and credit notes with theirs, so they can share data and information.
Tax Invoices must be ‘cleared’ in real-time from ZATCA before they can be shared with buyers as legally sufficient e-invoices. However, ZATCA requires sellers to report simplified invoices within 24 hours of generation.
Advantages of e-invoicing in KSA
- The following are a few reasons for introducing Fatoorah in Saudi Arabia:
- The government can ensure better tax compliance through transparency in commercial transactions.
- Electronically generated invoices make customer transactions easier and more accurate.
- Businesses and governments benefit from the implementation of e-Invoicing due to the standardization of information, the seamless flow of trade, the improved communication process, and the reduction of costs.
- It is environmentally friendly to generate invoices electronically, which reduces paper usage.
- Through e-Invoicing, the government can detect fake invoices and make sure the shadow economy doesn’t flourish.
- However, all these benefits are dependent on the e-invoicing software you will integrate with ZATCA.
As mentioned above, it is important to implement the best e-invoicing software to get compliant with both phases of e-invoicing in Saudi Arabia. Absolute Solutions, which is the best IT Company in Riyadh, Saudi Arabia, has developed efficient e-invoicing software that is specifically made to get compliant with all the requirements of ZATCA. However, IF you still have not implemented the e-invoicing solution, feel free to contact absolute solutions and get the e-invoicing software in one of the three subscription models that best suits your business requirements.