What is the e-invoicing process?

The days are gone when bulky files and never-ending piles of paper invoices were used, with every reference number double checked for safety, and each payment was scanned carefully, yet there were possibilities of manual errors or miscalculations that usually led to future trouble. Today, however, this slow and manual process that not just drains time but also energy has evolved into “e-invoicing” where every supplier detail, order references, and payment terms are clean in digital formats. As businesses are transforming from paper to smarter, faster, and greener e-invoicing processes, it has become a mandatory standard for many advanced countries.

E-invoicing in Saudi Arabia was launched in December 2021 and has also become a part of their legal system. Businesses are required to issue, store, and report invoices through e-invoicing systems. This process is not just about convenience but about achieving proficiency, compliance, and growth that is sustainable. No matter if you have already adopted the digital invoicing system or you are trying to acquire it, we will present you with a roadmap to understand every detail you want to know about e-invoicing in Saudi Arabia.

What is E-Invoicing in Saudi Arabia?

E-invoicing is electronic invoicing; it is the transfer of data between supplier and buyer in a structured format. In this process, businesses generate, exchange, and store invoices in digital formats through an integrated electronic system. It ends many of the manual procedures and reduces human errors. E-invoicing in Saudi Arabia is called Fatoorah, and it applies to all B2B, B2C, and B2G transactions. All the taxable persons subject to VAT or any third parties issuing tax on their behalf must utilize the Fatoorah system.

The ZATCA is mainly responsible for looking after the implementation process of e-invoicing. It defines the rules, standards, and monitors compliance to make certain that all industries have fully moved to the Fatoorah system. ZATCA introduced a phased approach to help businesses have a full grasp of this system to avoid any hurdles.

Objectives of E-Invoicing in Saudi Arabia

The introduction of e-invoicing in KSA was to align the country with international best practices and to align with several national goals, like:

• Elevating transparency by dealing with hidden transactions and minimizing the shadow economy
• Reducing the tax evasion risks with precise VAT collection and reporting
• Creating a standardized approach across all industries to adopt a single invoice format
• Mitigates the manual errors, use of paper, and cost of administration
• Foster digitalization that also supports the nation’s goals of Vision 2030
• Keep the businesses in line with international digital tax practices to boost reputation and encourage international investments

Phases of E-Invoicing Implementation in Saudi Arabia

The process of E-invoicing was primarily rolled out in two phases, each with its own scope, needs, and technical requirements. In these two phases, we will further elaborate.

1.     Phase One – Generation Phase (Effective: December 4, 2021)

Phase one was primarily focused on making sure that all taxpayers generate and save invoices digitally. Which included the following requirements:

• All businesses must generate invoices electronically with no manually scanned copies
• They must use a standardized format like XML or PDF/A-3 with embedded XML format
• All the essential data, like VAT registration numbers, timestamps, invoice numbers, and QR codes, must be accurately submitted
• All the invoices must be saved electronically with protection and secure formats
• Applied to VAT-registered businesses of all scales operating in KSA

ZATCA did not make it obligatory to integrate e-invoicing with its platform; however, it was expected that businesses must fully prepare and learn to merge with this system to avoid any complications.

2.     Phase Two – Integration Phase (Started: January 1, 2023, in waves)

Phase two was about integrating the system with ZATCA’s platform; taxpayers were required to connect their invoicing system directly with ZATCA for reporting in real time and for the clearance process. This process included:

• Merging with the Fatoorah Portal of ZATCA
• Clearance in real time of invoices for B2B transactions
• Reporting of any BC invoices within the time span of 24 hours
• Crypto stamping must be done with each invoice signed digitally
• UUID (Universally Unique Identifier) and hash chains for validity
• To prevent and protect against the tampering or deletion of invoices

Phase two is ruled out in waves, initiating with the large taxpayers and, over time, adding smaller entities. As the deadlines approach, ZATCA informs us about it ahead of time.

