E-Invoicing in Saudi Arabia: Complete Guide for Businesses & E-Invoicing Software

Understand e-invoicing in Saudi Arabia (KSA) and how to implement it efficiently. E-invoicing software and providers help businesses automate invoice generation, comply with ZATCA rules, and improve accuracy and efficiency in B2B and B2C transactions.

What is e-invoicing?

E-Invoicing Explained: E-invoicing involves generating, storing, and managing invoices digitally using e-invoicing software. Scanned or PDF invoices are not valid. E-invoices cannot be edited; any changes require a credit or debit note linked to the original invoice.

It is the process of generating, storing, and managing invoices electronically or in a digital format. A scanned or copied paper invoice is not considered as an e-invoice.

After issuing an e-invoice, it cannot be edited or altered. However, if there is any issue like your product being returned, you can give a credit note with reference to the original e-invoice.

But, all of the note-issuing transactions should be done through the same invoicing system.

Why e-invoicing?

Benefits of E-Invoicing in Saudi Arabia:

- Enhanced security and fraud prevention.

- Increased efficiency and reduced operational costs.

- Better visibility into financial data and customer transactions.

- Compliance with ZATCA and B2B invoicing regulations.

With the implementation of e-invoicing in Saudi Arabia, businesses can have two benefits: security and efficiency.

• It can make trading seamless, swift, efficient, and reduce costs. In addition, it can also offer great insights into marketing conditions.
• It allows government authorities to identify and minimise the shadow economy.
• With e-invoicing, the government can also analyse the movement of services, goods, and money. As a result, tax compliance and transparent commercial transactions are improved, leading to better decision-making.
• It reduces errors and fraud compared to paper invoices.

How does e-invoicing work?

Use certified e-invoicing software to generate invoices in compliance with ZATCA regulations. Share e-invoices with buyers and, in phase 2, validate through ZATCA’s system. Cloud-based storage ensures easy retrieval and audit readiness.

E-invoicing is no different than the general invoicing process but is carried out securely and efficiently.

• Employ e-invoicing software to create invoices that comply with rules and regulations.
• Share an e-invoicing copy with the buyer, but in phase 2, it should be validated through ZATCA’s portal.
• You can opt for cloud-based software to store e-invoices for future reference.

What do businesses need to do?

First of all, businesses need to determine if the e-invoicing rules and regulations apply to them or not. That is VAT taxable businesses (except non-resident taxable people).

• Identify which processes and systems are affected and their relation to e-invoice.
• For which transactions will e-invoicing be applicable?
• How can your ERP or billing systems integrate e-invoicing?

What are the phases of e-invoicing regulations?

Phase 1: Issuing and storing e-invoices (December 4, 2021)

From December 4, 2021, merchants have to generate and store e-invoices & electric notes in place of paper invoices & notes.

Generate and store e-invoices digitally, including all mandatory fields (seller details, VAT number, date/time, total, VAT). PDF/A-3 or XML formats can be used.

In addition, you need to use an e-invoicing system like Pagero having internet connectivity and compliance with ZATCA. The system can be e-invoicing software, a cloud-based solution, or an online cash register.

Every mandatory field and elements like seller’s details, VAT registration number, date and time, the value of the invoice, and the VAT total should be included in the e-invoice.

However, in phase 1, you do not need to report invoices and share data with ZATCA.

Phase 2: integrating with the ZATCA system (January 1, 2023)

Starting from January 1, 2023, this phase will be implemented in various stages for certain groups of taxpayers.

Integrate with ZATCA portal, cryptographically stamp invoices, use UUIDs, maintain sequential numbering, and ensure tamper-proof storage.

Here, you will need to integrate the e-invoicing system with the ZATCA e-invoicing system. So, you will be able to send generated e-invoices for validation and verification. However, this rule will affect different people at various times; ZATCA will inform about the implementation date six months prior.

Moreover, you will need to create e-invoices in specific formats like PDF/A-3 integrated with XML or XML. As this phase will have more technical requirements, it is ideal to use a system that complies with ZATCA’s regulations.

A system should generate UUID (Universally Unique Identifier), digital sign, different sequential numbers for each e-invoice, and be able to connect to external software with API, cryptographic stamp, and a hash. Furthermore, it should also be tamper-proof.

However, you need not worry about all technicalities because a power platform partner providing multiple services can also solve your e-invoicing issues.

What are the types of e-invoicing?

Tax or standard e-invoice

1. Tax E-Invoice (B2B & B2G): Required for input VAT deduction; cryptographically signed in phase 2.

2. Simplified E-Invoice (B2C): Includes QR code; reported to ZATCA within 24 hours in phase 2.

3. Credit & Debit Notes: Linked to original e-invoice for corrections..

Tax –invoices are generated for B2B and B2G and are usually used for claiming input VAT deduction.

However, in phase 1, suppliers need to share invoices with the buyers in the required format. In phase 2, suppliers need to stamp the e-invoices cryptographically, and the invoice should comply with the ZATCA system before sharing with buyers.

In addition, if your buyer has VAT registration, you need to add its number in the e-invoice, and you can also add a QR code.

Simplified e-invoice

These e-invoices are specifically issued for B2C transactions. As a result, buyers will not need to use invoices for input VAT deductions.

However, your systems must generate a QR code for these invoices for the validation process.

In phase 1, you can just share the simplified e-invoice, but in phase 2, the invoices should be reported within 24 hours to ZATCA.

These e-invoices can be billed by a third party or self-billed. However, you will still be in charge of the accuracy of the e-invoice.

Credit and debit notes

Credit and debit notes are issued along with e-invoices if there is any error in the original data. However, they shall be shared with the original e-invoice.

What not to do in the e-invoicing process?

E-Invoicing Best Practices:

- Use unique logins; avoid default passwords.

- Maintain sequential invoice numbers.

- Avoid altering issued invoices.

- Ensure accurate timestamps and audit logs.

For phase 1

• Anonymous login is not allowed, and users should log in with a unique ID and password.
• A default password is prohibited, and the user should reset the password on the first login attempt.
• The system should record all user activities, and the absence of user session management is not allowed.
• Modification and deletion of generated e-invoices are banned.
• Alteration of stored system activities.
• Inaccurate timestamps.
• Not having sequential log entries.
• A feature to reset invoice counters is prohibited.

For phase 2

Phase 2: Validate invoices via ZATCA, no deletion of invalid invoices, maintain cryptographic stamps.

• Generation of more than one sequence for the invoice is not allowed, and all invoices should be linked using ‘previous invoice hash.’
• If a user generates an invalid e-invoice, it should not be deleted.
• The system should not allow changing times in e-invoices.
• There should not be any option to export the cryptographic stamp or stamping key.

Conclusion

E-invoicing in Saudi Arabia (KSA) streamlines billing, improves tax compliance, and enhances operational efficiency. Implement certified e-invoicing software to comply with ZATCA, automate invoice processing, and optimize B2B and B2C transactions.

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