Since the launch of the Zakat, Tax and Customs Authority (ZATCA) of the e-invoicing system “Fatoora”, the method of issuing invoices in the Kingdom has shifted from paper to a fully digital system. This major change has included all establishments subject to Value Added Tax (VAT), with the aim of enhancing transparency and combating tax evasion.

What is e-invoicing?

E-invoicing is the conversion of the process of issuing invoices and notifications from the traditional paper method to an integrated electronic process. The e-invoice is issued and stored in an organized digital format and exchanged electronically between the seller and the buyer. It is important to know that a scanned invoice (scanner) or a handwritten invoice is not considered an e-invoice.

Two types of invoices

The system specifies two main types:

  • Tax Invoice: Issued from one establishment to another (B2B), and contains all the elements of a complete tax invoice.
  • Simplified Tax Invoice: Issued from an establishment to an individual or end consumer (B2C), and contains the main elements of the invoice.

Two phases of implementation

Phase 1 (December 4, 2021): Issuing and storing invoices electronically. All taxpayers subject to the e-invoicing regulation were required to use an e-invoicing system that complies with the Authority’s requirements. Invoices are issued in the same way but electronically rather than on paper.

Phase 2 (January 1, 2023 – phased): The phase of linking and integration with the “Fatoora” platform of the Zakat, Tax and Customs Authority. In this phase, the electronic systems of establishments are directly connected to the Authority, and invoices are issued in a specific XML format. This phase is being implemented gradually according to the segments determined by the Authority.

What is required from establishments?

If you are a business owner registered in VAT, you must ensure that:

  • Using an e-invoicing system that complies with the Authority’s requirements
  • Including all the required elements in the e-invoice
  • Storing invoices electronically for a period of no less than 6 years (according to record-keeping requirements)
  • In Phase 2: Linking your system with the Fatoora platform
  • Complying with security requirements to protect invoice data

Penalties

Non-compliance with e-invoicing systems exposes you to fines. Fines vary depending on the violation, ranging from minor fines to large fines depending on the frequency of the violation and the extent of exceeding regulatory limits.

Important tips

  • Take your time in choosing the appropriate e-invoicing solution provider
  • The Authority has provided a guide list of approved service providers
  • You can use any system as long as it complies with the requirements, even if its provider is not listed
  • Train your employees on the new system before implementation

Frequently Asked Questions

Q: Am I required to use the e-invoicing system?

A: Any establishment registered in VAT and issues tax invoices is required to use the system.

Q: What is the difference between an e-invoice and a paper invoice?

A: The e-invoice is issued and stored in an organized digital format, while the paper invoice is printed on paper. A scanned invoice is not considered an e-invoice.

Q: How do I know if my system is compatible?

A: Compare your system’s requirements with the e-invoicing specifications published on the Authority’s website, or consult an approved service provider.

Q: When will Phase 2 be implemented for my establishment?

A: The Authority notifies taxpayers 6 months before the implementation date. Implementation is phased according to segments.

Q: Does the system apply to individuals?

A: Individuals who purchase from establishments receive simplified e-invoices (B2C), but the system is aimed at establishments registered in VAT.

Q: Where can I find the list of approved solution providers?

A: On the Zakat, Tax and Customs Authority website zatca.gov.sa in the e-invoicing section.

Q: Are there fines for violations?

A: Yes, non-compliance exposes you to fines according to the VAT law and the violations regulation.