A Complete Guide to E-invoicing in Saudi Arabia and its challenges:
What is e-invoicing? An overview:
E-invoicing is the process of creating invoices electronically in a digital format, so you can issue and store them.
On December 4, 2021, the Kingdom of Saudi Arabia (KSA) mandated the use of e-invoicing for businesses across all three sectors (Zakat, Tax, and Customs Authority) in a phased-out approach. Using this method, businesses can issue and store their invoices electronically.
Saudi Arabian taxpayers will generate their VAT tax invoices online, similar to the paper invoices that they currently receive. Electronic invoices do not include scanned invoices or paper copies.
E-invoices are editable, after creation. You can however issue electronic notes in the form of credits and debits. These notes should relate to the original invoice. For example, if your buyer returns your product, you cannot alter the original invoice, but you can issue a credit note. It is essential that you use the same e-invoicing system for all invoicing and note-issuing activities. This will help to streamline and standardize the process of securely storing data.
You must issue an invoice for sales made in the country, exports from KSA to other countries, and goods and services that you have received advanced payments for. There is no requirement to issue invoices for supplies exempt from VAT or associated payments, imports entering Saudi Arabia, or goods subject to the reverse charge mechanism.
What are the reasons for introducing e-invoices?
The reasons for the e-invoicing introduction are as follows:
- Regulations governing e-invoicing promote efficiency and security for businesses. These changes will open up the opportunity for capital investment and lead to more secure society.
- The ultimate goal of this move is to utilize the ZATCA system to make buying and trading more manageable and secure. As the only public data on invoices, the system will be able to standardize the process, while automatically keeping track of transactions. They anticipate that fraudulent activity like fake invoices will no longer be an issue with automatic transaction authentication.
- E-invoicing will create a more transparent and easily available database for auditing, which will reduce the number of audits needed by tax authorities.
The E-Invoicing Benefits for Taxpayers:
E-Invoicing has the following benefits for taxpayers:
- Your company has a more streamlined experience for business. With instant invoices, you will get faster tax refunds.
- Electronic invoices will be more secure and less prone to errors than handwritten ones. A system for validating invoices would lead to fewer fraudulent activities, creating a fairer and level playing field for businesses operating in this sector of trade.
- E-invoicing allows businesses to operate more efficiently. It speeds up the payment process. In addition, it also makes storing and retrieving documents easier.
- To prepare for VAT, residents need to know a few things. KSA VAT regulations require that everyone be ready for invoicing so it’s important to know more about this and what you have to do.
Important Guidelines for e-invoicing in Saudi Arabia:
Following are some important guidelines for e-invoicing in Saudi Arabia:
- New e-invoicing provisions will apply to all products and services that are subject to VAT (whether standard or zero rates.
- Electronic invoicing is mandatory for all businesses within the Kingdom of Saudi Arabia (KSA). If you work for a third party that has a legal obligation to provide an invoice, you must do so as well. For example, tax agents must follow this new procedure to remain compliant.
- E-invoicing is compulsory for all B2B, B2G, and B2C transactions. While issuing an e-invoice to a buyer, you should provide a printed copy as well.
- The system must generate invoices in the Arabic Language. You can translate the invoices or add another language, but it is mandatory to issue the e-invoices in Arabic.
The two-phased e-invoicing implementation in KSA:
The First Phase: Issuance and storing of e-invoices.
- Since December 4, 2021, e-invoices, credit notes, and debit notes have replaced physical invoices, credits, and debits.
- Since Phase 1 is based on e-invoice software, it needs to have internet connectivity and be compliant with ZATCA. Moreover, the e-invoicing system software can be a cash register online, a computer program, or a cloud-based service.
- You should include the seller’s name and VAT registration number, as well as the total price of the product including VAT, on an e-invoice.
- This phase does not require you to share data and report invoices to ZATCA.
The Second Phase: Integration with ZATCA System:
- Starting on January 1, 2023, certain taxpayers will have to integrate their e-invoicing software with ZATCA’s system so they can send the e-invoices generated to the portal for verification and validation. ZATCA will notify taxpayers of the integration dates and requirements, at least 6 months in advance.
- You will need to generate e-invoices in specific formats (such as XML or PDF/A-3 format with embedded XML).
