Kingdom of Saudi Arabia E-Invoicing Compliance: Making Waves

Saudi Arabia has implemented an e-invoicing mandate with a phased approach that began in December 2021. The Saudi Arabian Zakat, Tax and Customs authority (GAZT) is in charge of the e-invoicing regulations. The e-invoicing platform is called FATOORA, part of the larger ZATCA tax platform, and applies to Business-to-Business (B2B), Business-to-Consumer (B2C), and Business-to-Government (B2G) transactions. Saudi Arabia is phasing in the use of a pre-clearance model, requiring e-invoice data to be sent to the FATOORA platform for clearance (approval) before the e-invoice can be shared with customers.

Saudi Arabia E-invoicing implementation phases

The e-invoicing implementation process includes two phases:

Mandate Phase 1

Phase 1 of e-invoicing in Saudi Arabia started on 4 December 2021, requiring all resident taxpayers in Saudi Arabia to generate, amend, and store e-invoices and electronic notes (credit and debit notes). During this phase, taxpayers must issue electronic invoices using a compatible e-invoicing system that allows the required fields to be represented in the electronic invoice. The mandatory fields required during this phase are a small subset of the full invoice data, including the VAT number of the buyer, the invoice issue date and the VAT amount. The e-invoicing system must archive and generate an electronic copy. Also, suppliers can no longer generate or store paper, picture format, or PDF invoices.

Mandate Phase 2

Phase 2 began on 1 January 2023, introducing additional requirements for taxable persons to transmit e-invoices and electronic notes to the FATOORA platform. It is being implemented in waves, starting with larger companies and progressively lowering the revenue threshold for mandated taxpayers. Phase 2 also introduces API integration with the FATOORA platform for continuous transaction controls (CTCs), which requires taxpayers to clear invoices ahead of transmission to buyers. Taxpayers in scope are required to use an authorized service provider that has integrated with the FATOORA platform and can ensure compliance with the data and security requirements set out in the mandate.

This integration phase will be carried out gradually, with GAZT providing at least six month's notice of a wave prior to implementation. The current timeline of waves is as follows:

1. Wave 1: as of 1 January 2023, the first wave of companies that were obliged to connect to ZATCA were those with a revenue for 2021 exceeding SAR 3 billion.
2. Wave 2: As of 1 July 2023, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue surpassing 500 million riyals.
3. Wave 3: As of 1 October 2023, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue exceeding 250 million riyals.
4. Wave 4: As of 1 November 2023, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue surpassing 150 million riyals.
5. Wave 5: As of 1 December 2023, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue exceeding 100 million riyals.
6. Wave 6: As of 1 January 2024, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue surpassing 70 million riyals.
7. Wave 7: As of 1 February 2024, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue exceeding 50 million riyals..
8. Wave 8: As of 1 March 2024, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue surpassing 40 million riyals.
9. Wave 9: As of 1 June 2024, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue exceeding 30 million riyals.
10. Wave 10: As of 1 October 2024, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue surpassing 25 million riyals.
11. Wave 11: As of 1 November 2024, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue exceeding 15 million riyals.
12. Wave 12: As of 1 December 2024, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue surpassing 10 million riyals.
13. Wave 13: As of 1 January 2025, entities that were obliged to comply with the e-invoicing requirement were those with an annual vatable revenue exceeding 7 million riyals.
14. Wave 14: As of 1 February 2025, entities that are obliged to connect to ZATCA are those with an annual vatable revenue surpassing 5 million riyals.
15. Wave 15: From 1 March 2025, entities that will be obliged to connect to ZATCA are those with an annual vatable revenue exceeding 4 million riyals.
16. Wave 16: From 1 April 2025, entities that will be obliged to connect to ZATCA are those with an annual vatable revenue surpassing 3 million riyals.
17. Wave 17: From 1 July 2025, entities that will be obliged to connect to ZATCA are those with an annual vatable revenue exceeding 2.5 million riyals.
18. Wave 18: From 1 August 2025, entities that will be obliged to connect to ZATCA are those with an annual vatable revenue surpassing 2 million riyals.
19. Wave 19: From 1 September 2025, entities that will be obliged to connect to ZATCA are those with an annual vatable revenue exceeding 1.75 million riyals.
20. Wave 20: From 1 November 2025, entities that will be obliged to connect to ZATCA are those with an annual vatable revenue surpassing 1.5 million riyals.

General Electronic Invoice Requirements

As part of the current implementation, all invoices including tax invoices and simplified tax invoices, must be generated as e-invoices in XML format, KSA UBL 2.1. with specifications from ZATCA, or PDF/ A-3 (with embedded XML data) format. The e-invoice data shared with the tax office must be in XML format using the FATOORA API and must be cleared/approved before the XML or PDF with embedded XML e-invoice can be shared with the buyer. The XML shared with the buyer must include a UUID and hash value. The PDF/A-3 shared with the buyer must include both the UUID and hash value, as well as a QR code generated using the clearance data received from ZATCA and a cryptographic stamp applied by the FATOORA portal.

Additionally, with the introduction of CTC in Phase 2, e-invoices need to be cleared in real-time or near real-time, within 24 hours from issuance, and must be transmitted automatically to the FATOORA platform by API with little to no human intervention. This automation process is easily manageable through an e-invoicing integration with an integrated and certified e-invoicing solution provider. E-invoices must be stored in a structured format, regardless of how they’re exchanged with buyers. Documents can be stored on the cloud, provided a direct link to the online data is available. If storage is outsourced, documents must be kept by a third party established within Saudi Arabia.

Finally, e-invoice data fields must be sent in Arabic, a requirement that can cause significant difficulty for international businesses especially considering the automation requirements for the mandate.

E-Invoicing Penalties

There are a variety of e-invoicing penalties that can be applied by the tax authorities for non-compliance with the requirements for e-invoicing, ranging from SAR 5,000 to 50,000. The penalties are cumulative for any instance of non-compliance with any e-invoicing process required. Early compliance with mandatory e-invoicing requirements is, therefore, essential. 

Conclusion

Further developments are expected to be announced by the Saudi Arabian authorities, at the very least to announce further waves or the final implementation of the system for all taxpayers. Stay tuned for updates as they are released and reach out to the eezi team if you’d like to chat about the mandate further!