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e-Invoicing in Saudi Arabia: Its challenges and how to successfully implement e-Invoicing in KSA?

  • By Content Desk
  • October 6, 2021
  • 9 minutes read
Reading Time: 9 minutes

The 4th of December 2020 saw Saudi Arabia’s GAZT or “General Authority of Zakat and tax” publish extensive guidelines on the implementation of e-Invoicing solution for KSA. Also known as, Fatoorah, the Kingdom of Saudi Arabia has set a date of 4th December 2021 for it to become effective and binding on all.

The implementation of e-Invoicing in Saudi Arabia is an important change being incorporated into the currently applicable VAT System. It is one of the several initiatives taken by KSA to digitize its economic system.

Just before its introduction, a merger between the “General Authority of Zakat and Income” and the “Tax and Customs Authority” of Zakat was facilitated. A draft amendment incorporating this change was published on the 17th of September to make it official. This amendment also extensively covered electronic billing rules and regulations that commercial organizations must incorporate before the e-Invoicing implementation date.

What is e-Invoicing?

e-Invoicing is a procedure that facilitates the conversion of all paper invoices and debit/credit notes into an electronic format. This format streamlines the process and allows invoices, debit and credit notes to be processed and exchanged in a structured manner between the seller and the buyer. 

Why was e-Invoicing introduced in Saudi Arabia?

The KSA is introducing e-Invoicing primarily to improve the efficiency and security of the billing process.  

Efficiency: The enhancement of transactional efficiency helps make trading in KSA seamless and efficient by: 

  • Resulting in quicker payments 
  • Reducing company overheads

The e-Invoicing system will provide its government with greater insights into the current market conditions after its successful implementation. Furthermore, this system enabled businesses in KSA to incorporate the best global business practices of: 

  • Fair competition 
  • Business competitiveness 
  • Improved consumer protection  

Security: This is an important benefit as it enabled the government to: 

  • Improve the detection of the shadow economy and reduction in its volume 
  • Detect fake invoices by matching the input and output tax credits claimed on the ZATCA portal 
  • Monitor movement of money, goods and services in real-time 
  • Achieve better tax compliance rates 
  • Enhance the transparency of commercial transactions 
  • Enable better data-informed decision-making 

Along with the above, the government also hopes to bring uniformity to the invoicing process and further increase invoice interoperability and readability. Ultimately, e-Invoicing was introduced to boost VAT compliance and generate greater tax revenue for the Kingdom. 

What is e-Invoicing in KSA?

In Saudi Arabia, e-Invoicing is all set to form an integral part of its tax tech architecture. In this, any invoices that are generated using an electronic system, issued and saved using an electronic format and fulfil all requirements of a tax invoice, are known as an e-Invoice. All e-Invoices must be mandatorily issued in Arabic. However, other languages can also be additionally allowed.  

Broadly speaking an e-Invoice can be of two types: 

Electronic invoice or a tax invoice: This type of invoice has two prerequisites: 

  • It needs to be issued by the seller to the buyer  
  • All required tax invoice components, including the buyer and seller VAT registration number, must be present on it 

Simplified electronic invoice or simplified tax invoice: Herein the e-Invoice is issued by the seller to an individual. It also needs to have all simplified tax invoice elements incorporated. 

Implementation phase

The implementation of the electronic billing process will be done in two phases.   

1st implementation phase or “Electronic Invoices Issuance and Saving Stage”: In the first phase, all people maintaining tax books set in Saudi Arabia must: 

  • Ensure their capability to issue and save electronic tax invoices  
  • Electronically raise debit and credit notes 

The rules and regulations applicable in this phase must be followed by: 

  • All people who fall under the purview of the provisions mentioned in the applicable electronic billing regulations 
  • Any other parties who are tasked with raising VAT invoices for registered suppliers 

2nd implementation phase or “Stage of Connecting Electronic Billing Systems”: The second phase applies to only those people who come under the purview of electronic billing regulations. These target groups will be intimated at least six months before the start of the process of linking the supplier’s system with the Authority’s system.  

This linking is not done randomly. Rather a series of stipulated procedural and technical provisions must be followed regarding the controls, technical specifications, procedural rules and other requirements. The linkage of the supplier system with that of ZAKAT, Saudi Arabia customs authority, is done to enable sharing of data and information. 

The timeline to implement e-Invoicing in KSA

The implementation of the first phase is slated to start from the 4th of December 2021. The 2nd phase will commence from the 1st of January 2023. It will be done in stages. 

