As businesses in Saudi Arabia continue to grow and evolve, they need to stay abreast of new technologies and also ensure that they comply with the latest government regulations to stay on top of the game. It is mandatory now for all businesses to adopt e-invoicing, which has been introduced by the Kingdom of Saudi Arabia in a phased manner. This can be done using service providers and consultants who specialize in this. In this blog post let us see what e-invoicing is, how it can be implemented, and what the benefits of implementing e-invoicing are.
Electronic Invoicing is a procedure that allows the exchange and processing of invoices, credit and debit notes between buyers and sellers in a structured electronic format to facilitate easy tax compliance. The Saudi Arabian Tax Authority (ZATCA) has implemented an electronic invoicing system known as the “Fatoora” system to streamline the invoicing process and facilitate tax compliance. According to the guidelines, e-invoicing will be mandatory for all VAT-registered businesses. Businesses must ensure that their e-invoices are authentic, accurate, and complete and must be stored electronically and be made available for inspection by ZATCA upon request. Non-compliance with the e-invoicing requirements would attract penalties. ZATCA has provided the required support and resources to businesses to help them comply with e-invoicing requirements.
Phase 1 was started in December 2020, with the ZATCA making it mandatory for all businesses to have a system in place to be able to generate e-invoices as per the format specified by ZATCA.
Phase 2 of the implementation was done in a phased manner starting from Jan 2023, covering businesses falling in different revenue brackets. As per the latest guideline, businesses having a turnover of 150 Million SAR in 2021 or 2022 are required to be compliant by 01 Nov 2023.
The first phase of e-invoice implementation required businesses to have a compliant digital system that can generate invoices as per ZATCA Mandate.
The second phase required mandatory integration with ZATCA system through connecting to the “Fatoora” Portal of each business.
For the second phase, two options were available for businesses:
1) Use of their internal IT team to connect their existing system to Fatoora portal so that before every Invoice is generated, the required information is passed on to ZATCA.
2) Use of a bridge system from third party solution providers that helps connect their system with ZATCA through API/direct integration
Once the integration is complete, businesses can generate e-invoices using their Accounting or ERP Software and submit them directly to GAZT for validation and processing. The e-invoicing system can also be configured to automatically generate e-invoices based on transactions recorded in the accounting or ERP software. Implementation of e-invoicing in accounting and ERP software may require some customization or configuration to ensure compliance with the specific requirements of the e-invoicing system in Saudi Arabia.
Besides tax compliance and fulfilling regulatory requirements, implementation of e-invoicing offers certain additional benefits such as
The feedback from businesses on the implementation of E-invoicing in Saudi Arabia has been mixed, with some businesses expressing satisfaction with the increased efficiency and cost savings, while others have reported challenges and difficulties in adapting to the new system. These challenges include technical difficulties, changes in business processes, and increased compliance requirements.
Different options are available for businesses to adopt e-invoicing and meet compliance requirements. ZATCA has provided resources and support to businesses to address their concerns and help them comply with e-invoicing requirements. ZATCA has also extended the implementation deadlines for certain groups of businesses and provided guidance on how to comply with e-invoicing regulations. One way of compliance is to approach solutions providers approved by ZATCA that follow the ZATCA e-invoicing requirements. Otherwise, businesses can use any system that is in compliance with the ZATCA guidelines. With the more stringent Phase 2 in place, care should be taken to use the right systems in order to avoid penalties and to bring in more visibility into businesses.
Overall, the implementation of E-invoicing software in Saudi Arabia is a significant change for businesses, and it will take time for businesses to adapt to the new system. However, with the potential benefits of increased efficiency and improved compliance, e-invoicing is definitely a positive development for businesses in Saudi Arabia.
