The implemented E-invoicing system in Saudi Arabia by ZATCA addresses a major leap in the improvement of tax compliance and the clarity of this sector. The initiative entails a change of the current conventional invoicing by embracing fully digital and standardized e-invoice. This comprehensive guide shall enable the business entities to know how ZATCA’s e-invoicing work, what benefits accrue and the measures to take towards compliance to this system.
What is the ZATCA e-invoicing?
ZATCA e-invoicing is a program by the Saudi Arabian Tax and Customs Authority (ZATCA under the FATOORA program. The buyers must access to this platform and submit e-invoices in structured format. These invoices must be submitted and settled in real-time with ZATCA to help meet the requirements of VAT. Taxpayers must connect to the ZATCA (FATOORA) platform and send e-invoices in the defined structured format, wherein all e-invoices are to be reported and cleared in real-time with ZATCA.
Benefits of E-Invoicing in Saudi Arabia:
- Real-Time Tax Compliance
As a result, e- invoicing also helps to support VAT compliance by enabling companies to return invoices in real time and free from mistakes.
- Enhanced Tax Transparency
Digital invoicing with the help of the information technology system makes work honest and does not allow for tax evasion, among business entities and authorities, establishing confidence.
- Cost Efficiency
Outsourcing of e invoicing saudi arabia reduces the number of manual tasks to be completed thus reducing costs of administration.
- Faster Payment Cycles
Electronic invoices enhance payment chain, resulting into faster payments between contracting parties.
- Improved Financial Accuracy
Through data entry, e-invoicing eliminates cases of errors hence improving the accuracy of the records.
Scope of E-Invoicing in Saudi Arabia
The application of e-invoice saudi arabia applies for every taxable persons and third parties who issues tax invoices for such persons. It is used in all areas of the economy, its goal is to minimize violations, increase the degree of openness and simplify the taxation of companies in Saudi Arabia
What is the ZATCA E-Invoicing Compliance Checklist?
Saudi Arabia’s Zakat, Tax, and Customs Authority has implemented rules on e-invoicing to attempt to update the processes of tax compliance. These guidelines are binding on all VAT-registered businesses in the Kingdom and keep the invoicing practices consistent throughout all sectors. Below are the key compliance guidelines to follow:
E-Invoicing Provisions
Applicability:
E-invoicing is applicable to all B2B transactions involving the supply of goods and services that are standard rated or zero rated for VAT. These are mandatory standards across Phase 1 and Phase 2.
Scope:
All the VAT registered business established in Saudi Arabia are required to implement e-Invoice with an exception to non-resident taxable entities. This also applies to businesses making sales either within or outside the Kingdom and any other person who issues invoices for taxable persons.
Invoice Requirements
Language:
Specifically, tax invoices have to be drafted in Arabic, with translations into other languages for convenience’s sake.
Formats:
Invoices must be transmitted in XML or PDF/A-3 format as well as contain XML embedded. This makes sure that invoices become machine readable and still can be understandable by a human being.
Transaction Types:
E-invoicing standards include both B2B and B2G and B2C contexts and related documents such as debit and credit notes.
Integration with ZATCA Portal
- Existing e-invoicing systems of the businesses need to be compatible with the ZATCA portal from the security perspectives. Notifications of integration requirements are issued at least six months before they become obligatory (Phase 2).
- Systems have to interoperate through Application Programming Interface (API) and should incorporate high level of security services like Universally Unique Identifier (UUID) and digital signatures.
Technical Requirements
To successfully implement e-invoicing systems, the following facts have to be established:
- E-invoicing systems have to distinguish between electronic invoices, hashes and cryptographic stamps.
- Data numbering in sequential order and the integration of anti-tampering components are absolutely required.
New and Easy rules of E-invoicing
For businesses seeking a non-technical understanding, ZATCA offers simplified guidelines that outline readiness steps for:
- Phase 1:
Generation of e-invoices.
- Phase 2:
System linkages to the ZATCA platform.
These guidelines are much less complex than previous ones and can be a helpful guide in terms of an SME’s legal obligations.
Detailed guidelines and technical specifications
According to ZATCA’s detailed technical guidelines, taxpayers and e-invoicing solution providers are also served. They include:
- Invoice specifications and data dictionary together form a definition of the invoice and the elements contained in the invoice.
- It defines security and cryptographic needs of a system.
