ZATCA Approved E-Invoicing (Fatoorah) Rolling Out in KSA

What is E-invoicing (Fatoorah)?

E-invoicing is a process that generates electronic invoices to issue and store them electronically. ZATCA - The Zakat, Tax, and Custom Authority is rolling out the first phase of e-invoicing in the KSA, mandating businesses to adopt from December 4, 2021. The invoice processing, credit notes, and debit notes in a structured electronic format among seller and buyer will become easy with e-invoicing.

All KSA VAT taxpayers can issue e-invoices for VAT through the electronically integrated system. Not all the copied or scanned paper invoices are e-invoices. E-invoices are not editable after generated. You can generate credit and debit notes that are VAT compliant regarding the original invoice.

E-invoicing standardizes the business transactions, ensuring the whole process works efficiently and securely. Only credit notes are issued if a buyer returns a product, and there is no option to change the original invoice.

All businesses will issue e-invoices for sales made within the country and exports made from KSA.

E-invoices are not mandatory for;

1. Imports in KSA
2. VAT exempted supplies; and
3. Relevant payments.

Why E-invoice is Introducing in KSA?

E-invoicing in KSA is rolling out to enable businesses to work more securely and effectively. This move aims to integrate businesses data with ZATCA to make the trading system as transparent as possible.?The government standardizes the way invoices generate with a machine-readable format. After verifying the e-invoices from the ZATCA portal, there will be more chances to detect fraudulent activities. This information helps tax authorities not to conduct audits frequently.

The benefits of e-invoicing include a better experience for the buyers and sellers, as follows:

1. Streamlined e-invoicing will minimize the chances of slip-ups for business owners.
2. Real-time invoice generation for the tax proceeds added.
3. High data security
4. Fewer chances of scams with an aligned e-invoicing system for validating invoices, resulting in competition and improvement of trade.

Guidelines for ZATCA Approved E-invoicing in KSA

• The e-invoicing provisions will be valid for all taxable goods and services that are subject to VAT.
• E-invoicing will be for all B2B, B2C, and B2G transactions.
• Printed copy to be provided separately.
• All VAT registered business owners within KSA and third parties issuing tax invoices on behalf of a taxable person will mandate the e-invoicing process.
• The standard language for e-invoicing will be Arabic and English.

E-Invoicing Implementation Phases in KSA

Phase One (Generation Phase)

Taxpayers can now generate and store e-invoices, from December 4, 2021. In this phase, you will have access to an e-invoicing system compliant with ZATCA.

The following fields are mandatory for e-invoicing:

• Seller’s name
• VAT registration number
• Time
• VAT total; and
• Value of invoice inclusive of VAT

You do not need to share data and invoices with ZATCA in the generation phase.

Phase Two (Integration Phase)?

Phase two will execute in different stages for targeted taxpayer groups. Starting from January 1, 2023, you will be required to integrate e-invoices with ZATCA system for verification. Integration notification from ZATCA will be received six months in advance.

The integration phase will be more about technical requirements. Your system needs to connect with external systems using APIs, generate a UUID (Universally Unique Identifier), a digital signature, a unique number to differentiate invoices, and a cryptographic stamp.

Types of E-invoices

Tax Invoice

Electronic tax invoices are for B2B and B2G transactions.

• Phase 1

1. Invoices will get issued to buyers in a specific format.

• Phase 2

1. Tax invoices will get processed by ZATCA and stamped, cryptographically.
2. If the buyer is VAT registered, add the VAT registration number to the invoice; and
3. QR code is optional.

Simplified Tax Invoice

Simplified tax invoices in phase one are for B2C transactions. Buyers won't need to use the invoice for input VAT deduction. In phase one, you share simplified e-invoices with customers.?All e-invoices should be reported to ZATCA within 24 hours with a QR code.

How will the E-invoicing Process Work in KSA?

E-invoicing is more secure and effective. Here's what you are required to do for each transaction:

• Use a compliant e-invoicing system to issue the e-invoice with all the mandatory fields.
• Issue a copy to the buyer. In phase two, you forward the invoice to ZATCA's portal and get it validated.
• Save the e-invoice in the system for the future.
• Migrating to a cloud-based solution for e-invoicing features will make data storage efficient.

The Kingdom of Saudi Arabia takes a step towards implementing electronic invoicing across the country. All taxpayers must equip themselves with an e-invoicing system complying with generation and integration phase requirements.

?Dynamics Solution and Technology is a certified Microsoft Gold partner company delivering Microsoft Dynamics 365 Solutions in the UK, Asia (Malaysia, Pakistan, India), and Gulf countries (UAE, Saudi Arabia, Bahrain).?We develop and deploy effective business solutions that meet clients' requirements.

To speak to our specialists, contact at KSA: +966 566 953 627, UK: +44 20 8133 9686, and UAE: +971 545 127 668 or email us your query at [email protected] or visit dynamicssolution.com.

Author: Aisha Shaukat