Phase 1-implementation challenges: e-Invoicing in KSA

Currently, the first phase of implementation is witnessing a plethora of challenges like:  

  • Generation of QR Code: Used for the quick and basic document identification, it is supposed to be encoded in the TLV Base64 format. The QR code must contain the following information: 

– Name of seller 

– VAT registration number of the seller 

– Timestamp mentioning both date and time 

– Invoice total 

– VAT total 

  • Restriction on uncontrolled anonymous access to the same by making it mandatory to operate it using a password 
  • Tampered-proof electronic invoices, logs and notes especially: 
    • Complete restriction on modification or deletion of logs 
    • Complete restriction on deletion or alteration of generated e-Invoices and their associated notes 

  • Generation of a single e-Invoice sequences: Current POS systems can generate multiple invoice sequence based on type of goods or other parameters which needs to be prohibited. Every POS system irrespective of a physical POS terminal or e-Commerce POS should maintain single sequence and should not issue a new / different sequence for different type of goods/transactions. 
  • Local archival: The availability of a provision to ensure the easy export of e-Invoices and its associated notes to enable offline local archival is required. 
  • Data field validation: The GAZT technical documents specify certain field requirements for data field validation. These need to be incorporated in the e-Invoices. 
  • Tamper-proof system: The lock or tamper evidence mechanisms available with most e-Invoicing solutions are only for simplified tax invoices and their debit/credit notes. 
  • Mandatory audit logs: A detailed audit trail or activity-tracking log should be made compulsory for implementing e-Invoicing for tax booking in Saudi Arabia.
  • Input tax recovery: Earlier this was possible against both simplified and standard tax invoices generated, however, with the new e-Invoicing law but input tax recovery will only be possible against standard tax invoices. 

Phase 2 implementation challenges

Some of the challenges associated with phase 2 of e-Invoicing implementation are: 

  • Raising invoices against advance payments and deemed supplies 
  • Raising invoices with employee deductions, discounts or recoveries 
  • The XML format for invoices must be based on ZATCA specified requirements 
  • QR code to be incorporated includes additional details like Hash of XML, UUID, cryptographic stamp 
  • UUID is a unique 128-bit number and its generation must be facilitated by the e-Invoicing solution   
  • Cryptographic stamp, a unique electronic stamp created using the cryptographic algorithm, must be incorporated on every e-Invoice or credit/debit note raised 
  • Ability of the e-Invoicing system to avail of internet connectivity for submission of XML data, Hash, UUID, Cryptographic stamp to the GAZT authorities 
  • Hash of XML is an enciphered text that is obtained using a one-way encrypting algorithm that makes it impossible to return to the original data or tamper with it 

The POS system adopted might be unable to handle invoice sequencing or facilitate conversions of simplified invoices into full invoices 

How can Cygnet Infotech help you successfully implement eInvoicing in KSA? 

Cygnet Infotech is authorized by GAZT to provide an e-Invoicing solution in Saudi Arabia. The e-Invoicing solution offered by Cygnet Infotech specifically for KSA can: 

  • Provide an automated e-Invoicing solution  
  • Generate both QR code based on ZATCA specifications and e-Invoice unique sequence number  
  • Enable a two-way integration between the POS and the ERP systems used 
  • Ensure controlled access by implementing a tamper-proof solution 
  • Make the company’s future ready for its integration with GAZT systems in the 2nd phase of the implementation  

Cygnet Infotech’s e-Invoicing solution is powered by RPA or robotic process automation. This will make the transition from manual invoicing to e-Invoicing seamless and enable companies to prepare VAT returns in compliance with the KSA government regulations.

Get started with compliant e-Invoicing

Meet all your e-Invoicing requirements way ahead of the time

Cygnet Infotech e-Invoicing solution in KSA

For any e-solutions provider to implement the system legally, it must be recognized by ZATCA. Cygnet Infotech’s e-Invoicing solution meets all specifications and requirements set by ZATCA and has been authorized by GAZT. 

Additionally, Cygnet Infotech is a company that: 

  • Achieved a YOY growth of 95% in its tax technology in the current year 
  • It is present in over 35 countries across the world, making it a leading Tax-Tech solution provider 

Some features that enhance the utility of the e-Invoicing solution provided by Cygnet Infotech are: 

  • Seamless ERP Integration 
  • Fully Compliant e-Invoicing solution 
  • 24×7 availability and reliability 
  • Enhanced privacy and data security 

How can Cygnet Infotech help you address e-Invoicing challenges?

The comprehensiveness of the solution and the features associated with Cygnet Infotech’s KSA-specific e-Invoicing solution help it to overcome e-Invoicing challenges like: 

QR code generating POS: Cygnet Infotech generates the required QR code and returns it to its source system. For companies having a POS, it can connect to the POS, generate the QR code, and feed it into the POS. 

Storage: Cygnet Infotech provides storage on the cloud with its Cygnet Infotech server and local storage on-premises.  

Invoice sequencing: The GAZT regulations specify the need to include a sequential unique identification number for every tax e-Invoice generated. Taxable people with different branches can use different e-Invoice sequences as long as: 

  • The e-Invoice number is clearly defined and identifiable within the associated sequence  
  • The e-Invoice number is unique 

This essentially means that e-Invoices generated per POS need to form a unique sequence. Cygnet Infotech facilitates the generation of unique e-Invoice number sequences separately for each POS associated with a taxable person. 

