Rise of ZATCA E-Invoicing in Saudi Arabia (Fatoorah) – All You Need To Know

Saudi Arabia, also known as the Kingdom of Saudi Arabia (KSA), has initiated various efforts to digitize its economy. One notable development is the merger of the General Authority of Zakat and Tax (GAZT) with the Zakat, Tax, and Customs Authority (ZATCA). This merger aims to introduce e-invoicing in Saudi Arabia or the ZATCA e-invoicing.

A draft amendment was published on September 17, 2020, outlining the proposed rules and regulations for e-invoicing in the country, keeping in mind the Value Added Tax Implementing Regulations.

Meaning of e-invoicing in Saudi Arabia:

In KSA, ZATCA e-invoicing is commonly referred to as Fatoorah, and the software used for the same is known as Fatoorah portal. E-invoicing is a process designed to transition the generation of invoices from a paper-based format to an electronic format. This electronic invoicing procedure facilitates the exchange and handling of invoices, credit notes, and debit notes in a structured electronic form between the buyer and the seller.

All regulations pertaining to a tax invoice in the Value Added Tax (VAT) legislation are applicable to an e-invoice, and any failure to comply with these regulations may result in penalties imposed by ZATCA. As outlined in the Electronic Transactions Law of KSA, the regulations concerning the verification of electronic transactions and the use of electronic signatures are relevant to e-invoices and electronic notes issued in this context.

The Fatoorah Project

Meaning of Fatoorah

In the Kingdom of Saudi Arabia, the word Fatoorah basically means an electronic invoice. It is the process that lets people exchange and process invoices in a structured electronic format. These also include debit notes and credit notes. The exchange is done between buyer and seller using an integrated electronic solution.

“Fatoorah” Electronic Invoice – An Ambitious Project

ZATCA launched the ambitious and forward-looking “Fatoorah” electronic invoicing Project in 2021. It is an extension of various digital projects it has initiated during recent years as part of efforts to achieve the ambitious digital transformation goals outlined in the Kingdom’s Vision 2030.

The digital invoicing or ZATCA e-invoicing is led by His Excellency Eng. Suhail bin Mohammed Abanmi, the Governor of ZATCA. The whole idea of e-invoicing is deeply aligned with the latest developments in the world’s leading economies, and the same will have a tangible impact on the Kingdom’s national economy.

In the words of Eng. Abanmi, “The project will contribute to reducing the hidden economy’s transactions and promoting fair competition, contributing significantly to the efforts made by several government agencies to combat commercial concealment, in addition to its essential role in enriching the consumer experience,” he said.

Who is the implementing authority for e-invoicing in Saudi Arabia?

The responsibility for overseeing e-invoicing in Saudi Arabia lies with the Zakat, Tax, and Customs Authority (ZATCA). Formerly known as GAZT, ZATCA introduced the draft E-Invoicing Regulations in March 2021, asking for input from the public and stakeholders until April 17, 2021. The finalized e-invoicing Regulations were officially announced on May 28, 2021.

According to these regulations, all resident taxpayers are required to be fully prepared to generate, store, and modify e-invoices by December 4, 2021. The regulations mentioned the terms, prerequisites, and conditions concerning electronic invoices, as well as electronic credit and debit notes. Additionally, ZATCA has issued comprehensive guidelines on ZATCA e-invoicing to facilitate a smooth implementation.

Read also:- E-invoicing: A Global Phenomenon

What are the types of e-invoices?

ZATCA has clarified that e-invoices are required for all types of tax invoices under the VAT system. There are various types of ZATCA e-invoices, and the commonly used tax invoices include:

• Standard tax invoice: This invoice is issued by a business to another business (B2B) and includes all the essential elements of a tax invoice, particularly the VAT registration numbers of both the buyer and seller.
• Simplified tax invoice: Often issued by a business to consumers (B2C), this invoice contains the key elements of a simplified tax invoice.

Type of E-Invoice To Be Issued

ZATCA, in its guidelines, further explains that the type of e-invoice to be issued depends on the nature of the supply.

