About e-Invoicing in KSA?
What is E-Invoicing (FATOORAH)?
Electronic invoicing is a procedure that aims to convert the issuing of paper invoices and notes into an electronic process that allows the exchange and processing of invoices, credit notes & debit notes in a structure electronic format between buyer and seller through an integrated electronic solution.
What is an electronic invoice?
A tax invoice that is generated in a structured electronic format through electronic means. A paper invoice that converted into an electronic format through coping, scanning, or any other method is not considered an electronic 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 E-Invoicing (FATOORAH) work?
E-Invoicing will be rolled-out in two phases in KSAFor the first phase, enforced 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, electronic invoice issuance will be very similar to invoices generated prior to 4 Dec 2021, with invoices issued through a compliant electronic solution and including additional fields depending on the type of the transaction. For the second phase, enforceable starting January 1st, 2023 in waves, the electronic solution must be integrated with ZATCA's systems and e-invoices should be generated in the required format.
Why is e-invoicing being introduced in KSA?
The KSA government is implementing e-invoicing for a number of reasons. These broadly fall into two categories: efficiency and security.
E-invoicing can increase efficiency in transactions by making trade more seamless, efficient, and result in faster payments and reduced costs, whilst providing the government with greater insights on market conditions. This also enables fair competition, increases business competitiveness and improves consumer protection in the market, in line with international best practices.
From a security perspective, e-invoicing allows the government to detect and reduce the shadow economy and to monitor the movement of goods, services, and money in (near) real-time, depending on the model that will be implemented. This in turn would lead to achieving increased tax compliance rates, provide increased transparency on commercial transactions and allow data-informed decision making.
Benefits of e-invoicing
- Reduces cost of invoicing process
- Prevents human error in invoicing process
- Enhances digitalization in supply chain
- Improves accounting and book keeping
- Enhances business ecosystem with enriched fair competition and consumer
- protection through provision of a unified process for validating and auditing invoices
- Reduces hidden economy transactions
- Reduces commercial concealment by increasing requirements related to invoice
- tracking and data retention
- Enriches the consumer experience and digitizing the consumer- supplier
- relationship
- Increases compliance with tax obligations through enhanced verification of
- business transactions
E-Invoicing phases
Electronic Invoicing is composed of two main phases, as follows:1. Phase 1 (Generation Phase): Generation of Electronic Invoices Phase, where Persons subject to the E-Invoicing Regulations must generate Electronic Invoices and associated Electronic Notes in accordance with the clauses set forth under the Resolution on the EINVOICING BYLAW and The Controls, Requirements, Technical Specifications And Procedural Rules For Implementing The Provisions Of The E-Invoicing Regulation and any subsequent resolutions. This phase has been implemented effectively by 4th of December 2021.
2. Phase 2 (Integration Phase): Integration Phase, where Persons subject to the E-Invoicing Regulations must integrate their systems with the Authority’s system (FATOORA) in accordance with the clauses set forth under the Resolution on the Controls, Requirements, Technical Specifications and Procedural Rules and any subsequent resolutions. The second phase (integration phase) shall be implemented starting from 1st of January 2023 onwards. The second phase (integration phase) will be implemented in groups and will be mandated to Persons subject to the E-Invoicing Regulations based on the criteria set by the Authority. Notifications to the target groups will be initiated at least six months in advance.
Scope of this Guideline
This Guideline addresses all Persons covered by the scope of application of Article (3) of the E-Invoicing Regulation which covers:
- Taxable person that is a resident in KSA.
- The customer or any third party who issues a Tax Invoice on behalf of the taxable person
That is a resident in KSA according to the VAT Implementing Regulation.
This Guideline aims to provide more information on certain industries, transactions or scenarios and provide more detailed information on how E-Invoicing will be applicable to such industries, transactions or scenarios.
