The Zakat, Tax and Customs Authority (ZATCA), formally known as General Authority for Zakat and Tax (GAZT) under Ministry of Finance, Saudi Arabia had mandated implementation of electronic invoicing for all VAT registered B2B businesses.
What is electronic invoicing (e-invoicing)?
Electronic invoicing refers to the process of converting paper invoices (Fatoorah) into electronic format. In other words, all the invoices, credit notes, and debit notes by the taxpayers must be generated in a structured electronic format using an invoicing solution.
A scanned copy of a paper invoice or a handwritten invoice cannot be considered an electronic invoice. Only an invoice that fulfills all requirements of a tax invoice and is generated in a structured electronic format can be considered an electronic invoice. Similarly, credit or debit notes which are photocopied or scanned are not considered electronic notes and only notes issued in an electronic format can be considered electronic notes.
Who all are eligible for electronic invoicing?
Electronic invoicing is mandatory for resident taxpayers of Saudi Arabia who are subjected to VAT.
• All taxpayers with goods and services subjected to standard VAT rate and valued at SAR 1,000 or more must generate electronic invoices.
• Taxpayers with zero rated supplies are also required to generate e-invoices. For other zero-rated supplies like domestic supplies of zero-rated goods, or services provided to a non-GCC resident, a simplified e-invoice must be generated.
• An e-invoice must be generated for export of goods, regardless of value of the supply or status of customer
• An e-invoice must also be generated for nominal supplies (value less than SAR 200), however the receiver of the goods will not be able to deduct input VAT related to the nominal supply.
Apart from the resident VAT taxpayers, e-invoicing is also applicable for parties who issue invoices on behalf of a resident taxpayer of Saudi Arabia.
Taxpayers need not generate e-invoices or electronic notes for transactions related to exempted supplies like domestic supplies of goods and services which are exempt under VAT law and regulations. Non-resident taxpayers are also not required to comply with the VAT e-invoicing.
How does the implementation happen?
– Phase 1 implementation from Dec 04, 2021.
Phase 1 is the generation and storage phase where the eligible taxpayers must generate invoices, credit notes, and debit notes in the electronic format. These invoices are stored in the servers on-premises in KSA or the cloud and should be made accessible to the authorities at any point in time, via a direct link to the storage.
– Phase 2 implementation from Jan 01, 2023.
Phase 2 is the integration phase. In this phase, the eligible taxpayers must connect to their e-invoicing solution to the GAZT/ZATCA platform via an API. In this phase, taxpayers must generate their invoices in XML or PDF embedded with XML format. These invoices must contain all the information related to a tax invoice along with a dynamic QR code, UUID, and hash.
Taxpayers must submit their invoices to the ZATCA portal in real-time and get cryptographic stamping on the invoices. Only such cleared invoices are considered valid and legal and can be shared with other stakeholders.
Information Security Measures:
One of the key requirements by the GAZT/ZATCA is that the e-invoicing solution must be tamper-proof and have an anti-tamper detecting mechanism.
Some of the anti-tampering mechanisms include, the prevention of
• Invoice counter reset
• Invoice date
• Deletion or Modification of invoices
• Export of stamping keys which might result in theft of e-invoicing solution’s identity.
• Uncontrolled access
The e-invoices generated by the solution must be tamperproof – no one should be able to modify or delete the generated invoices and can only be accessed by authorized users.
What is the right solution for me?
Currently, many solutions offer e-invoicing services that can fulfill the compliance requirements of phase-1 mandate by ZATCA/GAZT. Some of these solutions providers can be found on the official website of ZATCA (hyperlink to ZATCA list of companies).
Taxpayers must keep in mind three major points while shortlisting a solution:
1. Information security measures mandated by ZATCA – Most of the solutions can generate and storing invoices, but not all of them are tamperproof and have an anti-tampering detection mechanism. Tampering with generated invoices leads to data corruption resulting in huge reconciliation costs. In addition, the taxpayer might also be penalized by the GAZT/ZATCA.
2. Seamless transition into phase 2 – The solution should enable the taxpayers to transition smoothly into the second phase. Otherwise, the taxpayer would have to bear further investment in searching and implementing a different solution for fulfilling the phase -2 requirements.
3. Proven expertise – A solution with proven expertise in implementing the electronic invoicing solution for other markets will be a better choice compared to the newly built solutions as they would be majorly bug-free and have required processes, features, and workflows optimized for the e-invoicing.
Why Taxilla’s enInvoice Solution?
Taxilla’s enInvoice solution is one of the best electronic invoicing solutions in the market and is compliant with all the phase 1 requirements and most of the phase 2 requirements (phase 2 requirements under development) mandated by ZATCA/GAZT.
enInvoice solution seamlessly integrates with various ERPs/Source Systems and can be used by REST API integration, Secure FTP, manual file upload or manual data entry. The solution can process data irrespective of the input file format or schema structure and generates output in the required or federated schema format.
Taxilla has proven expertise in implementing the solution for more than 8% of IRN generating B2B businesses in the Indian market, which is considered one of the most complex tax regimes in the world.
If you want to understand more about our KSA e-invoicing solution, please write to email@example.com for a detailed demonstration of our solution.