In May 2021, the Zakat, Tax and Customs Authority (ZATCA) published its official e-invoice resolution for a nationwide mandate. There was a public consultation on a draft law in April 2021. ZATCA introduced changes to the draft law and released this resolution considering the comments made by the business community.
What is E - invoicing ?
E-invoicing is the process of creating digital invoices that can be issued and stored electronically. The Kingdom of Saudi Arabia’s Zakat, Tax and Customs Authority (ZATCA) has issued regulations requiring businesses to adopt an e-invoicing process in two phases, beginning December 4, 2021.
E-invoices will look like regular VAT tax invoices, but they will be generated online for KSA VAT taxpayers. There is a distinction between an electronic invoice and an electronic copy or scan of a paper invoice.
Types of E-invoices
E-invoice for taxation (Standard e-invoice)
Tax e-invoices are issued for both B2B and B2G transactions, and buyers frequently use them to claim input VAT deductions.During phase one, these invoices must be shared with buyers in the required format. These invoices can only be shared with buyers in phase 2 after being cryptographically stamped and cleared by ZATCA.
If your customer is VAT registered, you must include their VAT registration number on the invoice, along with the option of including a QR code.
source : ZATCA
For B2C transactions, e-invoices are issued at the point of sale. With these invoices, the buyer will not be required to deduct input VAT using the invoice. If you’re sending a simplified tax invoice to a customer (B2C invoice), your e-invoicing system must include a QR code. This is necessary for validating your electronic invoices.
All you have to do in phase one is send your customers the simplified e-invoices. In phase 2, however, these invoices must be reported to ZATCA within 24 hours of being issued.
Both of these e-invoices can be self-billed (with tax authority approval) or billed by a third party. If the invoice is self-billed, you are still responsible for the accuracy of the e-invoice generated (billed by the buyer on your behalf).
How does e-invoicing work?
E-invoicing isn’t all that different from traditional invoicing. It’s essentially the same procedure, but it’s done more quickly and securely.
The following is what you must do for each transaction:
To create an e-invoice with all of the required fields, use a compliant e-invoicing system.
Provide the buyer with a copy. Before sending this invoice to the buyer, you must upload it to ZATCA’s portal and validate it.
Keep a copy of the e-invoice in your system for future use. Switching to a cloud-based solution with e-invoicing capabilities will simplify storage and ensure compliance automatically.
How can taxpayers prepare for e-invoicing (FATOORAH)?
Every resident taxpayer must be prepared for e-invoicing to comply with the rules. Find out how the Saudi Arabian VAT e-invoicing regulations will impact your business and what you should do next in this guideline below!
Guidelines for e-invoicing in KSA
It will be mandatory for all taxable goods and services subject to VAT to be e-invoiced (whether standard or zero rates).
All VAT-registered business owners in Saudi Arabia (except non-resident taxable people) who sell within and outside the country must use the e-invoicing system. You must use the e-invoicing process if you are a third party in Saudi Arabia issuing a tax invoice on behalf of a taxable person. These regulations would apply to an accounting firm that issues invoices on behalf of a textile seller, for example.
For all B2B, B2G, and B2C transactions, e-invoicing is required. When sending an e-invoice to a customer, you should also send a printed copy.
The invoices must be written in Arabic. You can choose to translate them or add another language, but the e-invoice must be issued in Arabic.
The two phases of e-invoicing regulations in KSA
Phase 1: Issuing and storing e-invoices
As of this date, instead of physical invoices, credit, and debit notes, taxpayers must issue and store e-invoices and electronic notes.
In phase one, you’ll need to start using an internet-connected e-invoicing system that complies with ZATCA. You can use an online cash register, an e-invoicing software application installed on your computer, or an online cloud e-invoicing solution to send and receive invoices.
When issuing an e-invoice, all elements and mandatory fields of a tax invoice must be included, such as the seller’s name and VAT registration number, the time the invoice is being issued, the VAT total, and the invoice’s overall value inclusive of VAT.
You don’t have to share data or send invoices to ZATCA during the first phase.
Integration with the ZATCA system is the second phase.
For specific taxpayer groups, this phase will be implemented in stages. You must integrate your e-invoicing solution with ZATCA’s system by January 1, 2023, to send the e-invoices generated to the portal for verification and validation. ZATCA will notify you at least six months before the integration date, as this phase affects different people at different times.
You’ll need to issue e-invoices in specific formats by this point (such as XML or PDF/A-3 with embedded XML).
Because this phase will have more technical requirements, it is preferable to have a system already compliant with ZATCA’s guidelines. Your system must use APIs (Application Programming Interfaces) to connect to external systems and generate a UUID, a digital signature, a sequential number that distinguishes each e-invoice, a hash, and a cryptographic stamp. Anti-tampering features should also be included in your system.
These features aren’t required in phase 1, but they are required in phase 2.
Instructions on Taxpayers
To follow :
Suppose you’re a taxpayer in Saudi Arabia. In that case, you’ll need to choose an e-invoicing system or find an invoicing provider who can set up their system to offer ZATCA- compliant e-invoicing solutions. Once you’ve chosen a system and learned how to use it, put it to the test before the deadline of December 4, 2021.
Accounts may be handled by more than one person in most businesses. Ensure that all of your invoicing staff are well-versed in using the e-invoicing system so that they are ready to handle transactions efficiently. Encouraging your team’s technical experts and developers to visit ZATCA’s website regularly is a good idea if you have them on your staff. Using a cloud accounting solution that handles VAT compliance and government regulations automatically saves time and effort.
Not to follow :
You won’t be able to issue handwritten or manual invoices once e-invoicing is implemented. If you’re looking for an e-invoicing system, stay away from those that:
- Allows users to log in anonymously.
- There are no features for managing users.
- Allows for the editing or tampering of e-invoices and associated notes.
- Allows for the creation of multiple e-invoice sequences.
- Allows you to change the time or export the stamping key.
Instead of modifying invoices, create a debit/credit note that is linked to the original invoice. Make sure you don’t delete any e-invoices once they’ve been sent because you’ll need them in the future.