The Zakat, Tax and Custom Authority (ZATCA), formerly known as GAZT (General Authority of Zakat and Tax), in the Kingdom of Saudi Arabia announced in December 2020 new E-Invoicing (FATOORAH) requirements for the year 2021. With this announcement, Saudi Arabia will join the trend of electronic invoicing to decrease the VAT gap and further benefit from more effective business operations.
In this blog article, I explain the upcoming legal E-Invoicing requirements for Saudi Arabia in detail and provide more information about the announced roadmap of the ZATCA.
Saudi Arabia E-Invoicing requirements and deadlines
The ZATCA announced on 4 December 2020 that new E-Invoicing, also known as (FATOORAH) regulation, will come into force during the following year. It has been communicated from ZATCA that the final deadline for implementing the E-Invoicing requirements will be the 4th of December 2021. This implies that the E-Invoicing regulation will become obligatory for all VAT obligated business users in Saudi Arabia within less than a year. Therefore, it is important for businesses affected by the new requirements to adjust their ECC systems during this transitional period to comply with the upcoming E-Invoicing requirements.
The Saudi Arabian tax authority ZATCA has published more information about the E-Invoicing requirements in a document called “Controls, Requirements, Technical Specifications, and Procedural Rules for Implementing the Provisions of the E-Invoicing Regulation.”
ZATCA has established two main phases for the realization of the e-invoice requirements itself:
1. Generation phase: 4th December 2021
The first phase is used to prepare organizations for the upcoming legal E-Invoicing requirements. The organization should prepare to generate E-Invoices in a structured XML format. These E-documents must be generated using an electronic solution and must be stored electronically. The tax authority has defined the mandatory fields which must be filled in on all E-Invoices to comply with the business and validation rules. Moreover, all tax invoices must contain the buyer’s VAT registration number, if it is registered. Finally, simplified tax invoices must include a QR code of a Base64 format with up to 500 characters to check for validity by scanning from a mobile device.
This “soft landing” stage will go into effect on 4 December 2021.
2. Integration phase: 1st January 2021
The second phase, also known as the Integration Phase, was normally planned to go live in June 2022. However, it has been communicated that the planned date is postponed to January 2023.
This means that from January onwards, the invoicing systems must be compatible with the ZATCA system. However, this phase is divided into different rollouts based on the organization’s class. Therefore, the ZATCA will inform the taxpayer about their mandatory integration date at least 6 months before.
During this phase, all E-Invoices, including tax invoices and simplified tax invoices, must be generated in an XML or PDF/ A-3 with attached XML format. Moreover, the chosen E-Invoicing solution must be able to connect to the internet and integrate with external systems through the ZATCAs’ API. Lastly, some additional security mechanisms must be implemented, such as a digital signature, Universal Unique Identifier (UUID) and the generation of a QR code.
This phase will go live in January 2023.
Both phases are relevant for B2C, B2B and B2G E-Invoicing and apply to all taxable supplies subject to the standard or zero rates of VAT, both resident and non-resident. Any non-compliance actions will result in penalties from ZATCA.
E-Invoicing Saudi Arabia solution SAP Document Compliance
As the requirements stated, all electronic invoices must be generated and stored electronically within the organization’s landscape. Therefore, it is important to find a suitable solution that can on the one hand generated the required format (XML) and store them. On the other hand, it needs to be a solution that can connect to the ZATCAs’ platform.
SAP Document Compliance is an integrated SAP solution that works with SAP ECC and SAP S/4HANA and that makes your E-Invoicing process 100% legally compliant with the Saudi Arabian E-Invoicing requirements. SAP Document Compliance ensures compliance with many other country-specific legal requirements all over the world, such as SII Spain, SDI Italy, CFDI Mexico, RTIR and EKAER Hungary, etc. All the implemented country-specific legal requirements can be easily managed with the SAP eDocument Cockpit that takes a central role in SAP Document Compliance. With SAP Document Compliance, you have an end-to-end solution that automatically generates the required XML file based on source information from your SD or FI invoices and digitally signs the file. SAP Document Compliance can be connected with SAP CPI or with 3rd party middleware systems to manage all data communication with the local tax authority systems.
For Saudi Arabia, SAP has communicated that a solution will be provided to comply with the mandates.
Interested? More information about SAP Document Compliance can be found in our previous blog article “SAP Document Compliance to meet legal requirements worldwide”.
How PIKON could help you
Although Saudi Arabia’s E-Invoicing system has yet to be defined, GAZT recommends that all taxpayers who are required to invoice begin preparations as soon as possible. Businesses should consider whether they can comply with the technical requirements of the new system and should analyze their invoice volumes. Another key aspect to take into account is the possibility of initiating a complete digitalization process with a scalable electronic invoicing solution.
With our Competence Center for Legal Requirements, we are a strategic partner who ensures that your SAP system and business processes meet different country-specific legal requirements all over the world in the long run. We have a team of experts that combine SAP expertise and in-depth knowledge of the end-to-end legal process and technical requirements of the Saudi Arabian and many other E-Invoicing regulations. We have gathered this experience through our many SAP Document Compliance and local implementation projects all around the world. Some examples are SDI in Italy, SII in Spain, CFDI and Complemento de Pago in Mexico, RTIR and EKAER in Hungary, XRechnung in Germany, the different legal requirements in Turkey, etc. We have also developed our own compliance SAP Add-Ons e.g. MTD VAT in the UK and the VAT Whitelist in Poland. Furthermore, we always keep an eye on new and changing legal requirements and inform our customers when action is needed. This ensures that your company doesn’t need to follow up on all the legal requirements yourselves, and you can concentrate on your daily business.
If you have any questions about Saudi Arabian E-Invoicing requirements or about how we can help you achieve compliance in your SAP system, please ask me in the comments section below or feel free to request a web meeting. I am happy to help you.
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