Types of E-Invoices in Saudi Arabia

ZATCA has clearly mentioned the two main categories of e-invoices in KSA, which are:

1. Standard Tax Invoice: It is used for Business-to-Business (B2B) transactions, which need clearance from ZATCA before sharing it with the customers. It demands a QR code, a digital signature, and complete details of each product or service.
2. Simplified Tax Invoice: This is used for B2C transactions, and normally issued at the point of sale, which must be reported to ZATCA within 24 hours. This doesn’t need any clearance requirement.

The Complete Process of E-Invoicing

The Execution of E-invoicing is a complete, structured methodology that operates step-by-step:

Step 1: Preparation and System Setup

First and foremost, the businesses start by evaluating the current accounting/ERP systems. If any upgrade is required, they make the changes accordingly to integrate it with the ZATCA-compliant e-invoicing solution. Make sure that your system fully supports XML/PDF-A3 formats and cryptographic features.

Step 2: Invoice Generation

The seller provides an invoice in the recommended format. The essential fields include seller and buyer details, VAT breakdowns, and timestamps. All the QR codes must be submerged for the clarification of invoices

Step 3: Clearance (For Standard Invoices)

Invoices are transmitted to ZATCA’s system in real time, which is mandated for businesses. ZATCA substantiates, verifies, and clears these invoices. These verified invoices are then returned with a cryptographic e-stamp and a QR code.

Step 4: Reporting (For Simplified Invoices)

All the invoices are presented to the customer directly, and the data is reported to the ZATCA portal within 24 hours.

Step 5: Archiving

It is a must to store the invoices safely for a minimum of six years for legal documentation purposes; some industries even require longer duration data, like real estate or government projects.

Challenges in Implementation

Despite the fact that e-invoicing comes with some major benefits, there are some stumbling blocks in the process, such as:

• Businesses must upgrade their systems to make them compatible with the ZATCA portals. A legacy system might not fit it perfectly
• For many startups and SMEs, deployment of this software can be burdensome both financially and operationally
• Training and certifications of employees regarding the latest changes in the system are mandatory.
• It is important to guard the sensitive financial information as it is prone to fraud and breaches
• Staying in line with ZATCA’s recent changes and evolving regulations can be overwhelming

Key Strategies for Businesses

To make sure that businesses deal with these complications effectively, it is important to adopt some of the best practices, such as:

• Always proactively start early by preparing your systems, don’t wait for the last minute or ZATCA’s deadline notification
• Train your employees in the accounting and finance teams to make them skilled enough to handle all ZATCA’s latest guidelines and any forthcoming changes.
• Use automation tools as they not only save time but also reduce the chances of manual errors
• Keep a constant track and review the invoice data regularly for better compliance and accuracy
• Implement the best security protocols, like encryption tools and secure storage procedures.
• Hire external professionals who are well familiar with all the e-invoicing protocols with the best tools implementation

The Role of Technology in E-Invoicing

Apart from other best strategies to stay ahead of e-invoicing in Saudi Arabia, technology is one of the most important parts. With the advanced digital transformation, businesses can gain multiple benefits like:

• Utilize cloud-based accounting systems for better scalability
• AI and Automation tools to promptly match invoices and to pick up any errors
• Blockchain technology for the tamper-proofing of invoices
• Merging with ERP systems for effortless workflows

The SS&CO E-Invoicing Experts

Many businesses operating in KSA, mainly SMEs, manage their compliance with internal teams, which can be a huge commitment. SS&CO KSA frees their mind from the stress of compliance with the current or changing ZATCA regulations of e-invoicing. We assist the businesses with:

• Keeping the right track of ZATCA updates and making the changes as per them
• We offer professional and approved e-invoicing platforms that merge with your existing ERP systems
• We come with scalable solutions and offer you the most economical packages with professional services in the region
• We also offer continuous training to internal teams and offer round-the-clock support
• We facilitate businesses with e-invoicing not just for compliance but for better digital growth and proficiency.

We take part as an extension of the finance team to make your compliance procedure smooth and efficient. Hire us today and let us take care of your ZATCA matters.