E-invoicing in Saudi Arabia allows the optimization of the invoice process in all its stages. This provides several advantages to both businesses and customers, saving them time, money, and errors. In Saudi Arabia, the implementation began in December 2021 and the second stage will start in January 2023.
In this article, you will learn everything related to this type of invoice in both stages of its establishment. Furthermore, you will learn about the extensive benefits of the process and how to do it properly. Let us see:
1. What is an electronic invoice or E-invoicing in Saudi Arabia?
E-invoicing in Saudi Arabia consists of the generation, issuance, and storage ofinvoices in digital format. Therefore, a scanned or copied paper invoice turn into a digital format is not an electronic one. Also, after the issue of the invoice, the issuer cannot edit it.
However, if you need to make a change or explanation, you can issue notes in electronic format. In addition, the company must reference this note to the original invoice issued at the beginning.
In Saudi Arabia, the Zakat, Tax and Customs Authority (ZATCA) established that companies must comply with the electronic invoicing process. Thus, as of December 4, 2021, companies must comply with ZATCA regulations. Therefore, this system will allow the regulation of the process and the security of the data.
In addition, businesses must issue this type of invoice in the following cases:
- Sales made within Saudi Arabia
- Exports from the country
- Goods and services paid for in advance
However, you should not issue this type of invoice in some of the following cases:
- VAT exempt supplies
- Payments related to the above supplies
- Imports entering KSA
- Supplies subject to the reverse charge mechanism
This type of invoice is similar to a VAT invoice but is generated through an electronic system.
2. Types of invoice
There are 2 types of e-invoice that a business can issue in Saudi Arabia, fiscal invoices and simplified ones.
2.1 Tax electronic invoice
A VAT invoice in electronic format allows a buyer to claim the VAT deduction. In addition, businesses use it mainly in B2B (Business to Business) and B2G (Business to Government) trades. Likewise, the buyers registered for VAT, the business must include the corresponding registration number in the invoice.
In the same way, you can choose to add a QR code on the invoice. In addition, the sellers must issue this type of invoice for all goods and services that fall into this category that exceed SAR 1000. Also, although the tax invoice must be in Arabic, it can also contain another language as a translation.
2.2 Simplified E-invoicing
These invoices are issued at the points of sale for Business to Consumer (B2C). Unlike the previous type of invoice, the buyer does not need this for VAT deduction. In addition, to validate this type of invoice, you will need to include a QR code on it.
For both types of invoices, there is self-invoicing or invoicing to a third party but both must be approved by the tax authority. In these cases, these two types of invoicing will be indicated by an electronic scoreboard.
3. Difference between an invoice and an E-invoicing in Saudi Arabia
Common and electronic invoices have several distinctions which may seem obvious. Next, we detail each of the differences between them:
3.1 Processing
Old invoices involve a rather hard process from their making to their final filing. Also, this involves a lot of manual manipulation, which can lead to errors and slow down the process. In general, all these delays can also cause reduced cash flow, presenting a problem for small businesses.
On the other hand, electronic invoicing is a bit different since it is only generated using suitable software to process a purchase order. This is then simply sent to the buyer who verifies it and, if everything is correct, makes the payment. Thus, automation allows for a more simplified and faster process, with an efficiency of between 60-80%.
In addition, payment processing is also faster and business operations are streamlined.
3.2 Costs
Traditional invoices have various costs associated with them, including printing, labor, filing, etc. Also, all of these costs increase as the business grows.
Instead, an e-invoice lightens these costs due to the elimination or reduction of those related to traditional invoice. Being completely electronic, this type of invoice does not imply expenses for paper, ink, or maintenance of the equipment used.
3.3 Information
Traditional invoice requires a business to have multiple software systems and physical and electronic filing systems. Therefore, it can be difficult to manage, maintain, and retrieve records if necessary. In addition, this means that there may be difficulties in reporting which affect accuracy in general.
However, the electronic invoices method allows the use of simplified software to carry out the entire process. In this way, a business can have a better view of each of the processes, including accounts payable and receivable. Plus, they get more accurate data by reducing errors from manual processing.
3.4 Security
Traditional invoice involves certain security risks that a business must be aware of. One of them is false or compound invoice in which these are altered without the knowledge of any of those involved. Also, you may risk invoices being sent to deceptive sources, causing monetary loss.
In these cases, this occurs because the formats allow for subsequent modifications or problems in sending them by email.
Most of the systems used in electronic invoicinghave certified access points for invoice management. In this way, both parties can count on a secure framework to carry out the commercial exchange. This is because invoices, once completed, cannot be modified or changed and can be easily traced.
4. Advantages of electronic invoicing
To help your business, e-invoicing in Saudi Arabia offers a series of benefits that we detail below:
- Cost savings. This type of invoice will allow you to save expenses due to the optimization of processes. In addition, implementation costs can be paid back quickly and are less than for the paper invoice type.
