E-invoicing in Saudi Arabia - FAQs

What is e-invoicing?

E-invoicing is the process in which you issue invoices in a digital format and store them electronically. In Saudi Arabia, e-invoicing is going to be mandated from December 4, 2021, to standardize the way invoices are issued and reported. The e-invoicing process will apply to all VAT-taxable goods and services, whether at standard rate or zero rate.
 

What are the key e-invoicing regulations being introduced in KSA?

• E-invoicing in KSA is being introduced in two phases. Phase 1 (from December 4, 2021) will require you to issue and store e-invoices, while phase 2 (from January 1, 2023) will require you to integrate your e-invoicing system with the Zakat, Tax and Customs Authority (ZATCA) and share your e-invoices to their portal.
• An e-invoice is an invoice that is issued and stored electronically. Any invoice that is scanned or photocopied is not an e-invoice.
• E-invoicing is mandatory for all B2B, B2G, and B2C transactions that you make. When you issue these invoices to the buyer, make sure you give them a printed copy as well.
• E-invoices must be issued in Arabic. You can choose to add a translation to any invoice as well.
• Once issued, an e-invoice should not be edited or deleted. This is necessary in order to have accurate original records for reference at all times. If you want to make changes, you can issue electronic notes (debit and credit notes that are issued through an electronic system). These will be linked to the original invoice that was issued.
• Your e-invoicing system must be compliant with ZATCA’s regulations.

What’s the purpose of e-invoicing and how will it help me?

ZATCA is making e-invoicing mandatory to standardize the process of reporting invoices and make it more seamless. When you integrate your invoicing system with ZATCA, the government can stay up to date on the invoices that you’ve issued and pushed to the portal. Fraudulent activities such as invoice duplication will be reduced when the invoices are validated by the government, and transactions between people will be made more transparent.

When you issue invoices using a streamlined electronic system, your work becomes more accurate and less prone to the errors that may be made while manually writing an invoice. Recording transactions in the required fields will be easier when the format is already set by the system. Spotting discrepancies will become easier, and calculations will be taken care of automatically.

Moving to an electronic system also means that you can issue your invoices and validate them faster, leading to you getting paid sooner and input tax credits being processed faster.

By issuing and storing your documents in the system, your work is done more quickly and your records are less likely to get lost. This makes tax audits easy, and also simplifies the process of reporting and filing returns as you always have proper records online.

Who does e-invoicing apply to?

• All KSA VAT-registered business owners residing in Saudi Arabia, making sales within and outside Saudi Arabia.
• Third parties located in KSA issuing a tax invoice on behalf of another taxable person. For example, a parent company that issues invoices on behalf of a branch located elsewhere will have to follow these regulations.

How can I prepare to generate e-invoices?

All you need is an e-invoicing system that’s compliant with ZATCA. If you’re already using an electronic solution for your accounting needs, check whether it is compliant with the rules and test it out before the deadline. The e-invoicing system that you use can be an online cash register, e-invoicing software installed on your system, or a cloud-based e-invoicing solution. If you use a cloud solution, VAT compliance becomes even easier, as the system can adapt automatically to all the tax updates as they happen.

Here are some of the technical requirements for your e-invoicing system:

• Internet connectivity
• User management capabilities or access restrictions
• API (Application Programming Interfaces) connectivity with ZATCA
• Must generate a Universally Unique Identifier (UUID)
• Must generate an e-invoice with a digital signature, a sequential number which differentiates each e-invoice, a hash value, and a cryptographic stamp
• Tamper-proof features (must not permit any changes to be made to invoices already issued)

The last four requirements will be mandatory starting in Phase 2 of the e-invoicing regulations being rolled out.

Avoid any e-invoicing system that:

• Allows anonymous access (non-registered users shouldn’t be able to access your system)
• Allows e-invoices and associated notes to be edited
• Allows multiple e-invoice sequences to be created
• Allows the time entered to be modified
• Allows the stamping key to be exported

In addition to these requirements, make sure that you stay updated via ZATCA’s website, so you and your technical team will be aware of any changes to the regulations.

What does Phase 1 of the e-invoicing implementation include?

Phase 1 begins on December 4, 2021. From this date, as a seller, you will have to issue e-invoices and electronic notes instead of physical invoices, credit notes, and debit notes. During this phase, you don’t need to share data and report invoices to ZATCA. Instead, you can share the invoice with the buyer directly.

What does Phase 2 of the e-invoicing implementation include?

Phase 2 begins on January 1, 2023. From this date, as a seller, you will need to integrate your e-invoicing system with ZATCA’s portal so you can share your invoices and get them validated and verified before issuing them to the customer. This phase will be implemented in different stages for different taxpayers, and you’ll be informed by ZATCA about the integration date 6 months prior to when it will affect you.

In this phase, you must be issuing your e-invoice in XML or PDF/A-3 format with embedded XML. Your e-invoicing solution should also be equipped with the technical requirements listed above.

Are there different kinds of e-invoices?

Yes, there are. For a given transaction, you will issue either a standard e-invoice or a simplified e-invoice.

A standard e-invoice (also known as a tax e-invoice) is issued for B2B and B2G transactions. You can directly issue it to the buyers in Phase 1, but Phase 2 will require you to push the invoice to ZATCA and get it cryptographically stamped and cleared before sharing it with your buyer. If your buyer is VAT registered, you must add their VAT registration number to the invoice, and you can choose to add a QR code to it.

A simplified e-invoice is issued for B2C transactions, and your e-invoicing system must generate a QR code to validate the invoice. These invoices are issued in an electronic format and a printed copy is provided to the customer. In Phase 2, these invoices have to be reported to ZATCA within 24 hours of being issued.

How do I start becoming VAT compliant with these e-invoicing regulations?

All you have to do is issue an e-invoice to your buyer whenever you make a B2B, B2C, or B2G sale by using a ZATCA compliant e-invoicing system, starting from Phase 1.

Make sure that you follow the technical requirements mentioned above. While issuing your invoices, make sure to include the required fields that should be in a VAT invoice (like the seller’s name and VAT registration number, the time stamp of the invoice, the VAT total, and the overall value of the invoice including VAT).

In Phase 1, you can issue a copy of the invoice to the buyer immediately, but from Phase 2, you will need to push the invoice to ZATCA’s portal to validate it before you send it to the buyer. Once this is done, store the e-invoice in your system so you can retrieve it at a later time for future reference.