In our previous article, we briefly mentioned about the ZATCA (Zakat, Tax and Customs Authority) mandate on electronic invoicing and how phase-wise implementation of e-invoicing will be done for businesses in Saudi Arabia. Electronic invoicing is mandated by ZATCA/GAZT to increase the tax obligation compliance through` enhanced verification and to curb hidden economic transactions.
Through the below article, we shall explain some of the key terms related to KSA e-invoicing and their importance in detail.
- Implementation Phases: According to ZATCA, the implementation of electronic invoicing in KSA will happen in two phases. The first phase of electronic invoicing will be implemented from Dec 04, 2021 (Generation and Storage Phase) whereas the second phase will be implemented from Jan 01, 2023 (Integration Phase)
In the generation phase, VAT taxpayers need to generate and store e-invoices using a complaint e-invoicing solution, whereas in integration phase taxpayers need to connect their e-invoicing solution with ZATCA platform via API.
- Electronic Invoices: The electronic invoices are majorly categorized into two types, based on who the buyer is and the type of transaction. The two types of invoices are Standard tax electronic invoice and simplified tax electronic invoice. Both the versions of invoices must be generated in the Arabic language (in addition to any other language), and Arabic or Hindi numerals are also to be used.
a. Standard Tax Electronic Invoice: A standard e-invoice is an invoice issued by a business to other businesses or government organizations (B2B or B2G) in an electronic format, because of a sale of goods or services. The buyers can use this type of document to claim the input VAT deduction, as per the VAT implementing regulations.
The standard electronic invoice must contain the mandatory fields as per the VAT legislations viz. details of the buyer, seller, goods/ services, and the transaction apart from the technical details.
The tax invoice can be generated in any human-readable format during phase-1, whereas once phase-2 i.e., the integration phase starts, all the invoices need to be generated only in PDF/A-3 with embedded XML or in XML format.
A sample standard electronic invoice copy as provided by the ZATCA in their e-invoicing detailed guide is provided for reference.
b. Simplified Tax Electronic Invoice: A simplified tax invoice generated in a structured electronic format and issued to the individual customers i.e., B2C transactions that are mostly instant, is called a simplified electronic invoice. The simplified e-invoices must be shared with the buyers/customers at the point of sale and a copy must be stored and archived.
In general, the simplified invoices are required to capture the buyer’s details but in some specific cases with special tax treatments (VAT at Zero Rat e), the invoices must include the buyers details also. Examples of such cases are simplified invoices for private medical or educational services provided to citizens, where the VAT responsibility is borne by the Kingdom.
During phase-1 (generation phase) it is sufficient to just share the invoices with the customers/buyers, but during phase-2 the invoices must be submitted to the ZATCA with in 24 hours of issuance. A sample copy of simplified invoice sourced from the ZATCA detailed guidelines document is provided above.
- Electronic Notes: Credit or debit notes issued electronically by following the VAT law and in a structured format are called electronic notes. The paper notes that are converted into electronic format by copying, scanning or any other method must not be considered as electronic notes.
The electronic notes follow the same structure as the invoices which they amend. For example, if a standard invoice is being corrected using a note, then the electronic note will follow the structure of a standard electronic note and the same goes for a simplified invoice.
- Cryptographic Stamp: A cryptographic stamp is an electronic stamp generated via cryptographic algorithms to ensure the origin and authenticity of the electronic notes and invoices. The stamp is designed in the form of an identifier that creates a bridge between the E-Invoice Solution Unit and a trusted source that provides the identity of the person according to the E-Invoicing regulation.
Standard invoices must include cryptographic stamp generated by the authority (ZATCA) whereas for simplified invoices the stamp is generated by taxpayer’s complaint solution. The cryptographic stamp is not visible in the human readable format apart from an embedded version in QR code.
- UUID: During the integration phase, the taxpayer’s compliant solution must automatically generate a 128-bit number called Universally Unique Identifier (UUID) along with the electronic invoices (both standard and simplified). The UUID is a unique number that is associated with a particular e-invoice. The UUID is also referred to as GUID (Globally Unique Identifier). The UUID is used to identify and track electronic invoices throughout their life cycle.
The UUID is not visible on a printed e-invoice and is present within the e-invoice XML. An example of a generated UUID is: 061c95fb-d6bb402-e-aa6-24cb09ec1d013. In case of a system error and the generated invoice is not in the complaint format, the regenerated invoice should have the same UUID.
- Hash: Hash is the digital fingerprint of the invoice and any change in the invoice will generate a different hash. The hashes are generated by a compliant electronic invoicing solution and not visible on the human readable format. A previous invoice hash is also included in the subsequent invoice or note.
In a scenario, an invalid invoice or note is generated, the document stays part of the record and its hash is included in the next invoice or note.
An example of previous invoice hash is NWZlY2ViNjZmZmM4NmYzOGQ5NTI3ODZjNmQ2O
- Clearance vs Reporting: The major difference between clearance and reporting process is that clearance is done for standard electronic invoices and respective notes whereas reporting is done for simplified electronic invoices and respective notes.
a. The clearance process requires the sellers/taxpayers to submit the invoices to the ZATCA portal via APIs in real-time and get them validated across several categories of varying level. The approved invoices are then cryptographically stamped and returned to the taxpayers for sharing with the buyers.
The above image, sourced from ZATCA’s detailed guidelines document, portrays how the clearance process works
b. Reporting is a near real-time process where the taxpayers need to submit the simplified invoices and their associated notes to the ZATCA portal within 24 hours of issuance. Once the invoices are validated, the taxpayers will get an acknowledgement from the authority through the API.
The above image, sourced from ZATCA’s detailed guidelines document, portrays how the reporting process works.
- QR Code: A QR code is a machine-readable matrix barcode which enables users to validate the electronic invoices or electronic notes. When a QR code of an electronic invoice is scanned using a QR code scanner or camera of smart devices, they provide details of the transaction like
- Seller’s Name
- Seller’ VAT registration number
- Invoice Total
- VAT total
- Time stamp of the invoice (date and time)
- Cryptographic Stamp (from Integration phase)
- Hash of the invoice, which links the QR code to the underlying e-Invoice XML in a tamper-proof way (Integration phase)
The QR code must be included only for the simplified invoices and their associated notes during the generation phase, whereas during the integration phase QR code needs to be included both for the standard and simplified invoices and associated notes.