Direct upload of e-Invoices to the relevant ZATCA portal: Cygnet Infotech e-Invoicing solution for KSA has been developed to cater exclusively to the requirements of ZATCA. Hence, along with enabling direct integration of e-Invoices with the ZATCA portal, it also facilitates seamless communication between the two.  

Invoice template customization to include both e-signatures and QR codes: Since Cygnet Infotech is proficient in electronic invoice form, it enables e-Invoice template customization to include QR codes and e-signatures. 

Password creation and the use of multi-factor authorization: According to the ZATCA guidelines, transactions and records cannot be anonymously accessed. Only users with secure passwords and those who have undergone multi-factor authentication have the right to access the same.  

Cygnet Infotech has incorporated this need into its e-Invoicing solution. Hence, only users with proper credentials and having the correct passwords can access transactions and records.  

Creating logs of user sessions for real-time tracking: The availability of well-documented audit trails makes it easy to track user sessions and create logs that can be accessed in real-time. 

Transaction validation: Validating transactions pre-emptively during invoice creation makes it easy to identify violations, missed mandatory fields and incorrect data entries made.  

Cygnet Infotech follows all the guidelines as spelled out in the ZATCA directory of regulations regarding data validation of data input fields. 

Maintaining records for 5 years: Every business is required to maintain a record of all their transactions for 5 years. Cygnet Infotech enables database maintenance by allowing users to export transactions for archiving for the said retention period. 

Altering invoices and debit/credit notes or tampering with log entries and e-Invoice timestamps not allowed: Such compliance mistakes are never allowed by Cygnet Infotech and any attempt to do the same is countered by blocking user access. Even the sequential systematic evolution of a transaction that is recorded in the software’s activity log is non-editable.  

These compliances are met by getting client credit/debit notes validated from GAZT. Cryptographic details of the same are sent to GAZT and the validation is sent back from GAZT in the form of a cryptographic stamp. 

Use of multiple sequence series across stores, billing software and ERPs, e-commerce platforms in an organization: ZATCA allows the generation of only one e-Invoice sequence per software per POS. Hence, in keeping with its regulations, Cygnet Infotech makes provisions for only one sequence per POS system in its e-Invoicing solution. 

Centralized system for managing e-Invoices across different POS systems: With Cygnet Infotech providing the necessary connectivity between the POS systems and GAZT, seamless transfer of information can be facilitated across systems.  

Generation of tax e-Invoices, simplified tax invoices and all associated documents in XML format or as PDF/A3 with XML: Based on the eInvoicing regulations in KSA, Cygnet Infotech offers both facilities.  

Easy internet connectivity with external system integration through ZATCA’s API is required: Cygnet Infotech’s e-Invoicing solution for KSA is perfectly capable of doing the same. 

Certain specified security measures are to be implemented to ensure the integrity of the QR code, the digital signature, the UUID and the generation of the Hash: Cygnet Infotech is well-known for the privacy and security of its e-Invoicing solutions. For KSA they have incorporated all the required regulatory security compliances.

FAQs

Q1. How will customers scan the QR code? Do sellers need to provide any app/service for this?   

Ans: Customers will scan the QR code using their phone scanner also ZATCA might launch an app which will allow them to scan the QR code and see the contents.  

Q2: Is there any specific size & resolution requirement for QR code? 

Ans: No, there is no explicit requirement mentioned about the size & resolution for QR code. However, QR code needs to be scannable by smartphone cameras. 

Q3: Should my POS & ERP should be certified by ZATCA for Phase One? 

Ans: No, but ZATCA may enforce such requirement at a later stage 

Q4: Does my e-Invoicing solution need to be cloud-based? 

Ans: No, subjective taxpayers can use any e-Invoicing system to generate and store invoices if it meets the requirements published by ZATCA 

Q5: Does my e-Invoicing system need to be constantly connected to the internet for Phase One (December 4, 2021)?  

Ans: Yes, the system or solution used for generating and storing the invoices must be able to have internet connectivity for both phases.  

Q6: How can I share my invoice with the buyer/customer?   

Ans: A printed copy of the tax invoice (or note) / simplified tax invoice (or note) which has been generated electronically must be provided to the customer. An electronic-only format can also be shared – if it is agreed between both parties.  

Q7: Is there a specific format required for storage in Phase 1? 

Ans: No, there is no explicit storage requirement for Phase 1. However, for Phase 2 implementation XML format will be required for data to be synced onto ZATCA portal. 

Q8: Should my POS & ERP should be certified by ZATCA for Phase One? 

Ans: No, but ZATCA may enforce such requirement at a later stage 

Q9: Should my POS & ERP should be certified by ZATCA for Phase One? 

Ans: No, but ZATCA may enforce such requirement at a later stage 

Q10: Should my POS & ERP should be certified by ZATCA for Phase One? 

Ans: No, but ZATCA may enforce such requirement at a later stage 

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