- To be compliant with ZATCA’s guidelines, your system should offer the capability of connecting to external systems via APIs. It should generate a Universally Unique Identifier (UUID), digital signature, sequential number, hash, and cryptographic stamp. Moreover, your system should have anti-tampering features.
- This is not a phase 1 requirement, but a phase 2 requirement.
- You can download Phase 1 requirements guide from the ZATCA site from this link, further guidelines can be obtained from other pages of the ZATCA website.
Standard e-invoice or Tax Invoice:
Tax e-invoices are generally used for the input VAT deduction in B2B and B2G transactions. For phase one, invoices should be shared with buyers via email in the required format. For phase two, however, invoices should only be shared with buyers after cryptographically signing, stamping, and clearing by ZATCA.
Invoices for VAT-registered customers must include their VAT number. Invoices may also include QR codes.
In the point of sale system, a simplified electronic invoice is generated, eliminating input VAT deduction. If you produce a simplified tax invoice (B2C invoice), your e-invoicing system must generate a QR code with the invoice. This is critical for validating your e-invoices.
Phase 1 will involve e-mail notifications to customers. However, ZATCA requires all invoices reported within 24 hours of issuance in Phase 2.
These e-invoices can also be self-billable (if approved by the tax authority) or billed by a third party. In the case of a self-billed e-invoice, the buyer is responsible for paying it, and you should prepare your taxes accordingly. An electronic marker identifies a third-party invoice or self-billing invoice.
E-Invoices & transaction types:
- A Standard e-invoice is issued for taxable and non-taxable supplies of SAR 1,000 or more.
- Standard e-invoices or Simplified e-invoices are issued for taxable supplies valued at less than SAR 1,000, excluding exports.
- For non-taxable supplies, a simplified e-invoice is issued. (Except for exports.)
- Standard E-Invoice is issued for Zero-rated supplies valued at SAR 1,000 or more. (Applies to both Taxable and non-taxable person).
- An standard e-invoice for exports of goods.
- Standard Electronic Invoice for Intra-GCC Supplies.
- An standard invoice for nominal supplies. The supplies are only held for audit purposes and not distributed to customers.
The e-invoicing process in Saudi Arabia:
Receiving and sending invoices is pretty similar to a routine permission process. The difference is that electronic invoicing has more efficiency, less risk of fraud, and increases trust.
The following are important steps for implementation:
- Use a compliant e-invoicing system to generate the e-invoice. The e-invoice must contain all required fields.
- In phase 2, you should push this invoice to ZATCA’s portal and have it validated before sending it to the buyer.
- By moving to a cloud-based solution that offers you e-invoicing features, storing the invoice in your system will be easier. Moreover, using cloud services offer compliance features automatically.
What you should and shouldn’t do?
You Should Do:
- If you are a taxpayer in Saudi Arabia, then you have to select an e-invoicing system before December 4th, 2021. Those that use this system can achieve compliance with the requirements listed by the ZATCA law.
- Businesses employ many people for invoicing, managing finances, accounting, etc. All the relevant staff such as accountants, finance managers, and developers have to have the appropriate skills for these processes to run smoothly. For example, when using a cloud accounting solution like e-invoicing software for Saudi Arabia, which automates all aspects of VAT compliance, your organization’s costs will be reduced while complying with current legislation automatically.
You should not do:
- Once e-invoicing comes into effect, you will never issue hand-written or manual invoices again.
- You should not use an e-invoicing software if:
- The software allows anonymous access to anyone.
- It doesn’t offer user management capabilities.
- The software allows editing and tempering of e-invoices and associated notes.
- It allows the creation of multiple e-invoice sequences.
- If it allows for time changes or stamping key exports.
- Instead of modifying invoices, you should use a debit/credit note and attach it to the original invoice. Keep electronic invoices for later use.
E-invoicing in Saudi Arabia does not have to be an issue for any business. However, there is a need to understand the ZATCA requirements for getting compliant with this mandate. As mentioned-above Phase 1 requires you to contact the best IT company Saudi Arabia, and contact them for getting a reliable e-invoicing application or software.
With ZATCA-compliant software like Absolute Solutions’ e-invoicing software Saudi Arabia is simplified, ensuring ease and compliance. It is possible to generate paperless invoices to stay current with tax guidelines.