- A practical template: Onboarding processes for E-Invoice Generation Solutions (EGS).
- Over the next five years, the major strategies relate to compliance and monitoring mechanisms.
Types of E-invoices in KSA
As for the Saudi Arabia’s e-invoicing system it classifies invoices so that they can be compliant within different situations. These categories are specific to various types of transactions, to include all taxable activities that will be captured under the ZATCA reforms.
Standard Tax Invoices
Definition:
These are invoices relevant for B2B sales and contain all the necessary information required by the VAT law.
Mandatory Elements:
- IRN which stands for Invoice Reference Number.
- The identification details of the Buyer in respect of his or her VAT registration number.
- COGS breakdown, amounts, and distinct VAT breaks.
Format:
Must be constructed in XML and a tangible copy of the thesis must also be submitted in PDF/A-3 format.
Simplified Tax invoices
Definition:
Simplified tax invoices are issued for the purpose of B2C operations and are designed for businesses who deal directly with consumers.
Key Features:
- Should not ask the buyer for his or her details if he or she has not ordered the company to do so.
- It is necessary to place a QR code for the fast check.
Usage:
Commonly used by retail, hotel and service business organizations.
Credit and debit notes
Definition:
These documents alter tax invoices where such items are returned, quantity discount or cases of mistakes.
Compliance Requirements:
- The original invoice must be mentioned.
- State the rationale for changes made and the right figures.
Integration:
Similar to invoices, such notes must be issued through a system that complies with the new regulations from ZATCA.
Internal and external invoices
Internal Invoices:
Vouchered were produced and used mainly for transactions between the departments in the same organization.
External Invoices:
Shared between two or more parties and must follow the e-invoicing rules set by ZATCA.
These several categories help to avoid the confusion and follow the rules of all kinds of transactions, providing a clear and effective interaction.
Phases of electronic invoice in Saudi Arabia
ZATCA’s e-invoicing solution is rolling out in two different phases where each phase tackles different aspects of compliance.
Phase 1: Generation phase
Effective Date:
December 4, 2021.
Overview:
They had to convert manual and paper based invoices into electronic systems capable of creating e-invoices and related papers.
Key Features:
- Businesses have to apply systems that have to meet the requirements of data and security of ZATCA.
- Where the goods and services supplied are subject to RLI, invoices must contain fixed lines including IRN and QR codes.
Objective:
Prepare the ground work for e-invoicing by developing standard and correctness in the invoices produced.
Phase 2: integration phase
Effective Date:
January 1, 2023 (phased implementation).
Overview:
Companies need to make their e-invoicing system compatible with ZATCA’s platform, which is named FATOORAH.
Key Requirements:
- Invoices have to be verified every time through the ZATCA system.
- One must establish secure API connections and cryptographic stamps are obligatory.
Staggered Rollout:
Implementation timelines are influenced by business turnover, thus target larger organizations, for initial implementation.
To ensure a smooth transition, ZATCA introduced a wave-based rollout of Phase 2, categorized by business turnover:
Wave 1 only Applies to large business organizations with revenues greater than or equal to three billion Saudi Arabian Riyals.
Wave two
Wave three
Covered companies that had a revenue greater than SAR 250 million.
Wave four
Wave five
Wave six
Wave seven
Wave eight
This wave Affects organizations with operating revenues above SAR 30 million.
Wave nine
Wave ten
Wave eleven
Limited the sample to those companies earning more than SAR 10 million in their operations.
Wave twelve
Wave thirteen
Wave fourteen
Wave fifteen
Wave sixteen
Wave seventeen
Key Benefits of the Wave-Based Implementation
- Gradual Transition:
Enables business to develop, establish and implement systems an crucial factor.
Gives ZATCA the chance to solve technical problems.
- Enhanced Compliance:
Makes sure that all companies no matter the size abide by the VAT regulations.
- Streamlined Processes:
Enables easy tax reporting with validation in real-time.
According to the latest developments, at Wave 17, every VAT-registered company in Saudi Arabia will follow ZATCA’s e-invoicing regulations to the extent possible, as a crucial step in attaining the Kingdom’s digitalization goals.
Penalties caused by Non-Compliance:
The penalties for non-compliance with ZATCA regulation include fines, prohibition from carrying on business and legal action. Meaning it is important to observe standards of E-invoicing software saudi arabia in order to avoid repercussions.
