ZATCA is an acronym that stands for Zakat, Tax and Customs Authority (ZATCA), formally known as the General Authority of Zakat and Tax (GAZT). ZATCA made it mandatory for resident taxpayers to be well-equipped to modify, send, and save invoices from December 4, 2021.
The Saudi government has introduced several initiatives to digitize the economy and promote e-invoicing. One such initiative is ZATCA or the Saudi Electronic Invoicing System. The Saudi government introduced the first phase in 2021, while the second phase is yet to start on January 1, 2023.
This blog post will introduce you to ZATCA and explain how businesses can prepare for the ZATCA e-invoicing mandate. We'll also touch on the e-invoicing guide for KSA and ZATCA e-invoicing regulations.
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How to prepare for the ZATCA e-invoicing mandate
The ZATCA e-invoicing mandate that will be enforceable from January 1, 2023 is an integration phase on the transmission of electronic invoices and notes.
It will be implemented in waves by the targeted taxpayer groups and will require that a person subject to the e-invoicing regulation to:
- Modify their accounting and invoicing software to support the issuance of an e-invoice in ZATCA-compliant XML format;
- Configure their software to send e-invoices to a ZATCA-designated service provider;
- Save issued e-invoices in the ZATCA-designated XML format.
E-invoicing guide for KSA
ZATCA in KSA (the Kingdom of Saudi Arabia) has adopted electronic invoicing regulations mandating businesses to adopt new e-invoicing procedures in two phases.
E-invoicing is a process where businesses can send, receive, and store invoices electronically. The main benefits of e-invoicing are that it is paperless, efficient, and secure.
The first phase of the e-invoicing process has already been rolled out, while the second one is still on schedule.
E-invoices for KSA VAT taxpayers seem like regular VAT tax invoices, but they are generated through an internet system. An e-invoice is not the same as a paper invoice that has been copied or scanned.
Once you issue an invoice, you are not able to edit it. But, you can send electronic notes that are VAT compliant. For example, you cannot change the original invoice when a buyer returns your product, but you can send them a credit note through your e-invoicing system.
Types of e-invoicing in KSA
E-invoicing in KSA can be divided into two types. They include:
1. Tax e-invoice (Standard e-invoice)
Tax e-invoices are issued for B2G and B2B transactions. A Standard e-invoice is an XML file with all the necessary data fields required by ZATCA.
2. Simplified e-invoices
Simplified e-invoices are for small businesses with a streamlined business structure and a low volume of transactions. In this type of e-invoicing, the buyer does not need to use the invoice for input VAT deduction.
Why is e-invoicing being introduced in KSA?
The Saudi government has introduced several initiatives to digitize the economy and promote e-invoicing, such as ZATC. E-invoicing will help reduce the administrative burden on businesses, improve compliance, and promote transparency.
It will also help the government keep track of companies and their activities.
What are other benefits of e-invoicing for businesses?
There are many benefits of e-invoicing for businesses, such as:
- It is paperless and thus, more environmentally friendly;
- It is efficient and saves time;
- It is secure and reduces the risk of fraud;
- It promotes transparency and helps businesses keep track of their activities;
- It helps businesses comply with government regulations;
- It reduces the administrative burden on businesses.
ZATCA e-invoicing regulations
The Saudi government has issued e-invoicing regulations that every residential taxpayer should comply with. The following are the regulations to expect from the ZATCA e-invoicing process:
- All taxable products and services subject to VAT will be subject to the e-invoicing provisions (whether standard or zero rates).
- All VAT-registered business owners in Saudi Arabia (except for non-resident taxable people) who sell within and outside the country should use the e-invoicing system.
- Third-parties in Saudi Arabia that are issuing a tax invoice on behalf of a taxable individual must use the e-invoicing process. The regulations apply to accounting firms issuing invoices on behalf of vendors.
- E-invoicing is mandatory for all B2B, B2G, and B2C transactions. A printed copy should also be sent when sending an e-invoice to a customer.
- You must write the invoices in Arabic. You can translate them or add another language, but you must issue the e-invoice in Arabic.
The two phases of e-invoicing regulations in KSA
ZATCA has embraced two electronic invoicing regulations mandating businesses to adopt new e-invoicing procedures in two phases.
Phase 1 (December 4, 2021)
The Saudi Arabian government introduced the first phase on December 4, 2021. The following are the requirements for businesses during this phase:
- The e-invoices must be stored in an electronic database, online cash register, or a cloud-based e-invoicing solution;
- The e-invoices must be signed with an e-signature;
- You must include all elements and mandatory fields when issuing an invoice, including VAT registration number, seller's name, and address, buyer's name and address, description of the product or service, total amount, tax rate, and date of issue.
In this phase, however, you don't need to share data and report invoices to ZATCA.
Phase 2 (January 1, 2023)
The second phase will start on January 1, 2023. The following are the requirements for businesses during this phase:
- Integrate your e-invoicing solution with ZATCA's system to allow you to send invoices to their portal for verification and validation.
- Issue invoices in specific formats such as PDF/A-3, XML, or embedded XML.
- Have a system that complies with ZATCA's guidelines due to the more technical requirements.
- Your system should connect to external systems with Application Programming Interfaces (APIs) and produce a UUID (Universally Unique Identifier), digital signature, a unique sequential number for each invoice, and a cryptographic stamp.
During this phase, you will be required to share data and report invoices to ZATCA for validation and verification.
How the e-invoicing process works in KSA
The e-invoicing process in KSA is not that different from other countries. The main difference would be the fact that businesses will have to share data with ZATCA and report their invoices to them. Other than that, the process is quite straightforward.
1. The business owner or third-party accountancy firm generates an e-invoice using compatible software;
2. The e-invoice is then sent to the customer through email, fax, or any other electronic means;
3. The customer receives the e-invoice and makes the necessary payments;
4. The business owner or third-party accountancy firm then reports the invoice to ZATCA;
5. ZATCA will verify the authenticity of the invoice and validate it;
6. Once the invoice is validated, the business owner can proceed with delivering goods or services.
You should store the invoice in your system for future reference during each transaction. The best way is to have a cloud-based solution so you can access the invoice anytime, anywhere.
E-invoicing is now mandatory in Saudi Arabia. Whether B2B, B2G, or B2C, all businesses must comply with the new regulations set by ZATCA.
The e-invoicing process is not that different from other countries, but companies will have to share data with ZATCA and report their invoices to them. Storecove is a cloud-based e-invoicing solution that helps businesses comply with the new ZATCA regulations.
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