Saudi Arabia is introducing a mandatory e-invoicing system.
Zakat, Tax and Customs Authority (ZATCA), the new name for the General Authority of Zakat and Tax (GAZT) Arabia, released its finalized e-invoicing legislation on 28 May 2021. As a result, electronic invoices will become mandatory for all B2B, B2G, and B2C transactions in two phases:
- The first phase became effective on 4 December 2021, and
- The second phase will begin on 1 January 2023
Consultation on this e-invoicing legislation began in April 2021. There has not been much change in terms of the next phase, which will begin on 1 June 2022 instead of 1 June as originally planned.
In Saudi Arabia, e-invoicing mandates cover both standard tax invoices (or standard invoices) and simplified tax invoices (or simplified invoices), as well as the debit and credit notes associated with these two types of invoices.
- Invoices for both B2B and B2G use standard tax invoices.
- B2C transactions use simplified tax invoices.
Individuals residing in Saudi Arabia for VAT purposes need to create electronic invoices for domestic transactions. However, the policy does not apply to non-residents or cross-border invoices.
Format, content, security measures and CTC system requirements vary by phase and by invoice type.
Saudi Arabia requires electronic storage of invoices within its borders.
The first phase is the generation phase:
On 4 December 2021, the first phase of e-invoicing legislation will go into effect. There is no central platform for e-invoicing yet. As a consequence, suppliers will no longer have to send handwritten invoices, will be able to stop storing paper, and – of course – will be ready for Phase 2.
Taxpayers registered for VAT must comply with the following requirements in phase 1:
- Create electronic invoices
- by implementing an e-invoicing software. The e-invoicing software can have On-premises, cloud-based or in a hybrid configuration.
- electronically store invoices and
- Transmit the invoice to the buyer.
The electronic invoice format is not specific during this phase, as long as the content meets the requirements of either a standard invoice or simplified invoice. For example, simplified invoices must contain a Quick Response code (QR code) generated by an electronic e-invoicing system. Through QR codes, consumers can use their mobile phones to access relevant invoice information.
It would be prudent to implement one of the formats that will become mandatory in Phase 2 if you are just starting to introduce electronic invoices for Saudi Arabia.
The e-invoicing software Saudi Arabia you use must meet certain security requirements, such as preventing uncontrolled user access or data manipulation and making it impossible to reset the counter for sequential invoice numbering. However, it is not yet clear when and how the authorities will be able to verify and certify these anti-tamper measures.
The second phase is the integration phase:
It will be necessary to integrate the Zatca CTC platform (Continuous Transaction Controls) with the e-invoicing solution. From January 1, 2023, ZATCA will begin rolling out CTC in phases. Every taxpayer affected by each stage will be notified six months in advance.
Phase 2 and onwards
- The invoice must be issued in one of two formats
- Saudi Arabian XML invoice based on UBL 2.1 syntax and the definitions from EN 16931, but tailored to Saudi Arabian requirements.
- It is the same concept as ZUGFeRD in Germany and Factor-X in France, although the European examples use CII syntax while Saudi Arabia uses UBL syntax.
- An e-invoice solution must include anti-tampering features like a digital signature and a hash value.
- It is necessary to send invoices using ZATCA’s e-Invoicing platform. API integration is required to connect your e-invoicing solution to the central platform.
In a nutshell:
Saudi Arabia has embraced the global trend of compulsory CTC e-invoicing and e-reporting. By 2023, a revamped clearance platform will be in place. Beginning in December 2021, electronic invoices will be generated and stored through compliant e-invoicing systems during the preparation phase.
The second phase will be implemented on 1 January 2023. The new central e-invoicing platform will become mandatory for real-time e-invoicing clearance and e-reporting during this phase.
As always, the challenge lies in ensuring that the legal requirements of each country are met
- Doing business without dealing with several local providers within the countries concerned
- Ensure you are meeting the various technical requirements for inbound and outbound invoicing, such as data formats and communication channels,
- Keeping the ERP systems connected in a secure, easy, and reliable manner.
Conclusion:
It is important to implement an e-invoicing software, that is capable to fulfill all the requirements of ZATCA e-invoicing solution. You can contact the best IT Company in Riyadh, Saudi Arabia, Absolute Solutions and get their help in the integration of e-invoicing software. The e-invoicing Software developed by them is is available in three subscription models, and they can help you decide the best option for you.