These days another country adopting a continuous transaction control (CTC) regime doesn’t come as a surprise. Having seen the benefits of CTC systems, countries are increasing their efforts to implement these regimes in a way that meet their needs. Saudi Arabia is following this trend by introducing a new e-invoicing system that is expected to be a CTC regime. The details are yet to be published however the initial E-invoicing Regulation (Regulation) has recently been enacted and was published on 4 December 2020.
Highlights of the Regulation
The new framework is set to go live a year from now, on 4 December 2021, and will apply to all resident taxable persons, as well as any third party who issues a tax invoice on behalf of a taxable person residing in the Kingdom.
According to the Regulation, an e-invoice is an invoice that is issued, saved and amended in electronic form. Credit and debit notes resulting from adjustments to e-invoices must also be issued electronically. A paper invoice that is converted into an electronic format through copying, scanning, or any other method is not considered as an electronic invoice, nor is unstructured invoice data.
Cross-border transactions are also within the scope of e-invoicing reform. Taxable persons in scope must issue e-invoices for all taxable supplies, regardless of if they are in the basic or zero rate and if issued to a resident or non-resident customer in the Kingdom.
The regulation stipulates minimum requirements for any electronic device, system or application used to issue e-invoices, debit and credit notes. According to these requirements, the systems (devices or applications) used must meet the following conditions:
- The ability to connect to the internet
- Complying with the requirements and controls of data, information, or cybersecurity in the Kingdom
- Be tamper-proof and include an anti-tampering mechanism
- Be interchangeable with external systems using API
Implementation of the e-invoicing system will be carried out in two stages:
- The first stage will consist of issuing and saving e-invoices, e-debit and e-credit notes in a structured electronic format via an electronic system that contains all tax invoice requirements.
- The second stage will require taxpayers to connect their systems with the General Authority for Zakat and Tax (GAZT) to share the data and information.
It is because this second stage will require taxpayers to share their invoice data with the GAZT that we expect the e-invoicing reform will be a CTC regime. However, it’s not yet clear how frequently taxpayers will have to transmit the invoice data and whether invoices will be still valid if not transmitted.
In published FAQs, the GAZT states that two additional components to the framework (introducing further requirements and technical specifications in the form of Decisions) are still to be released. The first one relating to specifications for issuing and saving e-invoices, debit and credit notes (first stage), the second one relating to specifications for connecting to the GAZT systems (second stage). The GAZT will issue these two Decisions within less than 180 days from the date of publishing the Regulation.
For now, the GAZT recommends taxpayers determine whether they are subject to the e-invoicing regulation and then evaluate their readiness to issue and save e-invoices to meet the minimum standards and requirements stipulated in the Regulation, in addition to following the official channels of the authority to keep up to speed with any additional technical details.
Sovos has more than a decade of experience keeping clients up to date with e-invoicing mandates all over the world.