Saudi Arabia: Electronic Invoicing

As part of several initiatives for the digitalization of the economy, The Zakat, Tax and Customs Authority (ZATCA) introduced the e-invoicing (Fatoorah) system in Saudi Arabia in line with Value Added Tax Implementing Regulations, to be implemented in two phases, the implementation of Phase I began on December 4, 2021, while the implementation of Phase II will start on January 1, 2023.

E-Invoicing is a procedure that aims to convert the issuing of paper invoices, as well as credit and debit notes into an electronic process that allows the exchange and processing of invoices, credit, and debit notes in a structured electronic format between the buyer and seller. E-invoices are subject to all the provisions of VAT legislation regarding tax invoices, and any non-compliance will result in penalties. Also, E-invoices and electronic notes are subject to the provisions related to proof of electronic transactions and electronic signatures in the Electronic Transactions Law of Saudi Arabia. There are two types of tax invoices; Tax invoices which are invoices issued by businesses to other businesses (B2B); they contain all the elements of tax invoices, especially the VAT registration number of the buyer and seller, and Simplified tax invoices which are often issued by businesses to consumers (B2C) containing the main elements of a simplified tax invoice. The e-invoices must be issued in the Arabic language. However, other languages are permitted, along with the Arabic language. 

E-invoicing is implemented through two main phases. Phase I is called the generation phase, in which taxpayers must generate e-invoices and related e-notes through e- solutions in accordance with Phase I requirements, it should be compiled by all taxpayers and any other parties issuing tax invoices on behalf of suppliers subject to VAT – except non resident taxpayers. Phase II is called the integration phase, where taxpayers must connect their e-billing systems with the ZATCA’s systems to share data and information. This phase will be implemented starting from 1 January 2023. The e-invoice will be issued in the same manner as a paper invoice, but using a compatible e-billing system. The e-invoice will include all the required items according to the invoice type. 

The implementation of E-billing will have many benefits including but not limited to enhancing commercial transactions transparency which would help in ensuring better tax compliance, reducing commercial cover-up by increasing requirements related to invoice tracking and data retention, reducing the use of paper being eco-friendly, increasing the accuracy and efficiency of transactions, enhancing fair competition and consumer protection by providing a unified mechanism for documenting and auditing invoices, and detecting and reducing shadow economy.

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