The following points outline the specific scenarios:

• For taxable sales to a taxable person with an invoice value of SAR 1000 or more, the required e-invoice is a standard tax e-invoice.
• If the invoice value for taxable sales to a taxable person is less than SAR 1000, the seller has the option to issue either a standard or simplified tax e-invoice.
• Non-taxable legal persons must use a standard tax e-invoice for transactions of SAR 1000 or more. For transactions below SAR 1000, they have the flexibility to choose either a standard or simplified tax e-invoice.
• The same options apply to zero-rated sales to taxable persons, with a standard tax e-invoice mandated for transactions of SAR 1000 or more and the choice between a standard or simplified tax e-invoice for transactions less than SAR 1000.
• Intra-GCC sales or exports, as well as nominal sales, require a standard tax e-invoice, regardless of the invoice amount.
• Business-to-consumer (B2C) sales, regardless of the amount, necessitate a simplified tax e-invoice.
• Import transactions, exempted sales, sales under the Reverse Charge Mechanism (RCM), and sales outside the VAT scope are exceptions, and no specific e-invoice type is applicable.

Implementation of E-Invoicing in Saudi Arabia:

All entities who register under the KSA VAT, including customers and third parties issuing invoices on behalf of taxable individuals, need to utilize electronic invoices. The regulations governing tax invoices, credit notes, and debit notes for VAT continue to be applicable to e-invoices. However, ZATCA e-invoicing is not applicable to non-resident taxpayers under VAT.

The implementation of e-invoicing in Saudi Arabia occurs in two phases:

Phase 1: Generation

Known as the ‘Generation Phase,’ taxpayers shall generate and store tax invoices, simplified tax invoices. The same applies to corresponding Credit and Debit Notes (CDNs) through a compliant e-invoicing solution. This phase was initiated on December 4, 2021, and is obligatory for all taxpayers, excluding non-resident taxpayers, as well as any other parties issuing tax invoices on behalf of VAT-registered suppliers. The process of issuing e-invoices resembles the current invoicing procedures. It must be conducted through a compatible electronic billing system. E-invoices in this phase must include all necessary items based on the type of invoice.

Phase 2: Integration

Referred to as the ‘Integration Phase,’ this phase is rolled out in waves for specific groups of targeted taxpayers.

The commencement date for Phase 2 is January 1, 2023. ZATCA has outlined the waves and their respective criteria as follows:

This phase includes the introduction of, technical and business requirements for electronic invoices and solutions. Taxpayers must integrate their systems with ZATCA’s systems to share data. Sellers need to ‘clear’ tax invoices with ZATCA in real time before sharing them as legally valid e-invoices with buyers. Additionally, sellers must report simplified invoices to ZATCA within 24 hours of their generation.

How will ZATCA e-invoicing in Saudi Arabia benefit its tax system?

The introduction of e-invoicing in Saudi Arabia, or Fatoorah, in KSA, will benefit through several factors:

1. Enhanced Tax Compliance: The implementation of e-invoicing promotes transparency in commercial transactions, aiding the government in ensuring improved tax compliance.
2. Accuracy and Ease of Transactions: Electronically generated invoices contribute to better accuracy and facilitate seamless transactions with customers, streamlining the overall invoicing process.
3. Increased Efficiency: The adoption of e-invoicing results in increased efficiency for both businesses and governments. This is because of data standardization, facilitating smooth trade, prompt communication, faster payment processing, and a reduction in overall transaction costs.
4. Environmental Sustainability: The electronic generation of invoices significantly reduces reliance on paper invoices, promoting environmentally friendly practices and contributing to sustainability efforts.
5. Detection of Fraudulent Activities: The implementation of e-invoicing in Saudi Arabia provides tax authorities with the tools to identify fake invoices and address related malpractices. This helps in monitoring and controlling activities in the shadow economy, promoting fair and legal business practices.

What are the consequences of non-compliance with ZATCA E-Invoicing?

ZATCA has the authority to levy penalties ranging from SAR 1,000 to SAR 40,000 for various non-compliance instances, including

• Failure to generate and store invoices and notes electronically.
• E-invoice does not have the mandatory QR (Quick Response) code.
• Non-compliance with the prescribed format for storing e-invoices and notes.
• When the taxpayer issues and saves electronic invoices by utilizing the e-invoicing system’s prohibited functions.
• When changes are done, or the invoices and electronic notes are deleted after their issuance.
• When provisions are violated outlined in the e-Invoicing Law.

Challenges and Considerations of ZATCA E-Invoicing

It is a given when businesses, enterprises, or organisations start implementing e-invoicing in Saudi Arabia, they are bound to face challenges. These could be the technical challenges and also the business-side or adaptation challenges and considerations.

While they embrace this change, it becomes essential to address these challenges and also keep in mind some considerations. A proactive management and strategic planning could be the best way to adapt.