This Guideline contains and references several examples of electronic invoices against the various invoices to be issued and the types of transactions. The complete list of examples and the human readable format (PDF/A-3 with embedded XML) of the invoice and the XML are included on the Authority’s Website. Please note that the Cryptographic Stamp value, the QR Code value, and the Invoice Hash value in the XML examples are sample values. This Guideline aims to simplify and clarify the end-to-end journey of the Taxable persons through electronic invoicing, their obligations, and the overall solution requirements to comply with electronic invoicing regulations. This Guideline does not contain explanations of technical implementation details directed at invoicing solution vendors.
FAQ
What is Phase 2? When will it be enforced and to whom does it apply?
Phase 2 known as the Integration phase, during this phase, subjective taxpayers must comply with Phase 2 business and technical requirements for the electronic invoices and E-Invoice Solutions, and the integration with ZATCA’s system. Phase 2 is enforceable starting from January 1, 2023 and implemented in waves by targeted taxpayer groups. Taxpayers will be notified by ZATCA on the date of their integration at least 6 months in advance.
How will ZATCA notify taxpayers about their integration wave?
The enforcement date for the first target group will not be earlier than January 1, 2023. ZATCA will notify taxpayers of their Phase 2 wave at least six months in advance through Official emails & SMS registered with ZATCA
What are the requirements for Phase 2?
Phase 2, which will be implemented in waves by target taxpayer groups starting from January 1, 2023, entails additional technical requirements that E-Invoice solutions must comply with, the integration of taxpayer E-Invoice Solutions with FATOORA Platform and the issuance of electronic invoices in a specific format. Due to the technical nature of the published requirements, it is recommended for taxpayers to approach a solution provider or their internal technical teams to ensure their E-Invoice Solutions are compliant with ZATCA’s regulations. In addition, developers and subject matter experts may visit ZATCA’s website for viewing all requirements (business, technical, security, etc.). Further details on the integration mechanisms and specifications are published by ZATCA on the developer page on ZATCA’s E-Invoicing webpage https://zatca.gov.sa/en/EInvoicing/Pages/default.aspx
Can a taxpayer use the same E-Invoice Solution that was used for Phase 1?
A taxpayer can use the same E-Invoice Solution that was used for Phase 1, by updating the E-Invoice Solution to comply with the Phase 2 requirements.
Should a taxpayer continue following Phase 1 requirements until Phase 2 applies to them?
Yes, a taxpayer should continue following Phase 1 requirements until the integration enforcement date of the taxpayer’s wave, in which the taxpayer is required to start following Phase 2 requirements. However, taxpayers have the option to start following Phase 2 requirements (which build on Phase 1 requirements) on a voluntary basis before their integration enforcement date [based on final integration roll-out strategy].
If a taxpayer is complaint with Phase 1 requirements, and was not yet notified by ZATCA to integrate, is the taxpayer required to implement Phase 2 requirements?
The taxpayer is not required to implement Phase 2 requirements until notified by ZATCA about the integration enforcement date of the taxpayer’s wave, in which the taxpayer is required to start following phase 2 requirements. However, it is recommended for taxpayers to start following phase 2 requirements on a voluntary basis before their integration enforcement date [based on final integration roll-out strategy]
How can a taxpayer integrate their E-Invoice Solution with ZATCA’s systems?
Taxpayer updates the E-Invoice Solution to comply with Phase 2 requirements Taxpayer accesses dedicated FATOORA portal (https://FATOORA.zatca.gov.sa/) using Taxpayer Portal credentials and requests OTP. Taxpayer inputs the OTP code generated into their E-Invoice Solution being integrated, in addition to the required information for E-Invoice Solution integration after successful E-Invoice Solution integration, taxpayer starts issuing invoices via their integrated E-Invoice Solution Please refer to the detailed technical guideline for more information (here).
How can a taxpayer verify that their E-Invoice Solution has been successfully integrated?
After a taxpayer integrates an E-Invoice Solution, a message will be displayed indicating whether the E-Invoice Solution has been successfully integrated. Also, taxpayers can use the FATOORA Portal (https://FATOORA.zatca.gov.sa/) in order to view a summary list of all their integrated E-Invoice Solutions (section View List of Solutions and Devices).
