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e-invoicing Fundamentals

e-invoicing Fundamentals

Many countries in the middle east are planning to enforce e-invoicing as a part of tax compliance requirements. One of the biggest economies of GCC, Kingdom of Saudi Arabia has notified about the compliance of e-invoicing requirements. The e-invoicing solution should be able to transmit the invoice data to the tax authorities systems through Electronic Data Interchange techniques.

What is e-invoicing or electronic invoicing?

Electronic invoice is a tax invoice that has to be generated in a pre-defined standard structure that can be communicated to other systems operated by the vendors/ customers/ tax authorities electronically. The e-invoicing system allows the exchange and processing of invoices, credit notes & debit notes in a structured electronic format between buyer and seller through an integrated electronic solution.

A paper invoice that converted into an electronic format through coping, scanning, or any other method is not considered an electronic invoice. The invoices needs to be issued through a compliant electronic solution. Generation of invoices through a certified computer software is required for e-invoicing. The tax authorities may suggest to include additional fields depending on the type of the transaction.

What are the requirements of e-invoicing implementation in Kingdom of Saudi Arabia?

ZATCA – Zakat, Tax and Customs Authority is the government agency responsible for implementation of the e-invoicing requirements of KSA. The e-invoicing requirements will be rolled out in two phases as shown in the below picture.

PHASE 1 (as of December 4th, 2021)
Phase 1, known as the Generation phase, will require taxpayers to generate and store tax invoices and notes through electronic solutions compliant with Phase 1 requirements.
Phase 1 is enforceable as of December 4th, 2021, for all taxpayers (excluding non-resident taxpayers), and any other parties issuing tax invoices on behalf of suppliers subject to VAT.

PHASE 2 ​ (starting from January 1st, 2023)
Phase 2, known as the Integration phase and rolled-out in waves by targeted taxpayer group, will involve the introduction of Phase 2 technical and business requirements for electronic invoices and electronic solutions, and the integration of these electronic solutions with ZATCA’s systems.
ZATCA will notify taxpayers of their Phase 2 wave at least six months in advance, and the enforcement date for the first target group will not be earlier than January 1st, 2023.

Difference between Tax Invoice and Simplified Tax Invoice?
Tax Invoice – An invoice that is usually issued by a Business to another Business (B2B), containing all tax invoice elements.​
Simplified Tax Invoice – An invoice that is usually issued by a Business to consumer (B2C) containing all simplified tax invoice elements.​

How does the invoices are transmitted?

The e-invoices are to be transmitted electronically using Electronic Data Interchange system that can convert the invoice data to the acceptable standard electronic formats. The below diagram details the transactions.

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