5 Technical Challenges in the Fatoorah System

1. Integration Complexity – Integrating Fatoorah with existing systems may prove challenging due to the complexity of systems architecture and data structures. Ensuring seamless communication and data exchange between Fatoorah and other software applications requires thorough planning and technical expertise.
2. Data Migration Issues – Migrating invoicing data from legacy systems to Fatoorah can present challenges such as data compatibility, format conversion, and data cleansing. Businesses must carefully plan and execute data migration processes to avoid data loss, duplication, or corruption.
3. System Compatibility – Compatibility issues may arise when integrating Fatoorah with existing software and hardware infrastructure. Differences in operating systems, databases, or communication protocols can hinder integration efforts and require additional resources for resolution.
4. Regulatory Compliance – Ensuring compliance with regulatory requirements and standards poses a significant technical challenge. Fatoorah must adhere to Saudi Arabia’s e-invoicing regulations and standards, requiring continuous monitoring and updates to stay compliant with evolving regulatory changes.
5. Security Concerns – Maintaining data security and confidentiality is crucial in e-invoicing systems. Fatoorah must implement robust security measures to protect sensitive invoicing data from unauthorized access, data breaches, or cyberattacks, adding complexity to system design and implementation.

5 Business Challenges in the Fatoorah System

1. Change Management – Resistance to change among employees and stakeholders can hinder the adoption of Fatoorah. Businesses must effectively communicate the benefits of Fatoorah, address concerns, and provide training and support to facilitate smooth transition and acceptance.
2. Training and Education – Ensuring employees are proficient in using Fatoorah requires comprehensive training and education programs. Businesses need to invest in training resources, user manuals, and support services to equip employees with the necessary skills and knowledge to effectively utilize Fatoorah.
3. Compliance Complexity – Navigating the complex landscape of regulatory compliance is a key business challenge. Fatoorah must adhere to Saudi Arabia’s e-invoicing regulations and standards, requiring businesses to stay informed about regulatory changes, implement compliance measures, and ensure ongoing adherence.
4. Cost Considerations – Implementing Fatoorah involves financial investments in software licenses, training, infrastructure upgrades, and ongoing maintenance. Businesses need to carefully assess the costs associated with adopting Fatoorah and develop a comprehensive budget plan to manage expenses effectively.
5. Operational Disruptions – The transition to Fatoorah may cause temporary disruptions to business operations as employees adjust to new processes and workflows. Minimizing disruptions requires careful planning, coordination, and contingency measures to maintain business continuity during the transition period.

The Future of ZATCA E-invoicing in Saudi Arabia

In 2023, the ZATCA authority showcased a documentary, “Fatoorah”, which highlights how the introduction of ZATCA e-invoicing has bolstered Saudi Arabia’s economic growth. It plays a pivotal role in fostering equitable competition, safeguarding consumer interests, combating commercial fraud, eradicating illicit economic activities, and strengthening tax compliance.

Saudi Arabia has become one of the world’s fastest countries in implementing e-invoicing. This only shows the country’s advanced digital infrastructure and the readiness of its private sector to absorb technology developments.

The official figures say that Fatoorah is a hit. As per reports, there are over 14,000 e-invoicing systems integrated with (the) Fatoorah platform, as well as over 400 million invoices (that) have been shared via the platform since Jan. 1, 2023.

It’s safe to say that the future of E-invoicing in Saudi Arabia is safe and well in place. The taxpayers and the government alike are working towards making tax compliance and transactions transparent and systematic and leveraging it for people’s good.

Conclusion

In summary, Saudi Arabia’s move toward e-invoicing, ZATCA’s very own Fatoorah, marks a significant step in the country’s digital transformation. The merger of GAZT with ZATCA emphasizes the commitment to implementing e-invoicing for increased transaction efficiency. 

The government and the authorities are positive about the coming-forth digital transformation, and the involvement of technological advancement. Aligning the thoughts of the government, VATrobo, an advanced e-invoice compliance software, works to make your e-invoicing in Saudi Arabia, easy and adaptable.

With features like bulk generation within seconds and adhering to all norms of ZATCA, VATrobo is a powerful tool to streamline all your e-invoicing needs in one dashboard.

E-invoicing with VATrobo streamlines your transactions, enhances tax compliance, and ensures accurate e-invoicing. ZATCA’s guidelines require complete readiness for e-invoicing within specified timelines, and failure to comply may result in penalties. We make sure you stay ahead of time and get the maximum out of your software and ERPs.