Saudi Arabia’s e-Invoicing (Fatoorah):
The Kingdom of Saudi Arabia (KSA) has begun to focus on various initiatives to digitalize the economy. Saudi Arabia published the Value Added Tax Implementing Regulations on September 17, 2020, following the merger of ZATCA and GAZT in 2000 to implement e-invoicing. The draft included aspects of the e-invoicing rules.
E-Invoicing (Fatoorah) within KSA:
The inhabitants of KSA use e-invoicing extensively as Fatoorah. The E-invoicing converts paper invoices into electronic ones. With e-invoicing, buyers and sellers can exchange invoices, credit notes, and debit notes electronically by using an integrated electronic system, such as e-invoicing software Saudi Arabia by Absolute Solutions.
The provisions that pertain to tax invoices under the Value Added Tax (VAT) law will apply to an electronically generated invoice and any violation could be subject to penalties for GAZT. In addition, the rules about the proof of electronic transactions and electronic signatures under the Electronic Transactions Law of KSA apply to e-invoices as well as an electronic notes issued.
E-Invoicing’s implementing authority in KSA:
The Zakat, Tax and Customs Authority (ZATCA) is the authority for electronic invoicing within KSA. GAZT renamed ZATCA released the draft regulations for e-invoicing in KSA on March 20, 2021. The authority invited people and other stakeholders to give their input regarding the e-Invoicing regulations on or before the 17th of April 2021 date. The electronic invoice regulations were approved on the 28th of May 2021.
By December 4, 2021, all residents of the country must be ready to issue, save, and alter electronic invoices The regulations define the conditions, terms, and conditions for electronic invoices as well as electronically generated debit and credit notes.
What is an e-invoice in Saudi Arabia?
E-invoices is the process to create and store invoices through a digital solution. It contains taxes, the simplified tax invoice, and the Credit & Debit Notes (CDNs). Electronically generated invoices do not include handwritten or scannable invoices. We can categorize tax invoices as follows:
Tax invoice: A tax invoice issued by one company to another (B2B) that includes all the components of a tax invoice, including the buyer’s and seller’s tax registration numbers.
Simplified tax bill: A bill issued by a business to consumer (B2C), which combines the major components of a tax invoice.
E-invoices must appear in the Arabic language. However, other languages are also acceptable.
Who is responsible for the issuance of electronic invoices in Saudi Arabia?
VAT-registered companies, customers, and third-party companies that send invoices on behalf of taxpayers must issue electronic invoices. The VAT regulations that apply to tax invoices, as well as credit notes and debit notes, will continue to apply to e-invoices too. But, taxpayers who are not residents of the country under VAT are exempt from the e-invoicing rules.
Phases of e-invoicing in KSA:
The ZATCA has implemented e-invoicing over two phases:
Phase 1: Generation
During this phase, known as the “Generation Phase”, a taxpayer is required to prepare and store tax invoices, and their respective CDNs. The implementation of this phase begins on the 4th of December 2021. Tax invoices for suppliers subject to VAT must be prepared for all taxpayers (except those who do not reside in Saudi Arabia).
The process of electronic invoices will be the same as the current process of issuing invoices; however, they will be issued through a ZATCA compliant e-invoicing application. The invoice will include all of the items required dependent on the type of invoice.
Phase 2: Integration:
The targeted taxpayer groups will be phased in during this phase. Tax rate changes will be notified to taxpayers at least six months before Phase 2 begins on the 1st of January 2023.
In addition to introducing ZATCA’s technical requirements, it involves integrating e-invoicing solutions into ZATCA’s systems. At this stage, taxpayers have to integrate their e-invoicing software for issuing electronic invoices, debit, and credit notes to ZATCA’s systems for sharing information and data.
Sellers must approve the Tax Invoice issued by ZATCA in real-time, and then e-invoice buyers that are legally valid. However, the seller has to send simple invoicing to ZATCA within 24 hours of the date of the invoice’s generation.
Benefits of e-invoicing for KSA:
The following are the main motives for introducing e-invoicing and Fatoorah KSA:
- Transparency and transparency in transactions can help the government ensure more tax compliance.
- Electronically generated invoices ensure maximum accuracy and ease of transaction with clients.
- E-invoicing facilitates smooth trade, rapid communications, quicker payments, and lower costs due to the standardization of data.
- The electronic generation of invoices will reduce the use of paper invoices and is also environmentally sustainable.
- E-Invoicing allows the government to find fake invoices or other violations and keep an eye on the shadow business.