Zatca e-invoicing Saudi Arabia: Detailed guide for a business

The implemented E-invoicing system in Saudi Arabia by ZATCA addresses a major leap in the improvement of tax compliance and the clarity of this sector. The initiative entails a change of the current conventional invoicing by embracing fully digital and standardized e-invoice. This comprehensive guide shall enable the business entities to know how ZATCA’s e-invoicing work, what benefits accrue and the measures to take towards compliance to this system.

What is the ZATCA e-invoicing?

ZATCA e-invoicing is a program by the Saudi Arabian Tax and Customs Authority (ZATCA under the FATOORA program. The buyers must access to this platform and submit e-invoices in structured format. These invoices must be submitted and settled in real-time with ZATCA to help meet the requirements of VAT. Taxpayers must connect to the ZATCA (FATOORA) platform and send e-invoices in the defined structured format, wherein all e-invoices are to be reported and cleared in real-time with ZATCA.

Benefits of E-Invoicing in Saudi Arabia:

1. Real-Time Tax Compliance

As a result, e- invoicing also helps to support VAT compliance by enabling companies to return invoices in real time and free from mistakes.

2. Enhanced Tax Transparency

Digital invoicing with the help of the information technology system makes work honest and does not allow for tax evasion, among business entities and authorities, establishing confidence.

3. Cost Efficiency

Outsourcing of e invoicing saudi arabia reduces the number of manual tasks to be completed thus reducing costs of administration.

4. Faster Payment Cycles

Electronic invoices enhance payment chain, resulting into faster payments between contracting parties.

5. Improved Financial Accuracy

Through data entry, e-invoicing eliminates cases of errors hence improving the accuracy of the records.

Scope of E-Invoicing in Saudi Arabia

The application of e-invoice saudi arabia applies for every taxable persons and third parties who issues tax invoices for such persons. It is used in all areas of the economy, its goal is to minimize violations, increase the degree of openness and simplify the taxation of companies in Saudi Arabia

What is the ZATCA E-Invoicing Compliance Checklist?

Saudi Arabia’s Zakat, Tax, and Customs Authority has implemented rules on e-invoicing to attempt to update the processes of tax compliance. These guidelines are binding on all VAT-registered businesses in the Kingdom and keep the invoicing practices consistent throughout all sectors. Below are the key compliance guidelines to follow:

E-Invoicing Provisions

Applicability:

 E-invoicing is applicable to all B2B transactions involving the supply of goods and services that are standard rated or zero rated for VAT. These are mandatory standards across Phase 1 and Phase 2.

Scope:

All the VAT registered business established in Saudi Arabia are required to implement e-Invoice with an exception to non-resident taxable entities. This also applies to businesses making sales either within or outside the Kingdom and any other person who issues invoices for taxable persons. 

Invoice Requirements

Language:

Specifically, tax invoices have to be drafted in Arabic, with translations into other languages for convenience’s sake.

Formats:

 Invoices must be transmitted in XML or PDF/A-3 format as well as contain XML embedded. This makes sure that invoices become machine readable and still can be understandable by a human being.

Transaction Types:

 E-invoicing standards include both B2B and B2G and B2C contexts and related documents such as debit and credit notes.

Integration with ZATCA Portal

• Existing e-invoicing systems of the businesses need to be compatible with the ZATCA portal from the security perspectives. Notifications of integration requirements are issued at least six months before they become obligatory (Phase 2).
• Systems have to interoperate through Application Programming Interface (API) and should incorporate high level of security services like Universally Unique Identifier (UUID) and digital signatures.

Technical Requirements

To successfully implement e-invoicing systems, the following facts have to be established:

• E-invoicing systems have to distinguish between electronic invoices, hashes and cryptographic stamps.
• Data numbering in sequential order and the integration of anti-tampering components are absolutely required.

New and Easy Rules of E-Invoicing

For businesses seeking a non-technical understanding, ZATCA offers simplified guidelines that outline readiness steps for:

1.       Phase 1:

Generation of e-invoices.

2.       Phase 2:

System linkages to the ZATCA platform.

These guidelines are much less complex than previous ones and can be a helpful guide in terms of an SME’s legal obligations.

Detailed Guidelines and Technical Specifications

According to ZATCA’s detailed technical guidelines, taxpayers and e-invoicing solution providers are also served. They include:

• Invoice specifications and data dictionary together form a definition of the invoice and the elements contained in the invoice.
• It defines security and cryptographic needs of a system.
• A practical template: Onboarding processes for E-Invoice Generation Solutions (EGS).
• Over the next five years, the major strategies relate to compliance and monitoring mechanisms.

Types of E-Invoices in KSA

As for the Saudi Arabia’s e-invoicing system it classifies invoices so that they can be compliant within different situations. These categories are specific to various types of transactions, to include all taxable activities that will be captured under the ZATCA reforms.

1. Standard Tax Invoices

Definition:

 These are invoices relevant for B2B sales and contain all the necessary information required by the VAT law.

Mandatory Elements:

• IRN which stands for Invoice Reference Number.
• The identification details of the Buyer in respect of his or her VAT registration number.
• COGS breakdown, amounts, and distinct VAT breaks.

Format:

Must be constructed in XML and a tangible copy of the thesis must also be submitted in PDF/A-3 format.

2. Simplified Tax Invoices

Definition:

Simplified tax invoices are issued for the purpose of B2C operations and are designed for businesses who deal directly with consumers.

Key Features:

• Should not ask the buyer for his or her details if he or she has not ordered the company to do so.
• It is necessary to place a QR code for the fast check.

Usage:

 Commonly used by retail, hotel and service business organizations.

3. Credit and Debit Notes

Definition:

These documents alter tax invoices where such items are returned, quantity discount or cases of mistakes.

Compliance Requirements:

• The original invoice must be mentioned.
• State the rationale for changes made and the right figures.

Integration:

Similar to invoices, such notes must be issued through a system that complies with the new regulations from ZATCA.

4. Internal and External Invoices

Internal Invoices:

Vouchered were produced and used mainly for transactions between the departments in the same organization.

External Invoices:

 Shared between two or more parties and must follow the e-invoicing rules set by ZATCA.

These several categories help to avoid the confusion and follow the rules of all kinds of transactions, providing a clear and effective interaction.

Phases of Electronic Invoice in Saudi Arabia

ZATCA’s e-invoicing solution is rolling out in two different phases where each phase tackles different aspects of compliance.

Phase 1: Generation Phase

Effective Date:

December 4, 2021.

Overview:

They had to convert manual and paper based invoices into electronic systems capable of creating e-invoices and related papers.

Key Features:

• Businesses have to apply systems that have to meet the requirements of data and security of ZATCA.
• Where the goods and services supplied are subject to RLI, invoices must contain fixed lines including IRN and QR codes.

Objective:

 Prepare the ground work for e-invoicing by developing standard and correctness in the invoices produced.

Phase 2: Integration Phase

Effective Date:

January 1, 2023 (phased implementation).

Overview:

Companies need to make their e-invoicing system compatible with ZATCA’s platform, which is named FATOORAH.

Key Requirements:

• Invoices have to be verified every time through the ZATCA system.
• One must establish secure API connections and cryptographic stamps are obligatory.

Staggered Rollout:

 Implementation timelines are influenced by business turnover, thus target larger organizations, for initial implementation.

To ensure a smooth transition, ZATCA introduced a wave-based rollout of Phase 2, categorized by business turnover: