Saudi Arabia is taking significant strides towards modernizing its tax infrastructure with the implementation of the E-Invoicing Regulation, commonly known as “FATOORAH.” Managed by the Zakat, Tax, and Customs Authority (ZATCA), this regulation aims to streamline invoicing processes, enhance tax compliance, and reduce tax evasion. Here, we provide an in-depth look at the regulation from a regulatory counsel perspective.
Legal Legislation
The E-Invoicing Regulation, or “FATOORAH,” is the official framework governing electronic invoicing in Saudi Arabia. It outlines the requirements, controls, and procedural rules for generating and integrating electronic invoices, ensuring that all taxable transactions are properly documented and reported.
Scope of the Regulation
The regulation’s scope includes three main document types: tax invoices, simplified tax invoices, and credit/debit notes. It applies to various transactions and entities as follows:
Applicable Transactions:
- B2B (Business to Business): Tax invoices and credit/debit notes.
- B2C (Business to Consumer): Simplified tax invoices.
- B2G (Business to Government): Tax invoices for transactions with government entities.
Applicable Entities:
- Resident Taxable Persons: Must issue electronic invoices.
- Third Parties: Entities issuing invoices on behalf of resident taxable persons.
- Non-Resident Taxable Persons: Exempt from the requirement to issue electronic invoices.
E-Invoice Types:
- Tax Invoice: Used for B2B and B2G transactions and must include all fields required by VAT regulations.
- Simplified Tax Invoice: Used for B2C transactions, with fewer required fields.
Who is Under the Scope?
The regulation applies to all resident taxable persons and third parties issuing invoices on their behalf. Non-resident taxable persons are exempt from issuing electronic invoices.
Main Phases Governed by the Authority
ZATCA has structured the e-Invoicing implementation into two main phases:
1. Generation Phase (Phase 1):
- Start Date: December 4, 2021.
- Objective: Focuses on generating and storing electronic invoices and notes.
- Requirements: Use compliant e-Invoicing systems to generate structured electronic invoices.
2. Integration Phase (Phase 2):
- Start Date: January 1, 2023.
- Objective: Integrates e-Invoicing systems with ZATCA’s FATOORA portal.
- Requirements: Generate invoices in XML or PDF/A-3 format with embedded XML, validate tax invoices in real-time with ZATCA, and report simplified tax invoices within 24 hours.
Upcoming Compliance Deadlines
As of January 2025, the next wave of compliance targets taxpayers with an annual income between SAR 7 million and SAR 10 million. This marks a significant milestone in ensuring comprehensive integration and compliance with the e-Invoicing requirements.
Rules for B2C Transactions
B2C transactions are indirectly covered through the requirement for simplified tax invoices for transactions below SAR 1,000. These invoices must be reported to ZATCA within 24 hours of issuance.
Self-Billed E-Invoice Process
Self-billing is restricted to cases where both parties are VAT-registered. It is not permitted for simplified tax invoices or imports of goods.
Local Authority Portal
ZATCA’s FATOORA portal is essential for managing and integrating e-Invoice solutions. Taxpayers can use the portal to integrate their systems, generate cryptographic stamps, and report invoices.
Submission of Data
Businesses can submit data directly to ZATCA without using a third-party approved company, provided their Electronic Generation Solution (EGS) is compliant. Manual data entry into the ZATCA system is not allowed.
Invoice Data Format
Invoices must be generated in XML format or PDF/A-3 format with embedded XML to ensure machine-readability and compliance.
E-Invoicing System Process
The process involves generating invoices using a compliant system, applying cryptographic stamps, sharing the invoice with the buyer, and reporting to ZATCA within 24 hours.
Procedure for Incorrect Invoicing
In the event of incorrect invoicing, issue a credit note to nullify the original invoice and generate a new invoice with accurate details.
Archiving Period
Electronic invoices and related documents must be archived for a minimum of six years.
Penalties for Non-Compliance
Penalties for non-compliance include fines for failing to issue or store electronic invoices, providing incorrect data, not using a compliant system, late reporting, tampering with invoices, and failing to archive invoices.
E-Invoice Model (CTC)
Saudi Arabia adopts a real-time reporting model (CTC), requiring the real-time transmission and validation of invoices by ZATCA.
For more detailed guidelines, refer to the official documentation provided by ZATCA on their website.
