What is ZATCA E-Invoicing?

E-invoicing is the procedure that aims to generate invoices in an electronic or digital format.

The Zakat, Tax and Customs Authority (ZATCA) in the Kingdom of Saudi Arabia (KSA) has announced that e-invoicing is mandatory for all VAT-registered businesses in the Kingdom of Saudi Arabia starting on 4 December 2021. This means, now every business has to generate the invoices digitally, they cannot generate or store the invoices on paper or in PDF format only. In this way, ZATCA will ensure that taxes are correctly identified, deducted, and reported from every electronic invoice transaction.

This regulation mandates businesses based in KSA to adopt an e-invoicing process in two phases. The first one starts on 4th December 2021 and the second one will start on 1st January 2023.

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How does e-Invoicing work in the Kingdom of Saudi Arabia?

The E-invoicing process is similar to the standard invoicing process. The only difference is that in KSA the invoicing process is conducted in a more secure and efficient way.

Let's have a look into what a business have to do for each transaction:
  • It is mandatory to use a compliant e-invoicing software solution for generating the professional e-invoice with all the necessary fields.
  • You need to issue an invoice copy to the customer. Further, by the time you will enter phase 2, the customer invoices need to be pushed to ZATCA’s portal. Further, the invoices will get validated, and only then you can send them to your customers.
  • It is mandatory to keep all your e-invoices in your system. When you start using a cloud-based solution, it will become easier to store the e-invoices and ensure compliance.
  • With intelligent e-invoicing solutions like O2b managing your invoices will be simpler and more effective. Generate paperless e-invoices and stay on top of all the policies or guidelines issued by ZATCA.

What is not an E-invoice, according to ZATCA rules?

ZATCA is completely transparent about what is not an electronic invoice and what is an electronic invoice. Basically, e-invoicing is a legally accepted practice that allows B2B entities to exchange and process invoices, debit notes, and credit notes in a systematized electronic format using an integrated electronic system.

An E-Invoice

Not an E-Invoice

The Zakat, Tax and Customs Authority (ZATCA) also provides the businesses with a list of service providers that offer electronic invoicing solutions that meet their regulatory necessities. However, it is not obligatory to pick only providers mentioned in the list, enterprises can select other e-invoicing solution providers as long as their system meets the necessary requirements.

Who Should Comply with ZATCA E-Invoice Guidelines?

Every citizen of KSA who is subjected to VAT must comply with ZATCA’s obligatory e-invoicing rules & regulations. Whether it is B2C, B2B, or B2G business.

As per ZATCA's guidelines, “E-invoicing implementation will be compulsory for all taxpayers subject to VAT, excluding non-residents of the KSA who are subject to VAT." Simply put, a non-resident supplier does not come under the ZATCA compliance category and will not generate an e-Invoice for the goods or services provided to the resident who is subjected to VAT. However, proper records should be kept as proof of the transaction.

Transactions that are subjected to E-Invoice:
  • Any transaction of services or goods more than SAR 1,000 are subject to the usual VAT rate.
  • Any export transaction of any goods or services regardless of the transaction value.
  • You need to generate e-invoices (Simplified e-invoices) for zero-rated supplies, if the usual criteria for generating a Simplified e-Invoice are satisfied. For example, household supplies of goods and services.
  • An e-invoice must be issued in case of advance payment against the supply of goods or services received by the taxpayer. Moreover, in the case of partial payment, the e-invoice must be issued for the partial payment.
  • Any transaction of Intra-GCC supplies. Transactions between the member states of GCC are considered intra-GCC transactions.

    Note:- Saudi Arabia, UAE, Bahrain, Kuwait, Oman, and Qatar have signed the GCC VAT Agreement.

Features of a ZATCA Compliant E-Invoicing Tool

  • Cloud-based
    The e-invoice software must be cloud-based and can be used anywhere when connected to the internet. Further, the system must be able to share the invoices with the Authority portal.
  • ZATCA Portal Integration
    The solution must be connected with the API of the ZATCA e-Invoicing Integration portal.
  • Tamper-proof
    The platform must have a tamper-proof mechanism in order to eliminate any illegal activity, meddling with invoices or system, or modification of invoices.
  • Keep All Records
    The system must permit taxpayers to save records of all their transactional invoices.
  • Security Feature
    The security feature of the system must be strong. The solution should be capable of detecting and documenting manual modifications, tampering, or any other malicious movement. Also, the system must ensure that there is no data leak or loss of information while generating e-invoices.

ZATCA Implementation Phase 1

This phase is known as the Generation Phase. This phase will require taxpayers to generate and store invoices, and debit/credit notes via electronic systems which must be compliant with Phase 1 requirements. This phase is enforceable as of December 4th, 2021, for all taxpayers ( this phase excludes non-resident taxpayers), and any other parties who are issuing tax invoices on behalf of suppliers are subject to VAT.

What must be accomplished in ZATCA E-Invoicing Phase 1:

ZATCA Implementation Phase 2

The second phase is known as the Integration Phase. It will be rolled out in waves by the targeted taxpayer groups. This phase will involve the preface of technical and business requirements of phase 2 for electronic invoices and electronic systems. Also, it will include the introduction of the integration of these electronic systems with ZATCA’s systems. Simply put, taxpayers need to integrate their e-invoicing tools with ZATCA’s system so they can send the generated e-invoices to the Authority portal for validation and verification.