If one VAT Registration Number has multiple devices, should each device be registered?
Yes, every device issuing invoices with the same VAT number should be registered.
What should be the language of the invoice shared with ZATCA?
As per Article 53 of VAT Regulations, invoices must be in Arabic. The technical aspects of XML will be in English, however, the data for invoices (that will be visible once XML is visualized) must be in Arabic. Other languages can be present on the Invoice as well.
In some cases, an invoice may go into an approval process which can take up to 2 weeks after its generation. Which invoice issue date should be used?
Invoice Issue Date must be the date on which final Tax Invoice is generated. If there are internal processes for approvals, you may consider treating invoice as final only once all internal approvals are obtained, and then submit final invoice to ZATCA. Please note that Tax Invoices may be issued within 15 days of the month following the month in which supply takes place. However, for Simplified Tax Invoices, taxpayers must report them to ZATCA within 24 hours of generation.
When will the QR code string be generated by ZATCAfor Tax Invoices (B2B)?
For the Tax Invoice (B2B), the QR Code string will be generated by ZATCA at the time of Clearance (along with ZATCA’s stamp). Taxpayers are expected just to visualize the QR Code based on the QR Code string received from ZATCA.
Can I submit the same invoice twice?
No, ZATCA does not allow the same document to be submitted twice. However, this will not be rejected at the time of submission.
What is the maximum size allowed for an invoice?
Around 10mb. If this value is exceeded, the relevant API will return an Error 413 response as “Request Entity is too large”
Is it mandatory to generate and store E-Invoices in XML or PDF/A3 (with embedded XML) format?
Once the taxpayer is part of the integration phase, XML or PDF/A3 (with embedded XML) format will be mandatory.
For Tax Invoices (B2B), is it mandatory to provide the customer with a PDF/A3 (with embedded XML) document or would the invoice in XML format suffice?
E invoicing Resolution provides option to either share XML or PDF/A-3 (with embedded XML). If the buyer is able to process XML and agrees to receive file in XML format, then it is valid compliance to send XML.
For Tax Invoices, what should be done if the clearance fails before issuing the invoice to the buyer?
In case of Tax Invoices, if clearing fails (Response is 400 Error), then the taxpayer must submit another invoice for clearance after rectifying the errors. Please note that every document shall have its own hash and counter value. Rejected document’s hash and counter value should not be changed or updated.
What is the difference between Invoice Reference Number and Invoice sequence number?
As clearly mentioned in the Annex 2 of E Invoicing Resolution, Invoice Reference Number (IRN): A unique, sequential note number, issued by taxpayer, as per Article 53(5)(b) of the VAT Implementing Regulation. This implies IRN is just another name for Invoice Sequence Number. Again, as specified in E Invoicing Resolution, the Compliant E-Invoice solution must have a tamper-resistant Electronic Invoice counter that cannot be reset or reformatted. The counter must increment for each generated Electronic Invoice or associated note and the Compliant Solution must record the value of this counter in each Electronic Invoice or associated Notes. Example 1,2,3,4,5...
Is it possible to issue a credit note without a reference to an invoice?
Issuing Credit Note without reference to Original Invoice will be violating requirements of Article 54 of KSA VAT Regulations.
Do we need to send to ZATCA the Invoices where all sold items and services are “Services outside scope of tax / not subject to VAT”?
“The Tax Category Code O is for those transactions where invoice may contain a line item with Standard Rate supply and other with” “Not Subject to VAT”. There is no need to issue a Tax Invoice (or E Invoice) where the transaction solely covers supplies which are “Not Subject to VAT”. Note: If the “Not Subject to VAT” Supply Invoices are generated using same Billing Solution that generates invoices for Standard Rate, it would be worth noting that there should not be gaps in Counter Value and the sequence of Previous Invoice Hash.”