- Efficiency. Digital invoice allows you to save up to 70% of the time through the automation of procedures. Also, it allows quick integration with other systems.
- Accessibility. The VAT invoice in electronic format allows faster and more secure access than with the traditional format. Additionally, it allows you to search anywhere and the categorization facilitates the hassle process.
- Precision. Through electronic solutions, the invoice process improves considerably. This is due to the decrease in human errors regarding the entry, classification, and filing of documentation.
- Fraud protection. Thanks to digital tracking, it is easier to know the record of each of the commercial operations. In addition, it avoids the duplication and falsification of documents through the unique digital stamp.
- Security. In addition to the previous mention, these automated systems allow access to be encrypted to establish secure exchanges.
- Speed. Automation also optimizes payments and collection times are reduced since shipping is immediate.
- Responsible action. Through this type of invoice, your business provides benefits to your customers, suppliers, the environment, and society.
Therefore, this type of invoice is a more reliable alternative to the traditional way, benefiting all participants.
5. How does e-invoicing in Saudi Arabia work?
In Saudi Arabia, this invoice is not different from the process that is commonly done. Therefore, it is the same process but it is much safer and more efficient. In each of the transactions you make, you must do the following:
- Generate the e-invoice through an invoice system with the mandatory elements.
- In the first phase, you will be able to deliver the copy to the buyer. However, in the implementation phase, the invoice must go through the ZATCA portal for validation before delivery.
- You should properly store this type of invoice for any later reference. Cloud-based storage and processing solutions ensure compliance.
Therefore the whole process is simple, you only have to consider the regulations of both phase 1 and 2.
6. Legal requirements for e-invoicing in Saudi Arabia
The invoice process through electronic means in Saudi Arabia comprises 2 different phases. The first of them, the simplest, began on December 4, 2021. On the other hand, the most complete phase will begin to be implemented as of January 1, 2023. In addition, taxpayers will enter this second phase progressively.
6.1 Phase 1
This phase serves as preparation before the implementation period, so it does not require a central platform. However, there are some requirements that you should consider in each process.
6.1.1 Generation
The taxpayer must create the e-invoice in a structured format, preferably the one that will be mandatory from the beginning of the second phase. In addition, each invoice must contain the mandatory data and fields established by ZATCA. Also, taxpayers must include a QR code to make it possible to scan the data with a smartphone.
6.1.2 Exchange
For the first phase, you can send, in addition to the electronic format, any other format or even a paper invoice. Additionally, it is not necessary to verify or sign them.
6.1.3 Archiving
In this phase, taxpayers must maintain the electronic record of each of the invoices created. In addition, this storage must be done locally, although it must be possible to do it offline.
6.2 Phase 2
As we said before, this phase will start on January 1, 2023, and it will be the implementation process. In this case, there must be an integration of the new invoice with the ZATCA electronic central platform.
6.2.1 Generation
In this second stage, each electronic invoice must follow the mandatory format. In this case, the invoices can be in one of the following formats:
- Saudi Arabia XML Format.
- PDF/A-3 invoice file with embedded XML invoice.
Once the invoice is made, the taxpayer must transmit it to the ZATCA platform to provide it with a cryptographic seal. In addition, it will also have a hash value as a UUID (Universally Unique Identifier) identifier.
6.2.2 Exchange
To send the invoice to the buyer, ZATCA must approve and sign it. Therefore, for a B2B invoice to be legally effective, it must first be verified by ZATCA.
6.2.3 Archiving
Taxpayers must save the invoice in offline local files as well as externally.
Added to all the previous processes, taxpayers must also check if they qualify within the electronic invoice regulations. In addition, companies must implement the necessary technologies to adapt to the new process. They must also meet the following requirements:
- Internet access.
- Protections Against Improper Tampering.
- Data control.
- Cybersecurity.
- Exchange with API using external systems.
7. We can assist with the implementation of the new invoice
The VAT invoice in electronic format will allow a more efficient and secure process for taxpayers in Saudi Arabia. Although this process will be carried out in two quite different phases, businesses must prepare to comply with legal requirements. This implies sticking to the invoice method with the elements established by ZATCA in both phases.
Because you need to know all the legal aspects, our organization can offer you all the assistance you require. In this way, you will have the security of being in compliance and having an optimized process. In addition, Company Formation Saudi also has experience in the following fields:
- Payroll services
- Opening of companies
- Branch opening
- Accounting services
- Visa services
- Legal services
- Virtual offices
- Immigration
Find out more details about electronic invoice and its legal aspects with us. Contact us at +971 433 16 688 for more information on the subject and our other services. You can also email us at contact@companyformationsaudi.com for this and other details.