Understanding FATOORAH and how Does it relates to ZATCA:
FATOORAH is the name used to refer to the e-invoicing initiative in Saudi Arabia, introduced by the Zakat, Tax and Customs Authority (ZATCA). It is meant to standardize and digitize the invoicing process for all VAT registered companies. Through FATOORAH, zatca approved software increases the transparency, minimizes tax evasion and brings the Kingdom at par with other international best practices. The fatoora software requires invoices that are to be generated, stored, and then later on integrated with ZATCA’s system to validate same.
Key Differences Between Phase One and Phase Two of Saudi Arabia’s E-Invoicing with SowaanERP:
Phase One started in December 2021 and aimed to provide businesses with capabilities that allow them to create and store e-invoices without a direct connection to the ZATCA systems. Businesses had to use compliant software that was able to generate invoices in the required format (including QR codes for simplified invoices).
Phase Two, however, is real-time integration with ZATCA. This phase begins in 2023 and released in waves and requires businesses to integrate their invoicing systems to ZATCA’s platform. In this stage, invoices have to be cleared or reported electronically before being transmitted to customers. SowaanERP guarantees seamless compliance with its in-built integrations and automatic updates according to ZATCA’s technical requirements.
How do buyers receive E-invoices?
Buyers are usually able to receive e-invoices either through emails or from business portals connected to their zatca solution provider list. These invoices are electronic in nature and are in XML format carrying all the necessary tax and transaction information. This approach enables businesses and consumers to keep track of a clear, searchable record, reducing the chances of error and making tax reporting or future audits easier.
What happens when a buyer scans the QR code?
Upon scanning the QR code printed on a Simplified e-invoice using a smartphone, a buyer gets to view a given simplified e-invoice’s core data in an instant. Some of the encrypted details included in the QR code are the name of the seller, the VAT number, the invoice timestamp, the total amount of the invoice, and the VAT charged. This process confirms the authenticity of the invoice and the transaction must be in accordance with the zatca services provider list. It also reduces the verification process for the customers and auditors as well.
Why Choose SowaanERP for Phase Two E-Invoicing?
SowaanERP’s e-invoicing software ksa provides a compliant and scalable solution for businesses that are getting ready or are already in Phase Two of ZATCA’s e-invoicing implementation. It automates invoice creation, provides real-time API integration with ZATCA, and makes the clearance and archiving processes easier. Businesses will be able to achieve all technical requirements without affecting the normal operations by using SowaanERP’s zatca approved e-invoicing software. In addition, it has easy-to-use interface and it caters for localization needs, which means that businesses in Saudi Arabia can easily adopt it and stay compliant without having to invest too much in IT.
SowaanERP: Simplifying E-Invoicing for You:
E-invoicing compliance can be a challenging transition for most businesses, but SowaanERP makes the process easy through an intelligent and automated system. Every step ranging from generating the invoice to its transmission for ZATCA validation and finally storing it securely is a smooth process. The platform is intended to lower the compliance burden and allow business owners to concentrate on their main operations without worrying about the constant technical change or integration issues.
Who Needs to Generate an E-Invoice in KSA?
E-invoices are mandated to all the VAT registered businesses that are conducting business in the Kingdom of Saudi Arabia. This is applicable to business to business and business to consumer transactions. Issuance of electronic invoice that complies with ZATCA’s standards is compulsory in case a firm supplies goods or services. The law covers any entity regardless of the size and industry, showing the significance of having a convenient solution such as SowaanERP’s best e invoice software in saudi arabia to remain fully compliant.
How effectively SowaanERP software helps you generate ZATCA-Compliant E-Invoices:
SowaanERP provides the capability to create e-invoices that meet the standards set by ZATCA, without disruption. The software also works in harmony with the FATOORA platform without gaps in reporting and compliance with all existing laws. SowaanERP has been designed to offer automated features and friendly interfaces that make the handling of compliance regulation effective and efficient for the running of any organization.
FAQs
Absolutely, it is required by law for all registered companies in Saudi Arabia to follow the e-invoicing rules. This includes creating, archiving and forwarding e-invoices through their FATOORA platform.
Non-compliance to e-invoicing can result in a penalty that may include fines, suspension of business operations, or other legal repercussion according to the ZATCA laws.
Fields that cannot be left blank are buyer/seller details, contact information and VAT ID numbers, date of issue/invoice number, description of the goods and services, quantity, unit price, VAT amount, and total value of the invoice.