All you need to know about KSA VAT e-invoicing
The Introduction of e-Invoicing in KSA
With the aim of achieving economic progress, the Kingdom of Saudi Arabia (KSA) has initiated various digitization efforts, one of them being the introduction of taxation or Value Added Tax (VAT) from 01 January 2018.
To promote a paperless digital environment, the Zakat, Tax, and Customs Authority ZATCA, previously known as GAZT (General Authority of Zakat and Tax), published a draft amendment that was in alignment with the Value Added Tax Implementing Regulations in September 2020, which outlined the e-invoicing rules for businesses to follow.
What is e-Invoicing and What Are Its Objectives?
Electronic invoicing is the process of creating, sending, receiving, and processing invoices, credit notes, and debit notes electronically between buyers and sellers. A handwritten or scanned invoice or a pre-printed paper format with any handwritten text is not allowed under this process. e-Invoicing is popularly referred to as Fatoorah, the Arabic word for invoice.
Sample Invoice with QR CODE – compliant with ZATCA e-invoicing
Types of Documents Covered by e-Invoicing
The following types of documents are not acceptable under e-invoicing:
- Invoices supplied by suppliers
- Credit notes supplied by suppliers
- Debit notes supplied by suppliers
- Advance receipts
- Any other type of document as notified by the authorities
Any provision related to a tax invoice in the VAT legislation is also applicable to an e-invoice, with non-compliance resulting in penalties from ZATCA. Moreover, provisions concerning proof of electronic transactions and electronic signatures in the Electronic Transactions Law of KSA shall be applicable to e-invoices and electronic notes issued as well.
Important things to avoid in e-invoicing (source:https://zatca.gov.sa/en/E-Invoicing/Introduction/Guidelines/Pages/default.aspx)
Benefits and Significance of e-Invoicing in KSA
e-Invoicing facilitates transparency in commercial transactions and results in data standardization, seamless trade, speedy communication, faster payments, and reduced costs. It helps achieve better accuracy, effortless transactions with customers, and better tax compliance. e-Invoicing implementation increases efficiency in transactions for both businesses and governments, at the same time reducing the usage of paper invoices. It makes it easy for tax authorities to detect fake invoices or related malpractices and keep a check on the shadow economy.
e-Invoicing Requirements and Compliance in KSA
e-Invoicing in KSA applies to all taxpayers registered under VAT and any other parties issuing tax invoices on behalf of suppliers subject to VAT. However, non-resident taxpayers of KSA are exempt from the e-invoicing initiative.
Roll-out Phases of and Implementation Timeline
e-Invoicing (FATOORAH) has been implemented in two phases:
Phase 1: Issuing and storing of e-invoices
From 4 December 2021, taxpayers need to do away with physical invoices and credit and debit notes and must issue and store e-invoices and electronic notes. The taxpayer’s e-invoicing system must have internet connectivity and should be ZATCA-compliant. Permitted e-invoicing systems include online cash registers, e-invoicing software installed on your computer, or cloud-based e-invoicing solutions.
Care should be taken to include all elements and mandatory fields of the tax invoice such as the seller’s name and VAT registration number, the time of invoice issue, the VAT total, and the overall invoice value including VAT.
Phase 1 does not mandate sharing of data with and reporting of invoices to ZATCA.
Phase 2: Integrating with the ZATCA system
Integration of all e-invoicing solutions with ZATCA’s system comes into force from 1 January 2023, enabling taxpayers to directly send the e-invoices generated to the ZATCA portal for verification and validation. Since this implementation is being carried out in a phased manner, taxpayers will be informed by ZATCA about the integration date at least 6 months before their turn comes. e-Invoices must be in specific formats such as XML or PDF/A-3 format with embedded XML.
A system that can inherently comply with ZATCA’s guidelines would be ideally suited to meet the technical requirements of this phase. Ability to connect to external systems with APIs (Application Programming Interfaces) and to generate a Universally Unique Identifier (UUID), a sequential number that differentiates each e-invoice, a cryptographic stamp, a hash, and a digital signature is essential. The system should also be equipped with anti-tampering features.
While these features are not mandatory for phase 1, they need to be in place for phase 2. Phase 2 is to be implemented in stages as waves 1 to 5, based on the annual taxable income of taxpayers in 2021/2022. ZATCA has notified the first two waves under phase 2, with the rest to follow soon, as indicated in the table below.
ZATCA: Wave 1 to 5 Under Phase 2 of Saudi Arabia e-Invoicing
Preparing for the technical requirements of e-invoicing
Solution providers such as Hal Simplify (for VATCare) or in-house technical teams can take care of meeting the technical requirements of implementation. Taxpayers who wish to upgrade to a compliant electronic system can also approach ZATCA for guidance to ensure that they are generating compliant invoices.
Examples of e-Invoicing Systems
- Online cash registers
- Virtual cash registers on tablets
- e-Invoicing software installed on a computer
- e-Invoicing software installed on a computer, phone, or tablet
- Cloud-based solutions
Understanding Types of e-Invoices in Saudi Arabia
ZATCA mandates that e-invoices must be issued for all types of tax invoices under VAT. Standard tax invoice and simplified tax invoice are two of the most frequently used tax invoices.
Standard tax invoice, containing all the elements of a tax invoice, especially the VAT registration number of the buyer and seller, is issued by a business to another business (B2B).
Simplified tax invoice, which contains the main elements of a simplified tax invoice, is issued by a business to a consumer (B2C).
The e-invoices should be issued in Arabic language. However, additional languages besides Arabic are permitted.
Penalties for Non-compliance and VAT Violations
With the intention of deterring non-compliance and promoting adherence to the VAT law, ZATCA has recommended penalties for VAT violations in KSA. These penalties serve to enforce proper collection and remittance of VAT by businesses.
|Failure to issue tax invoices|
First time violation: Notice
Second time violation: SAR 1,000
Third time violation: SAR 5,000
Fourth time violation: SAR 10,000
After fourth violation: SAR 40,000
|Failure to include all contents in tax invoices or credit and debit notes|
|Failure to issue credit or debit notes or not providing them to the customer|
|Preventing or not allowing the Authority’s employees from performing their duties and tasks|
|Wrong calculation of the due tax|
|Violating any other provision of the VAT Law or regulation|
How HAL Supports Businesses with e-Invoicing Compliance
HAL ERP offers two options to help companies comply with e-invoicing.
Option 1: Plug and Play System for Compliant Invoicing.
This is a technologically advanced yet simple system to generate e-invoice as per the latest ZATCA guidelines. HAL has been one of the earliest approved ZATCA Vendors dating back to Dec 2017 when ZATCA started the vendor qualification process.
Option 2: VATCare Integration for Seamless Compliance
This is a product that helps integrate existing systems with Fatoorah to generate fully compliant invoices. We have successfully helped many small and big organizations in the Kingdom achieve this by integrating with their existing systems. Be it big and complex systems like IFS/Oracle or even custom build applications on VB/.Net, HAL has the expertise to help businesses be compliant without having to shell out a bomb.