What is the format of an e-invoice in Saudi Arabia?

The latest technological advancements have offered certain conveniences to businesses and governments. E-invoicing is also one of such technological shifts that allows businesses to access their invoices and the government to verify invoices from anywhere, anytime. This digital invoice adoption is becoming widely popular across the globe since it helps the government in strengthening tax policies, boosting transparency, and closing the tax gaps.

Just like other developing countries, E-invoicing in Saudi Arabia is also undergoing rapid development, making it an integral part of the Saudi legal system. Although the electronic invoicing system is established to deal with tax evasion and foster compliance, it demands businesses to upgrade their accounting and ERP systems to adhere to e-invoicing formats set by the Zakat, Tax, and Customs Authority (ZATCA). This writing will cover the basic formats and rules set by ZATCA, but first lets understand E-invoicing in Saudi Arabia.

What is E-Invoice in Saudi Arabia?

An e-invoice is the digital exchange of invoices through a managed format that allows the processing and sharing of invoices between the buyer and seller in real time or near real time. It also involves the electronic recording and secure storage of all business transactions.  If we put an electronic invoice in simpler words, it’s an advanced form of the traditional invoice. These invoices are less prone to manual labor errors or fraud and are more efficient, reducing the chances of tampering or loss and making them easier to access in the future.

Over the years, technology has radically improved legal taxation systems in Saudi Arabia, and e-invoicing in Saudi Arabia is one pivotal step in the digital transformation. The shift from paper invoices to electronic versions was a major change implemented in two phases to make it easier for businesses to integrate. Phase 1 of e-invoicing focused on moving businesses from traditional invoicing systems to digital invoicing systems. However, this phase was an easier one as it didn’t implement any strict rules that came with specific formats or direct integration and invoice verification with ZATCA. On the contrary, phase 2 started with higher standards of security and direct integration with ZATCA. This phase came with strict guidelines and formats that all the eligible businesses were mandated to follow.

The invoices mainly have two types:

• Tax Invoice: Tax invoices are known as the B2B invoices that are processed between one business and another. It covers the important elements like buyer information, invoice number, total price, address details, etc.
• Simplified Tax Invoice: The simplified tax invoice is transmitted between Business to customer and includes less information as compared to the standard tax invoice.

Complying with the e-invoicing requirements is crucial for businesses in Saudi Arabia. This gives credibility to a company’s financial and legal systems. Businesses must invest in emerging technologies to stay compliant and guarded from adverse legal consequences.

The Format of E-Invoice in Saudi Arabia

Every country with mandatory e-invoicing follows its own set of rules and regulations. Just like that, KSA follows a systematic format for e-invoice, which includes:

• ZATCA compliant XML format
• PDF/A-3 format with built-in XML data
• Electronic formats that are readable by the machines

An XML file holds the essential data of the invoice with other required information. This essential information covers all the critical details from the buyer’s information to the e-stamps for verification.

1.    Mandatory Fields in a Saudi E-Invoice

All the important information could not be written on a single paper invoice. Hence, for e-invoice, the data is stored in the XML format that is easily accessed by the authorities. This data generally highlights the:

• Information of Seller covering their business name, VAT registration number, CR number, and address details
• Information of Buyer, including their name, VAT number, and address details if required.
• Invoice particulars like invoice number, date, time, type, and currency code
• Information of the Product, its description, quantity, price per unit, and taxable amount
• VAT data, like the rate of VAT, its amount, and total invoice payment, adding the VAT amount.

2.    QR Code Requirements

QR code is one of the distinct features that come with the Saudi E-invoicing system. This QR code is scanned to gain the important information regarding the seller, VAT registration number, timestamp, VAT amount, and total invoice amount. For simplified invoices, this QR code is obligatory and must be prominently shown on the e-invoice.

3.    E-Invoice XML Structure

The Saudi E-invoice XML file must have all the necessary information. This means the invoice header, details of the customer, supplier, tax, and line item. XML format also comprises the digital signatures and QR code for authentication from ZATCA, and assures transparency in invoice data.

4.    Digital Signatures and Security Requirements

As discussed above, a digital signature is a prominent element of an e-invoice. Along with the digital sign, cryptographic stamping, invoice hashtags, and unique invoice identifiers are an integral part of invoice security controls. These fundamental security components ensure the validity of the invoice and guard the invoice from any unlawful tampering.

5.    Clearance and Reporting Requirements

As per the e-invoice phase 2 mandates, it is officially ordered to clear and verify all standard tax invoices in real time with the ZATCA before they are shared with the customers. However, for the simplified invoices, they are issued directly to customers but must be reported to ZATCA within the given time duration.

6.    Archiving requirements for e-invoicing in Saudi Arabia

ZATCA asks the businesses to archive all the e-invoices for at least 6 to 7 years. These invoices can be stored on the on-premises servers or the cloud. This data must be stored under strict security and should be accessible to the authorities when required.

Why is the electronic tax invoice submitted in the Kingdom of Saudi Arabia?

The electronic invoicing system aims not just to innovate the country digitally but also to enforce tax compliance across businesses. E-invoicing comes with several benefits, which include:

1.      Payment Processing & Execution

The format of the electronic invoice makes the billing easier and tax collection hassle-free. Unlike the traditional paper-based invoices, which are prone to mistakes and may delay the process, the exchange of an e-invoice is not just quick but also holds more precise information and calculations.

2.      Setting up a Database

The e-invoice system is established through a joint multi-user database, which includes all the tax invoices from all around the corporate system. This aids the government and financial auditors in making certain that all the information is correct and the financial operations are reliable. Any fraudulent activity or data gap is detected right away and fixed before it becomes a major concern.

3.      Accelerating the Audit process.

Tax audits become easier with the electronic tax invoices, as the auditors can review all the invoice data digitally, the information can be thoroughly analyzed, and tax violations are detected faster. This makes tax evasion nearly impossible.

4.      Live transaction monitoring

All financial transactions can be observed and traced from anywhere, anytime by the company’s authorities, auditors, or government bodies. This allows the observation of the flow of cash, and not just helps the legal bodies in knowing the credibility of the company, but also the company’s leaders to make thoughtful future decisions.

How SS&Co Facilitates Understanding and Implementing the E-invoicing formats in KSA!

Saudi Arabia is ahead of other countries in the GCC market when it comes to e-invoicing applications, and it strictly enforces the obligations to the businesses to understand their e-invoicing formats and policies. However, this can be intricate for many international businesses, startups, and even regional companies following the outdated business practices. SS&Co. simplifies this integration through the expert supervision and top-notch technological tools. We help you connect your systems with the Fatoorah portal of ZATCA and use the right invoice formats to keep you on the compliance track. We make sure that your business remains abreast with the e-invoicing rules so that you never violate the VAT laws.