E-Invoicing in KSA (Kingdom of Saudi Arabia)
The Kingdom of Saudi Arabia (KSA) is the latest jurisdiction to enforce countrywide electronic invoicing, following in the footsteps of an expanding number of countries.
The General Authority of Zakat and Tax (GAZT) announced on December 4, 2020, that the electronic invoicing legislation has taken effect and that e-invoicing would be mandatory in the Kingdom beginning December 4, 2021. GAZT E-Invoicing regulations enable taxpayers to take the first steps toward implementation.
In this guide, let’s take a deeper look at these documents to get a sense of E-Invoicing in Saudi Arabia.
What is Electronic Invoicing?
Electronic invoicing is an approach that enables to replace the issuing of paper invoices and notes (e.g., handwritten or scanned invoices and notes) into an electronic process, which in turn allows the exchange of an invoice document in an integrated electronic format between a supplier and a buyer.
What Is An Electronic Invoice?
An invoice created, stored, and changed in a structured electronic format using an electronic solution meets all the standards of a tax invoice. An invoice that is handwritten or scanned is not an Electronic Invoice.
When Should An E-invoice Be Imposed?
E-invoices must be generated for all transactions that require tax invoices. Taxpayers must also issue credit and debit notes in electronic format.
What Is E-Invoicing In Saudi Arabia?
Under the current legal framework, firms can exchange invoices online. The existing laws, however, do not require the issuing of electronic invoices. Thus, in and practice, the most prevalent format is PDF.
Suppliers will no longer be able to send paper or PDF invoices after December 20, 2021. Unstructured documents or scanned paper invoices will not be considered electronic documents, according to the published Regulation, and only e-invoices prepared in the specified format will be valid.
Who Is Eligible For E-invoice?
Taxable persons residing in the Kingdom of Saudi Arabia will be required to comply with e-invoicing requirements, which will also apply to third parties generating tax invoices on behalf of resident taxable persons.
Who Is Exempt From The E-Invoicing Rules?
A taxable person who is not a resident of KSA (but is registered for VAT purposes) is not required to follow the E-Invoicing laws.
Why Is Saudi Arabia Adopting Electronic Invoicing?
The Kingdom of Saudi Arabia is adopting electronic invoices for various reasons. These include, but are not limited to:
1. Getting rid of the shadow economy
2. Increasing adherence to tax obligations
3. Eliminating commercial concealment
4. Adopting global best practices and raising the Kingdom’s position in relevant international indices
5. Increasing consumer protection and enabling fair competition
What Is The Action Plan For KSA E-Invoicing Gazt?
E-Invoicing in Saudi Arabia was first announced on December 4, 2020. The General Authority of Zakat and Tax has set the final deadline for its implementation as December 4, 2021. GAZT E-Invoicing regulations have also issued a draft of the requirements and rules, expected to be available by April 17th.
The introduction of e-invoicing will take place in two major stages. The first stage includes creating electronic invoices and related documentation and provisions for their processing and record-keeping. This step will go into effect on December 4, 2021. The second step (the integration phase) contains the most advanced e-invoicing concept, such as electronic invoice transmission and exchange via the online GAZT e-invoice platform.
The first stage appears to be less complicated than the second, but it already involves many technical specifications and necessitates that preliminary work commences as early as possible.
What Are The Technical requirements for E-Invoicing?
The technical framework for E-Invoicing in KSA is quite extensive. Aside from specific essential criteria (such as internet connectivity), some exceptional cybersecurity, anti-fraud, and IT integration rules follow (for example, API).
These technical guidelines are designed to ensure a systematic approach to issuing, creating, and exchanging e-invoices. It will eventually enable a comprehensive E-Invoicing approach in which e-invoices are cleared through the GAZT e-invoice platform.
The E-Invoicing regulations in the kingdom of Saudi Arabia include preliminary requirements for the technology that allows for the issuing and storage of e-invoices, such as:
- The capability to communicate with external systems via the Application Programming Interface (API)
- Compatibility with all the rules and regulations in Saudi Arabia for data or information security or cybersecurity
- The solution must be tamper-proof and contain a system for detecting data intervention or manipulation
- The capability of connecting to the Internet
The Destination Format For E-Invoicing
Taxpayers are required to install E-Invoicing solutions that allow for the creation, storing, and archiving of electronic invoices and their related notes (including electronic notes) in XML or PDF/A-3 format (with embedded XML).
The recommended design must be impenetrable to tampering and fraud-proof. These elements will be part of the taxpayer’s technical E-Invoicing solution.
The KSA government has placed a high priority on protecting electronic documents, and a variety of security aspects are listed in official legislation. Therefore, the technical solution used to generate e-invoices must be capable of producing extra elements for each e-invoice and e-note, including a unique identifier, cryptographic stamp, hash, QR code, and internal counter.
As a result, the features and functionalities listed below may have varying implementation dates. (Format elements are primarily included in the second phase of e-invoice deployment.) More information on the functions required in the first phase (which begins on December 4, 2021) can be found in the following section.
Universally Unique Identifier (UUID)
Each e-invoice in the E-Invoicing system will be uniquely recognized by a unique number assigned to each document in addition to its sequential number. The UUID is a 128-bit number generated by a technique that makes it improbable that another system would generate the same identifier.
