Following the publication by the Kingdom of Saudi Arabia (KSA) General Authority of Zakat and Tax (GAZT) of the e-invoicing regulations, it seems that, for most organizations, a certain clarity is needed. This article aims to help those who might not understand what the regulations of Saudi Arabia exactly entail, who it affects, and what it means for everyone in Saudi Arabia.
The GAZT rolled out the final electronic invoicing (e-invoicing) regulations in Arabic on 4th December 2020. It states that all taxpayers must issue, save, and modify e-invoices by the 4th of December 2021. Other details of this regulation include basic requirements and control for the integration of e-invoicing barely 180 days after the first issuance.
On March 18, 2021, a public consultation included technical specs, conditions, rules, and procedures for integrating this system. Consequently, GAZT invited taxpayers to express their opinions and share feedback on the first draft by 17th April 2021.
With all said and done, all taxpayers in Saudi Arabia must comply with the new e-invoicing regulations starting from 1st June 2022. They must integrate their internal system with GATZ’s systems using an API. However, the implementation contains two separate phases.
It is vital to note that e-invoicing will include all provisions relating to tax invoices and VAT legislation. Also, all provisions relating to proof of electronic transactions and electronic signatures provided for in the Electronic Transactions Law in force in KSA shall apply to electronic invoices and notes issued.
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Mandatory e-invoicing in Saudi Arabia
The e-invoicing regulations mandate in Saudi Arabia covers standard tax invoices (or standard invoices) and simplified tax invoices (or simplified invoices). It also includes the debit or credit notes associated with each of these two invoice types.
The standard tax invoices are valid for B2G and B2B invoices, while the simplified tax invoices are helpful in B2C transactions.
The regulations specify that all residents of Saudi Arabia are required to create electronic invoices for VAT purposes. These regulations apply to domestic transactions but exclude cross-border transactions and those not residing in Saudi Arabia.
The regulations contain several notable points every taxpayer in Saudi Arabia should know. The significant issues include;
- The issuance of invoices must start from 4th December 2021 (First Phase).
- The second phase will also come into effect at a later date. This second phase will include the taxpayers’ system of issuing electronic invoices, and debit and credit notes must be linked with GAZT’s systems to share data and information.
- Details of requirements, procedures, and control for both phases will be published no later than 180 days from when the regulations were published.
- E-invoices need to be published in Arabic. Although some other languages are permitted, they can only be in the company of the required Arabic version.
- The provisions of e-invoicing apply to all taxpayers that are residents in the Kingdom of Saudi Arabia. It also applies to all taxable supplies subject to the standard or zero rates of VAT and both resident and non-resident consumers.
Overall, it is crucial to note that the specific requirements, format, content, CTC system, and security systems vary with the two phases.
Phase 1 of e-invoices is regarded as the generation phase. The legislation and enforcement of phase 1 will come into effect on 4th December 2021. However, there won’t be a central e-invoicing system just yet. Instead, the suppliers intend to move away from handwritten invoices and paper storage and prepare for the integration phase (phase 2).
During this first phase, there is no specific stipulation on the format of electronic invoices. The essential thing is for the content to comply with the requirements of the standard or simplified invoices.
For instance, the simplified invoices need to include a Quick Response Code (QRC) generated for the e-invoicing system. This QR Code allows consumers to scan relevant and appropriate invoice data using a mobile phone.
For all users, it is crucial to implement an invoice format that will be mandatory in phase 2. Also, any e-invoice format or solution you choose must fulfill specific security requirements. The security requirements include prohibiting data manipulation or uncontrolled user access and non-flexibility on the settings.
Summarily, phase 1 of e-invoicing include;
- Generation of invoices in VAT format;
- Using a suitable e-invoicing solution like Storecove;
- Storing of e-invoices electronically;
- Sending a copy of the invoice to the buyer.
Phase 2 of e-invoicing is the integration phase which will be rolled out on the 1st January 2023. Once this phase is out, it will become mandatory for all resident taxpayers in Saudi Arabia to integrate real-time e-invoicing clearance and reporting. It also requires that your e-invoicing solution is integrated with ZATCA’s new central e-invoicing platform for Continuous Transaction Controls (CTC).
Any taxpayer that fails to meet the requirement at this stage will be notified six months in advance. Any moment from the entire legislation of phase 2 must meet some basic needs, which include;
1. Your invoice must meet two specific formats, which are;
- Saudi Arabian XML invoice, based on UBL 2.1 syntax and a narrowed version of the EN 16931 invoice definitions.
- PDF/A-3 invoice file with a Saudi Arabian XML invoice embedded.
2. The e-invoicing solutions must meet specific security requirements like a digital signature, a universally unique identifier (UUID) hash value, and certain anti-tampering features.
3. You will require using the API integration system to link your e-invoicing solution to ZATCA’s central platform.
Why did the KSA government implement e-invoicing?
The two primary reasons why the government of Saudi Arabia implements e-invoicing are for security and efficiency.
E-invoicing can increase efficiency in transactions by;
- Making trading and transactions more seamless.
- Reducing cost and enhancing faster payments.
- Offering the government a better insight into the country’s market conditions.
- Improving fair competition and enhancing customer protection in the market.
- Helping the government to be in line with international best practices.
E-invoicing can increase security in transactions by;
- Helping the government to detect and mitigate the shadow economy and monitor goods and services.
- Assisting in the follow-up of money flow in real-time.
- Helping to determine the right strategy to be adopted.
- Improving the tax compliance rates.
- Providing increased transparency on commercial transactions within this regulation.
- Enhancing data-informed decision making.
Next steps for businesses in Saudi Arabia
With the regulation of e-invoicing set to be in full force, the first step for businesses is to identify if they are affected by the law. The e-invoicing covers all VAT taxable persons except the non-resident taxable persons. Also, the business should conduct an impact assessment test on the new e-invoice rule and its readiness to comply.
Other steps businesses should consider taking include;
- Figure out which system (billing, PoS, procurement, ERP) and processes are impacted and their capabilities concerning e-invoicing.
- Determine the transactions to which e-invoices will be applicable.
- Assess the willingness of existing billing system providers/ERP providers to integrate their systems to match the e-invoicing requirements.
- Assess how easily their ERP providers can connect them to the GAZT network.
- Issue all invoices in Arabic and keep the language capabilities within the business.
Note that more actions might be required depending on further technical guidance by GAZT on the actual design, master data, reporting, implementation, and integration of e-invoices.
Most importantly, your business needs to use an e-invoicing system that complies with ZATCA’s requirements. Storecove provides e-invoicing solutions to help your business implement the KSA’s mandatory e-invoicing regulations.
Contact us to learn how we can help your business comply with the obligations.
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