Saudi Arabia’s Mandatory E-invoicing: Driving Digital Transformation

Saudi Arabia’s Mandatory E-invoicing: Driving Digital Transformation

Do you know how a great empire like Saudi Arabia manages invoices in businesses? It’s very interesting to know how cleverly they converted their whole manual system into an electronic process. In 2021 Saudi government initiated the E-invoicing system. The process of E-invoice is to convert the issuance of paper invoices and notes into an electronic process that exchange between a buyer and supplier, and it is validated by an integrated electronic solution. 

The main Concept behind introducing E-Invoices is to ensure the transparency, accuracy, and legal validity. The major key factors of E-Invoicing include legal framework, electronic authentication, data retention, tax regulations, data privacy and security and invoice format and content. 

Two Models of E-Invoicing 

Clearance Model- In this model the associated tax authority must clear the E-invoice before it is valid and can be sent. 

Post Audit Model – It’s a direct method where buyer and seller can exchange invoices directly and the reviewing process is done later by the tax authorities. 

Advantages of E-invoicing 

An announcement from ZATCA which is Zakat, tax and customs authority states that the primary objective of implementing E- Invoicing frameworks is : 

  • To upgrade the efficiency of the VAT filing process for those who are paying tax. 
  • To minimize the manual workload for suppliers for providing invoices to customers. 
  • To reduce the cost by removing paper invoices and manual invoices 
  • To trace the commercial address and tax fraud. 
  • To improve documentation security by e-signatures. 

Phases of ZATCA

Phase 1: Commonly known as the generation phase in which taxpayers must generate and keep tax invoices, direct tax invoices and through a complaint e-invoicing solution. 

Phase 2:  Is known as Integration Phase in which a seller must complete the tax invoice from ZATCA in real-time and then share it with the buyers as a legally valid e-invoice. But the seller needs to report the simplified invoices to ZATCA within 24 hours from the time of generation. 

Challenges 

The major problem in adapting ZATCA was that users were still in confusion of buying ZATCA software or building it.  Since it is a government authenticated service, a small mistake can lead to huge trouble. And managing the data on time and following up with the rules and regulations of ZATCA is quite a lot to handle for a business. Therefore, most of the businesses prefer third party help in ZATCA integration for their business. It is quite simple then managing the whole thing by ourselves. 

Adaptability: Coming out of the things you have following for a longer period is not easy. Similarly, the businesses which were using paper invoices are having a hard time adapting to digitalization. To make the users feel secured and safe the KSA government has installed various features in ZATCA and one of the best feature is that, if there is any problem in your system which creates issues or lost transactions in ZATCA, you can report it in ZATCA and once it’s get resolved and the problematic invoices have been fixed, do update it in ZATCA. It will be a great advantage for you to avoid fines or non-compliance.  

Conclusion

The new step taken by Kingdom of Saudi Arabia towards digital E-voicing has bring a turnaround change in the economy. KSA is the first nation in the GCC to implement the e-invoicing initiative. Followed by them, Bahrain and United Arab Emirates indicated its plan to mandate this process soon. After the ZATCA Integration there will be a steady and stable flow of information with a low chance of fraud and corruption. The arrival of ZATCA into the taxation system has helped both seller and buyer by providing accurate information about the data. It was a game changer for the business industry where they can avoid all the diplomatic problems and run their businesses without any hinderance. If you need any assistance with ZATCA Integration, contact us and we are always ready to help you with every step.