GAZT will include this after receiving the electronic document after successful verification of the e-invoice/e-note. The ECDSA public key and the ECDSA signature are both included in the Cryptographic Stamp. It will be created with the same digital certificate that is used to stamp electronic invoices.
Apart from the taxpayer’s numbering, this ensures that consecutive numbering is utilized and that no interference (such as substitution or deletion) is possible. This element will not hold the invoice data directly, but will instead serve as a mechanism to prevent any changes to the page. The hash of a specific invoice will be utilized in the subsequent invoice. It will be computed from all the previous invoice’s contents (UBL invoice, hash of the last invoice, QR code, cryptographic stamp).
This allows for quick, primary document verification using simple QR camera scanners. It will be encoded in Base64 format, with a maximum length of 500 characters.
Internal Document Counter
The counting solution cannot be reset and will detect any fraudulent action quickly.
What E-invoice Functionality Will Be Available As Of December 4, 2021 (1st phase)?
In KSA, e-invoicing implementation has been divided into two parts. The first entails creating e-invoices with the necessary data but does not necessitate the whole format.
As a result, taxpayers should prioritize the following three areas of development for the time being:
E-invoice Creation And Processing
Taxpayers will be able to generate tax invoices, simplified tax invoices, and related documentation such as credit and debit notes. Notably, the first phase does not include a precise format requirement, implying that electronic invoices and other documents will at the very least contain the essential material based on applicable tax legislation.
Taxpayers will export e-invoices and associated electronic documents to a local or external archive using the technical solution.
GAZT E-Invoicing regulations define the mandatory e-invoice fields as optional at each implementation phase in terms of e-invoice structure. Taxpayers must ensure that the e-invoice solution creates invoices with the essential elements and has adequate business rules for the optional data. The following necessary fields, among others, will be available as of December 4, 2021:
- Description of the invoice type
- Reference number for the invoice (IRN)
- Date of invoice issuance
- Name, address, and ID of the seller
- Name, address, and ID of the buyer
- Description of a product or service
- Fields for VAT calculation (net, gross, VAT rate, subtotals, etc.)
In general, the data security features of the e-invoice will not be required until June 2022. Specific security features for simplified tax e-invoices, however, must be installed in the first phase:
- Features that allow the electronic document to be locked and prevent unauthorized involvement in the document’s content
- Creating and assigning a QR code includes the seller’s name and VAT ID, the date and time, the gross amount (VAT inclusive), and the VAT total.
What Is The Scope Of The E-Invoicing Regulations In The Kingdom Of Saudi Arabia?
1) The regulation outlines the controls, requirements, technical specifications, or procedural rules that are required for the implementation of the provisions of the E-Invoicing regulations, which apply to the following:
Electronic invoices, electronic notes, and facilities for processing and record-keeping will be generated beginning on December 4, 2021.
The integration phase, the transmission of electronic invoices and electronic notes, and sharing with authority will be implemented in stages beginning on June 1, 2022.
All taxpayers indicated in Article №3 of the E-Invoicing regulations published on 4 December 2020 are required to observe the electronic invoice regulations when issuing tax invoices and simplified tax invoices set out in Article №53 of the KSA VAT Executive Regulations. In addition, articles 40 and 54 of the KSA VAT Executive Regulations require electronic e-notes for tax notes.
2) The following transactions were excluded from the scope of the E-Invoicing laws under the proposed resolution:
- Supplies that are exempted;
- Any payments received by a taxpayer in connection with exempted supplies;
- VAT-exempt supplies under the Reverse Charge Mechanism (RCM); and
- Importation of products into the Kingdom
Who Is Responsible For Validating The E-invoice Generation Solution?
The E-invoice Generation Solution can be validated by the GAZT, a third party, or by the taxable subject expertise to the e-invoicing requirements.
Will GAZT impose additional technical specifications to those specified in the Electronic Invoicing Regulation?
Yes, GAZT will adopt two separate specifications in addition to the Electronic Invoicing Regulation, which will include:
1. Electronic Invoices, Credit Notes, and Debit Notes Generation and Storage Specifications (Phase One)
2. Technical specifications for integrating the taxpayers’ solution for generating Electronic Invoices and Electronic Notes with GAZT’s systems (Phase Two)
GAZT will publish these two resolutions within (180) days of the publication date of the Electronic Invoicing Regulation.
What Specifications Must Be The E-invoice Generation Solution?
According to the draft proposal issued by the GAZT, the taxable person is forbidden from utilizing any e-invoice generation system that does not comply with the specifications and standards indicated above by the GAZT e-invoice.
The taxable person must register the units used to generate simplified tax invoices and related e-notes in line with the GAZT’s systems and regulations.
The taxable person must keep the cryptographic stamp IDs and their related components safe and prevent them from being copied or used illegally. It is illegal to utilize them for reasons other than those for which they were designed.
Get Started With Your Electronic Invoicing Journey!
The first stage is to determine whether the Electronic Invoicing Regulation applies to you and assess your competence to generate Electronic Invoices following the Regulation’s basic standards. Furthermore, it is critical to keep an eye on GAZT’s official communication channels to be aware of any updates or specifications.
With a compliance window, it is critical for businesses operating in Saudi or non-resident enterprises doing business in KSA to analyze the impact of these new regulations on their operations and take appropriate actions to assure preparation for this transformation. In addition, taxpayers should also be aware of the penalties and infractions that may result from noncompliance with the E-Invoicing Regulations in the kingdom of Saudi Arabia.