Updated Reporting Requirements in the Kingdom of Saudi Arabia

July 20, 2022

With only 6 months to go until the start of the highly anticipated Phase Two of the  Saudi Arabian e-invoicing mandate, the Saudi Arabian Zakat, Tax and Customs Authority (ZATCA) have published the final specifications and guidelines for the provision of the mandate. 

 

Overview 

On 24 June 2022, ZATCA issued the updated controls, requirements, technical specifications and procedural rules necessary to implement the provisions of the E-Invoicing regulation (including the xml implementation standards, e-invoice security features implementation standard and data dictionary) for the Second Phase (Phase 2 Regulations), which would be effective from 1 January 2023.

Background

E-invoicing was introduced in the Kingdom of Saudi Arabia (KSA) in an attempt to modernize and digitalise the indirect tax system. Obtaining greater transparency of sales and real-time updates regarding the movement of goods and services.

On 28 May 2021, ZATCA released the original Phase 2 Regulations which contained requirements to be complied with under the first and second phases. Additionally, ZATCA commented that the requirements listed under the second phase would be reviewed and the regulation modified and further clarified. 

Accordingly, ZATCA has now (on 24 June 2022) released the amended and final Regulations for the second phase.

 

Previously Known Information

 As Fonoa previously reported, E-invoicing will become mandatory for businesses operating in Saudi Arabia, making the Kingdom the first Middle Eastern country to implement an e-invoicing reform. This is to be rolled out in 2 phases. 

Phase One (generation phase)

Phase One began on 4 December 2021. Since that date, all taxpayers have been required to begin using e-invoices, i.e. to be able to create, store and modify them. During the first phase, e-invoices, electronic credit or debit notes will not need to be issued in a specific format, but they must contain all necessary information, including a QR code. 

Invoices cannot be tampered with, and invoice numbers need to be from a single sequence (multiple sequences are not allowed).

Phase Two (integration phase)

The second phase is scheduled for 1 January 2023. At this point, in scope businesses must start submitting their invoices and electronic notes to the ZATCA’s electronic system. To do so, taxpayers must integrate their systems with the Authority's system in order to obtain a clearance for Tax Invoices (including their respective debit and credit notes) and report the transactions (within 24-hour period) for issued Simplified Tax Invoices (including their respective debit and credit notes).

As the second phase is rolled out, the Saudi government will use a CTC (continuous transaction controls) system. Invoices will be issued in XML format that is UBL-based, and can be sent to buyers either in a XML format, or in PDF/A-3 format, with embedded XML. 

 

New Information

Phase Two Rollout

The second Phase will be implemented in waves, resident businesses with a yearly (2021) taxable turnover of more than 3 billion SAR are to be part of the 1st wave and must comply with the second phase requirements from 1 January 2023.

Key Changes to Phase Two  Regulations

The key changes noted in the Phase 2 Regulations are meant to address the feedback received from the taxpayers who participated in the ZATCA’s Phase 2 e-invoicing pilot testing program and to reflect certain changes in the ZATCA’s IT model.

 Some of the changes made in the new update by the ZATCA are:

  • Amendments to the data fields between expressed as mandatory, conditional or optional
  • Amendments to the business rules for validation of the xml invoices
  • Revisions to the process with respect to authentication of the taxpayer‚Äôs product codes with ZATCA, with which they allow for a secret value component
  • Removal of categorization of a Value Added Tax Identification Number (VAT ID) into a Group VAT number and individual VAT number
  • Additional optional fields for the Purchase Order and Contract Identification Numbers

 

What are the rules and to whom do they apply?

The scope of requirements enforce:

  • Taxable persons that are residents in KSA¬†
  • The customer or any third party who issues a tax invoice on behalf of the taxable person that is a resident in KSA according to the VAT Implementing Regulation

All resident businesses who are registered for VAT in Saudi Arabia and have taxable supplies above 3 billion SAR (during calendar year 2021) are required to implement Phase two of e-invoicing between 1 January 2023 to 30 June 2023. 

It is expected that more notifications will be sent in the coming weeks to taxpayers, based on their turnover, together with their respective go-live dates under Phase 2.

Essentially, all business transactions are in scope, meaning taxable sales transactions at both physical stores and online will have to be reported to ZATCA. This includes point of sale transactions and those with a post or advance payment, which will all result in the issuance of an electronic invoice and not only a receipt voucher.

How does this affect you?

KSA resident businesses should comply with obligations under the Phase Two Regulations based on the notification sent to them by the ZATCA and undertake the relevant steps in making the required changes in their business operations.

How can Fonoa help?

At Fonoa we are experts in the field of E-Invoicing and Digital Reporting.  We can help you make sense of the evolving reporting landscape in Saudi Arabia and across the world. One of our clients went live with Phase One e-invoicing in just 72 hours. Get in touch with an expert like Trent, and see how we can simplify reporting for your business.

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Tags: e-invoicing, digital reporting, KSA

Trent Targa
Senior Tax Manager

Trent is Fonoa’s Digital Reporting expert. Trent has experience analyzing and mapping indirect tax requirements influencing tax and business documents used in the O2C, P2P processes i.e. invoices, orders etc.Trent has consulted with numerous tax authorities around the world on continuous transaction controls and policy design. He has worked closely with several industry communities such as EESPA, BPC, OpenPeppol and NEA.