In 2021, the Kingdom of Saudi Arabia started introducing and implementing electronic invoicing (e-invoicing) to its citizens, aiming to translate paper documents into traceable electronic archives that will improve operations on an individual and nationwide scale.
Although the change to a new digital ecosystem is challenging, e-invoicing brings many benefits: it reduces costs, prevents human errors, enhances digitization, improves accounting and bookkeeping, sets a unified process for validating and auditing invoices, enriches the consumer experience and digitizing the consumer-supplier relationship, and increases compliance with tax obligations.
As a clarification, the term electronic 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. The paper documents that have been copied, scanned, or gone through any other digitalization method are not considered compliant E-Invoices.
E-Invoicing phases for taxpayers in Saudi Arabia
Electronic Invoicing is composed of two main phases:
▪️ Phase 1 (Generation Phase): Persons subject to the e-invoicing regulations must generate electronic invoices and associated notes. It was implemented by 4 December 2021.
▪️ Phase 2 (Integration Phase): Taxpayers subject to the e-invoicing regulations must integrate their systems with the authority’s system (FATOORA). It was implemented from 1 January 2023 onwards. This second phase will be implemented in groups and notified six months in advance.
The taxpayers (including hospitals) must implement phase two according to the waves the ZATCA (Zakat, Tax, and Customs Authority) has set:
- Integration wave 1: Taxpayers with annual taxable revenue above 3 billion SAR in 2021 or 2022. Integration period: 1 January 2023 to 30 June 2023.
- Integration wave 2: Taxpayers with annual taxable revenue above 0.5 billion SAR in 2021 or 2022. Integration period: 1 July 2023 to 31 December 2023.
- Integration wave 3: Taxpayers with annual taxable revenue above 250 million SAR in 2021 or 2022. Integration period: 1 October 2023 to 31 January 2024.
- Integration wave 4: Taxpayers with annual taxable revenue above 150 million SAR in 2021 or 2022. Integration period: 1 November 2023 to 29 February 2024.
- Integration wave 5: Taxpayers with annual taxable revenue above 100 million SAR in 2021 or 2022. Integration period: 1 December 2023 to 31 March 2024.
- Integration wave 6: Taxpayers with annual taxable revenue above 70 million SAR in 2021 or 2022. Integration period: 1 January 2024 to 30 April 2024.
- Integration wave 7: Taxpayers with annual taxable revenue above 50 million SAR in 2021 or 2022. Integration period: 1 February 2024 to 31 May 2024.
- Integration wave 8: Taxpayers with annual taxable revenue above 40 million SAR in 2021 or 2022. Integration period: 1 March 2024 to 30 June 2024.
- Integration wave 9: Taxpayers with annual taxable revenue above 30 million SAR in 2021 or 2022. Integration period: 1 June 2024 to 30 September 2024.
Who is subject to issuing electronic invoices?
All taxable persons subject to e-invoicing regulations are obliged to generate e-invoices for all their transactions for which Tax Invoices must be issued, in addition to the electronic notes that must be issued in the cases stipulated in the VAT Law and its implementing regulations.
The taxpayers include taxable persons who are residents in the Kingdom and the customer or any third party that issues a tax invoice on behalf of the taxable person who is a resident in the country. Taxable persons not residents of KSA are not required to issue electronic invoices or electronic notes.
Types of E-Invoices
Tax invoice
Tax invoices contain fields as per VAT legislation, including seller and buyer information, transaction and goods/services details, and other technical fields that are to be generated by the electronic invoicing solution.
Simplified tax invoice
Credit and Debit Notes
- Electronic Credit / Debit notes are issued for Tax Invoices or Simplified Tax Invoices (after an e-invoice has been issued), where the transaction is adjusted.
- Credit and Debit notes must be issued with a reference to the original invoice(s) to which they are issued. The reference fields can indicate the Invoice Reference Number(s) of the Original Invoice(s) to which the Credit Note pertains.
Clearance: Each tax invoice in phase 2 generated electronically must be cleared by the Authority as a prerequisite for sharing them with the buyers and for such Electronic Invoice to be regarded as legal and valid. Clearance is a real-time transaction integration model of tax invoices, where after integration, the taxpayer directly sends the electronic invoice before sharing it with the buyer. Tax Invoices are then validated across several categories of varying levels and, if approved, are stamped by the Authority and returned to the taxpayer to be shared with the buyer. Clearance applies to all tax invoices and their associated credit/debit notes.
Reporting: Taxable persons must report the Simplified Tax Invoices to the Authority. Reporting is a near-real-time transaction model, where Simplified Tax Invoices and their associated Credit/Debit notes are uploaded to the FATOORA Portal within 24 hours from issuance. Once uploaded, Simplified Tax Invoices are validated, and an acknowledgment through the API is reported back to the taxpayer.
Technical Requirements
An E-Invoice solution is the compliant solution used for generating Electronic Invoices and Electronic Notes. The software must fulfill the specifications and requirements set by ZATCA (Zakat, Tax and Customs Authority). Also, the chosen solutions must connect to the internet through the API published by the Authority to share invoices.
In addition, the solution must have tamper-proofing mechanisms that prevent any modification or tampering with invoices or the solution itself and must be able to record and detect any tampering attempts.
Last, invoices must be in Arabic. The technical aspects of XML will be in English; however, the invoice data must be in Arabic. Other languages can be present on the invoice as well.
Cirrus: a software ready for issuing e-invoices for hospitals in Saudi Arabia
Cirrus is a digital solution developed by Ecaresoft to help Saudi Arabian hospitals comply with new regulations. It provides control and traceability of all hospital operations, thereby enhancing patient safety.
