The Zakat, Tax and Customs Authority (ZATCA) of the Kingdom of Saudi Arabia (KSA) has implemented e-invoicing regulations from 4th December 2021. As per e-invoicing regulations, every taxpayer must issue an electronic invoice for all the taxable supplies.
This article provides salient features of the ZATCA e-invoicing regulations, an explanation of the types of invoices, the importance of issuing e-invoices, and the advantages of the compliant e-invoicing solutions.
What is the e-invoicing regulation in Saudi Arabia?
The ZATCA e-invoicing regulation has made it mandatory for the taxpayers to issue invoices, including credit/debit notes, in digital format and stores them electronically. However, the regulations require the taxpayers to print e-invoices and share a copy with the buyer.
Who is required to issue e-invoices?
e-Invoicing in Saudi Arabia is mandatory for all the following taxpayers:
- All taxable person resident in KSA registered for Value Added Tax (VAT)
- Customers or third parties who issue e-invoices on behalf of taxpayers
Transactions subject to the e-invoicing regulations in Saudi Arabia
The authority has brought the following transactions within the ambit of e-invoicing regulations:
- Standard or zero-rated VAT supplies of goods and services
- Export of goods out of KSA
- Intra-GCC (Gulf Cooperation Council) supplies as allowed under the VAT KSA
- Nominal supplies as allowed under VAT KSA
- Advance payments for taxable supplies of goods and services
What types of e-invoices can be issued?
The ZATCA e-invoicing regulations provide various types of e-invoices that a taxpayer can issue based on the purpose for which it is issued:
It is used mainly for all B2B (Business to Business) and B2G (Business to Government) transactions. It is primarily used to claim an input tax credit since the amount of VAT charged is mentioned in the standard invoice.
These invoices are mainly issued for B2C (Business to Customers) transactions since the customers are the end-users. The customers do not need to claim input VAT since they are consuming the goods or services.
Taxpayers issue summary invoices mostly for recurring transactions that are more than one. Since they are repetitive, the authority allows issuing a summary, but all other invoicing requirements are the same as a standard invoice.
The credit or debit notes are issued when any existing sale or purchase transaction is cancelled or adjusted for any of the reasons mentioned in the VAT law. The ZATCA e-invoicing regulations require such notes to be issued electronically.
How to issue e-invoices?
As per the e-invoicing regulations in Saudi Arabia, the authority instructs the taxpayers to issue e-invoices through a compliant e-invoice solution. e-Invoicing software can be a cloud-based computer programme that allows users to smoothly issue and store the tax invoices without worrying about non-compliance.
For example, ClearTax e-Invoicing Software in Saudi Arabia can automate your e-invoicing process and offer you convenience while complying with the e-invoicing regulations.
e-Invoicing solution requirements
e-Invoicing in Saudi Arabia requires every compliant e-invoicing solution to meet specific needs provided by the authority. The ZATCA e-invoicing regulations are implemented in two phases. The first phase is called the generation phase, and it was already introduced on 4th December, 2021.
The second phase is called the integration phase, and it will apply from 1st January 2023 to a targeted tax group as prescribed by the authority.
Below are the requirements for the e-invoice software in KSA for the two different phases:
Phase 1: Generation Phase
The invoice generation phase (first phase) requires the compliant e-invoice solutions should have the capabilities to issue invoices, including credit/debit notes in the electronic format with key mandatory fields except for integration-related fields.
The storage of the e-invoices by the compliant e-invoice solutions must be done as per the KSA VAT law and should be easily accessible to the authority. The regulations also emphasize having robust internet connectivity by the e-invoice software.
Phase 2: Integration Phase
The integration phase of the e-invoicing regulations in the KSA requires more compliance and smooth integration of the e-invoices with the ZATCA’s system. Below are the phase 2 requirements for the e-invoice software:
Invoice generation related requirements:
- Invoices must be electronically generated.
- It should have all the critical mandatory fields, including Quick Response (QR) code, cryptographic stamp, invoice hash, etc.
- Invoices must be in an XML format or PDF-A3 with embedded XML format.
- All the invoices and credit/debit notes must be stored and archived as per VAT regulations.
- The invoices must be readily available to the ZATCA authority.
Security and integrity-related requirements:
- The compliant e-invoice solutions must be able to generate QR codes and print them on the invoices.
- The authority’s e-invoicing portal must include a cryptographic stamp on the invoices received for validation.
- The e-invoice software must be registered with the ZATCA e-invoicing portal.
Integration related requirements:
- Internet connectivity is required for invoice clearance.
- The electronic invoices must be integrated with the ZATCA’s system using real-time through Application Programing Interface (API).
e-Invoicing regulations: Obligations of taxpayers
The ZATCA e-invoicing regulations also specify what the taxpayers must follow post-issuance of the e-invoices.
Invoice clearance and reporting
The authority requires taxpayers to integrate their systems with the ZATCA e-invoicing portal for clearing standard e-invoices. Once the authority finds them compliant with the e-invoicing regulations, it will put a cryptographic stamp, adds the QR code, and clears the e-invoices. It also intimates this to the supplier and then the supplier can share the signed invoice with the buyer.
The simplified e-invoices must be reported to the authority within 24 hours from the time of generation of the invoice. The seller can share a simplified invoice directly with the buyer even before reporting it to the authority.
The e-invoices must be stored on the cloud and easily accessible by the authorities. The taxpayers must comply with the guidelines on data storage and archival.
The taxpayers must comply with the tax audit requirements and cooperate with the authorities.
- The taxpayers must notify the authority about any error, incident, or matter and the recovery once the system starts working.
- Taxpayers shall not use any e-invoice software which is not compliant with the ZATCA specifications.
- The taxpayers must register the e-invoicing solution units for generating simplified invoices.
- Protect and preserve the cryptographic stamp from being used illegally.
- Integrate the e-invoice details with the authority’s system.
The taxpayers must comply with the e-invoicing regulations in KSA to avoid non-compliance and penalties.