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The world is getting digital, companies are turning into E-Commerce giants, to accompany, and the kingdom of Saudi Arabia has adopted the Global fashion of E-invoicing and E- Reporting.
The world is getting digital; companies are turning into E-Commerce giants. Governments are also increasingly taking the digital path to reap the benefits of digitisation. The kingdom of Saudi Arabia has also started its journey towards E-invoicing and E- Reporting. Traditionally invoices are issued manually or generated in paper format from computers etc. Electronic invoicing (e-Invoicing) is the generation of invoices in a structured electronic format. Not to forget a handwritten or scanned invoice is not an E-Invoice. Also, data in PDF or Word format are not E-Invoices.
The General Authority of Zakat and Tax’s previously published draft order specifying the procedural rules for implementation of the E-Invoicing Regulations but Recently on 25th May 2021 General Authority of Zakat and Tax (GAZT) merged with the General Authority of Customs to form the Zakat, Tax and Customs Authority (ZATCA), and soon on 28 May 2021 ZATCA published guidelines and standards regarding the implementation of E-invoicing system.
Guidelines include terms, requirements, and conditions related to the E-Invoicing and Electronic credit and debit notes. All the E-invoices must be in UBL-based XML format, although the exact format of the invoice is yet to be formally published.
It is hereby clarified that in addition to this regulation the provisions of VAT Legislation and provision relating to the proof of electronic transaction and electronic signatures provided for in the Electronic Transaction law in force in KSA shall apply to all the invoices and notes issued.
Managing the paper-based invoices is a very heavy job involving its own set of consequences. Proper documentation, preserving of data can be very cumbersome. Also, physical papers are prone to theft, loss, stolen, fire, and whatnot. So, to overcome these challenges KSA has finalized regulations regarding the E-invoicing system keeping in mind the numerous benefits, some of which are:
Government:The Govt. of KSA will be directly benefited from this model since there will be greater transparency and real-time update regarding the movement of goods and services. Govt. will have a greater hold on the market condition by having close supervision over the transactions.
Taxpayers:E-invoicing system will save documentation and manual efforts of the taxpayers and will also save their non-compliance cost as well. Business owners can now easily delegate the task of invoice to the lower level of management since there will be very less chances of errors or fraud. With the real-time update, managing the transaction and information will be quite easy.
Economy:E-invoicing system will lead to fair competition and will also improve consumer protection since any inflated price charged or any seller trying to mislead the customer in any manner, the government will have the direct watch over it, which can further lead to fines and penalties and even closure of business or cancellation of license.
E-invoicing (FATOORA) is mandatory for the resident taxpayers or any other parties issuing tax invoices on behalf of suppliers, subject to VAT, to prepare them to be able to issue, document, and modify E-invoices by 4 December 2021. In short, it applies to all the taxable supplies made to resident or non-resident consumers.
Important: Non-Resident taxable persons for vat purposes are excluded.
Also Read: Fatoora Guidelines & Standards of e-Invoicing in KSA
KSA has enabled the implementation of E-invoicing in two phases:
This is the ‘’Generation Phase’’ which will be enforceable from December 4, 2021. This phase decodes the basic requirements to be followed to make taxpayers capable of issuing E-invoices. In this phase, taxpayers are not required to approve, clear, or report invoices to ZATCA.
Requirements in the Generation Phase:
Phase one mandates for the taxpayers to be able to generate and store the tax invoices and the debit, credit notes in a structured electronic format issued through an electronic solution.
To be able to generate E-invoice- one must first install and update the new invoicing system.
For B2C transactions-A mandatory QR code and a Title to the invoices.
For B2B transactions- An optional QR code and mandatory Invoice title.
There is no specific format issued that should be followed but the invoice should contain all the particulars that are required in the tax invoice.
The taxpayer should update the buyers' VAT Registration number if registered for VAT.
Things to be avoided in the Generation phase:
Deleting electronic invoices after they are issued.
Tampering of invoices and logs.
Changing the sequence of the invoices issued.
Giving anonymous access to all the levels of management.
Absence of user session management.
This is the integration phase which will be rolled out in different stages starting from January 1, 2023.
This phase tells us the technical requirement and linkage process with ZATCA. Taxpayers will be notified by ZATCA on the date of their integration at least 6 months in advance.
Requirements in the Integration Phase:
The most important part of the second phase involves linking the taxpayer’s system of issuing invoices and notes with the ZATCA system to share the data and information.
The taxpayer should be able to generate a cryptographic stamp for each E-Invoice or note.
In addition to the invoice sequence number, generate a Universally Unique Identifier (UUID).
Install certain functionalities which will help them to save E-Invoices and archive them.
Implementation of Anti tampering features.
Generate a hash for the E-Invoices issued.
Things to be avoided in the Integration phase:
Export of stamping key.
Some timelines issued:A clearance regime has been prescribed for the B2B invoices but for B2C invoices they must be reported to the tax authority platform within 24 hours of its issuance.
All the details of the requirements including procedures for the above phases shall be issued no later than 180 days from the date of publication of regulation i.e., December 4, 2020.
Also Read: Phases Of e-Invoicing in KSA
The E-Invoicing system in Saudi Arabia will be classified as CTC invoicing system. This system is increasingly used in the digital economy, where the tax authorities determine the amount of tax a business should pay.
In the established checking method, the transaction is first recorded in the local ledger and then periodically reported to the tax authority, but with the CTC system, checks are made on the individual transaction and recorded by the country’s tax authority at the time of transaction only. But to comply with the CTC check there was a mandatory requirement of E-invoicing for real-time updates. Hence KSA bought an E-invoicing system and decided to integrate the billing system of the taxpayers with the ZATCA system.
Initially, the KSA e-Invoicing model is more of a Direct Oriented Model which involves no direct interaction between the taxpayers and the ZATCA. In later stages, the KSA may adopt a more clearance-based approach.
Following are the requirements:
To start with there should be a proper internet connection for generating E-invoices.
Before installing the new E-invoicing system first evaluate the readiness of the existing billing system and try to re configure it to meet the E-invoicing requirements.
Assess the current Arabic language capability of the system and what changed does it require to be able to generate the invoices in the Arabic language.
The solution providers or the internal technical teams will implement the technical requirements for the in-house built solutions.
The solution providers or the technical team should upgrade the system to a compliant electronic system.
The system should be able to generate the invoices in UBL-based XML format.
Potential changes as per the regulation should be made to the system keeping in mind the indicative timeline.
Further, the system, master data, reporting requirement, the actual design should be updated as and when notified by ZATCA.
The new E-invoicing changes will bring a turnaround change in the economy of KSA. There will be a smooth flow of information with fewer chances of fraud and corruption. But to implement the system KSA should deploy proper infrastructure that could provide good internet connection even in remote areas and also train people to use the system and software.
Initially, the taxpayers might face some problems while following the implementation guidelines, but once implemented will yield many benefits.
If everything falls to the right place, this eco-friendly approach will lead to ease of business. However, the business owners should be open to different possibilities even to the extent that approval might be required for individual invoices and transactions.
For further assistance, and to provide an overview of the terms and process, ZATCA has published E-Invoicing simplified guidelines and FAQs
Also Read: Myths Regarding e-Invoicing in KSA