ZATCA published the revamped e-invoicing Implementation Resolution in Arabic on 24 June 2022, after finalizing the public consultation on 10 June 2022. This Resolution is a part of the e-Invoicing Regulations that were released earlier and published on 4 December 2020. This latest Implementation Resolution, technical specifications, and annexes will be suitable for the Second Phase, i.e., Integration Phase, which will go live on 1 January 2023. However, the English version has not been issued yet.

When the 2nd phase will start, the taxpayers need to issue e-invoices in particular formats (i.e., XML or PDF/A-3 format with embedded XML).

Moreover, this phase will have more additional technical and specialized requirements. This is why implementing a system that is in compliance with ZATCA’s guidelines is the best decision for businesses. Your electronic invoicing system must be capable of connecting to external systems with APIs. Also, able to generate or create a Universally Unique Identifier (UUID), supports e-signature or digital signature, a sequential number for the e-invoices (that will further help you differentiates each e-invoice), and allows generating a cryptographic stamp. Moreover, the solution must be qualified with anti-tampering features.

Features that are Mandatory for Phase 2

Types of E-Invoices

Standard E-Invoice (Tax E-Invoice)

Standard e-invoices or tax e-invoices are issued for B2B and B2G transactions. These invoices are generally used for claiming input VAT deduction by customers. Standard e-invoices have a defined format that the seller shares with its buyers. These invoices will be issued to the customers after getting stamped cryptographically and “cleared” by ZATCA in the second phase. (These regulations will be implemented in the second phase from January 2023).

Standard electronic invoices have fields including the vendor and customer information, transaction, and details of goods/services as well as some other technical fields as per VAT legislation, that need to be generated by the e-invoicing solution.

Source: ZATCA Guidelines Document
Simplified E-Invoices

Simplified electronic invoices are issued for B2C transactions, these are generated instantly at the point of sale. Buyers do not use these invoices for input VAT deduction. For generating the simplified e-invoices, the solution must generate a QR code with the invoice. QR code generation is essential for validating the e-invoices.

The 1st phase will only need the system to generate the simplified e-invoices. However, once you will move to phase 2, the simple electronic invoices will need to be registered to ZATCA within 24 hours of issuance.

Source: ZATCA Guidelines Document
Transaction type Type of E-Invoice to be issued
Taxable goods & services valued SAR 1,000 or more (issued to a taxable or non-taxable legal person) Standard e-invoice
Export of goods Standard e-invoice
Intra-GCC supplies Standard e-invoice
Nominal supplies (not given to a buyer, but held for audit intents) Standard e-invoice
Taxable services & goods, except exports, that are valued at less than SAR 1,000 (issued to a taxable person or non-taxable legal individual) Both (Simplified e-invoice or Standard e-invoice)
Taxable goods and services (except exports) issued to a non-taxable individual Simplified e-invoice
Zero-rated goods and services valued SAR 1,000 or above (issued to a taxable individual or non-taxable legal individual) Standard e-invoice

Get ZATCA-Compliant O2b E-invoicing Solution

Comply with the ZATCA e-invoicing regulations by associating your business to O2b Technologies' robust open-source and cloud solution. We provide an ERP solution that maintains compliance with the regulatory requirements in Saudi Arabia for e-signature, content, reporting, format, etc. Our system is compatible with the ZATCA e-invoicing compliance and it ensures that all the e-documents and e-invoices are exchanged in a secure and trusted environment.

Furthermore, you will be able to generate simplified invoices in Arabic language with required invoice information. Also, it has features for generating QR code and will be fully compatible with the official ZATCA’s e-invoicing document guidelines. Moreover, our robust e-invoicing solution is closely integrated with other solutions such as sales, purchase, accounting, invenpr, and more. O2b Offers a complete ERP solution and is fully compatible with the ZATCA’s regulations.

Let's Have a Look into the Advanced O2b ERP Applications

CRM

CRM applications help capture the leads and convert them to the opportunity. Further, you can assign the salesperson who will be working on the lead and try their best to close the deal. It helps track the customer interaction history and take further actions accordingly.

Sales

Our Sales module helps create quotations, convert them into sale orders in a click, and generate delivery orders immediately. Further, you can send the quotations and sales orders to your customers quickly. Our sales app facilitates online payment, this means the customer can draw their signature on the e-invoices and make payment.

Purchase

Easily create RFQs and convert them into a purchase order after getting confirmation from your suppliers. Send the POs to your vendors via email or by post. Moreover, you can keep track of the status of your RFQs and purchase orders, see the details of the POs and expected delivery date.

Inventory

Our inventory application helps you manage the entire inventory operations from receiving goods to delivering them to the customers. It has advanced features like double-entry inventory, multiple location management, barcode scanners, automatic replenishments. Also, it supports advanced routing like drop-shipping, cross-docking, pick-pack-ship, etc.

Accounting

We provide a complete accounting solution along with e-invoicing features. It comprises robust accounting features, such as easy reconciliation, online payments, multi-currency support, profit & loss statement, cash flow statement, advanced taxes management, general ledger, accounts payable, accounts receivables, and more.

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