Phase-2 of Saudi E-invoicing: Who should comply and how?

Selin Adler Ring
June 27, 2022

In 2020, the Zakat, Tax and Customs Authority (ZATCA) in Saudi Arabia announced the introduction of an e-invoicing mandate consisting of two phases. The first phase of Saudi e-invoicing requires all resident taxable persons in the Kingdom to generate and store invoices electronically and has been enforced since 4 December 2021. The second phase, which ZATCA will roll out as of 1 January 2023, brings additional requirements and will not be mandatory for all taxpayers to begin with. However, the ZATCA plans to gradually roll out and require all resident taxpayers to comply with phase-2 e-invoicing requirements.

Who should comply with phase 2 of Saudi e-invoicing?

The ZATCA is set to roll out phase 2 in stages, starting with a smaller taxpayer group. Just a few days ago, on 24 June 2022, the first group of taxpayers who must comply with e-invoicing rules beginning on 1 January 2023 was published. According to the ZATCA announcement, taxpayers whose annual revenue exceeds 3 billion riyals (approximately 800 million USD) for the 2021 period are in scope.

So far, only the first group threshold has been revealed. The ZATCA will announce other taxpayer groups and new deadlines later. The ZATCA will notify each taxpayer group at least six months in advance.

How to comply with phase 2 of Saudi e-invoicing?

In phase 2, taxpayers must generate all e-invoices and electronic notes (credit and debit notes) in XML format (UBL 2.0). There are unique invoice content requirements. All e-invoices and e-notes must include:

  • A hash of the previous invoice
  • A Unique Universal Identifier
  • A QR code.

However, the e-invoicing requirements concerning tax invoices (B2B) and simplified invoices (B2C) are different, and as a result, different APIs have been made available for different types of invoices.

Tax invoices will be subject to a Continuous Transaction Controls (CTC) regime. More specifically, the system can be categorised as clearance e-invoicing. After generating the XML invoice, including all necessary content, the invoice will be transmitted to the tax authority portal (the ZATCA platform) for clearance through the clearance API. The ZATCA platform will apply ZATCA’s seal as proof of clearance, after which the invoice will gain legal validity. The signed XML will be returned to the supplier, allowing the supplier to choose whether to send the signed XML invoice or a human-readable version, including the XML (PDF A-3 with embedded XML). The human-readable version must be PDF A-3 (with embedded XML) format.

Simplified invoices will be subject to a CTC reporting regime. After generating the XML invoice, including all necessary content, the invoice will be signed using the cryptographic stamp of the supplier. Afterwards the seller will present a paper copy of the invoice to the buyer. Within 24 hours, the taxpayer must report the signed XML to the ZATCA platform through the reporting API

Taxpayers must store e-invoices in electronic form. There are specific requirements concerning the storage, including, for example, mandatory local storage as a main rule and storage abroad only being permitted under certain conditions. E-invoicing solutions must further allow taxpayers to download e-invoices for offline storage.

Take Action

Need to ensure compliance with the latest VAT and e-invoicing requirements in Saudi Arabia? Get in touch with Sovos’ team of tax experts.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Selin Adler Ring

Selin is Regulatory Counsel at Sovos. Based in Stockholm and originally from Turkey, Selin’s background is in corporate and commercial law, and currently specializes in global e-invoicing compliance. Selin earned a Law degree in her home country and has a master’s degree in Law and Economics. She speaks Russian, Arabic, English and Turkish.
Share this post

North America ShipCompliant
November 28, 2023
How the Beverage Alcohol Industry Prioritizes DEI Initiatives

Diversity, equity and inclusion (DEI) initiatives have quickly become staples for numerous businesses across industries. The beverage alcohol industry is also demonstrating that these efforts are as core to their company successes as lobbying and member education. We’ve gathered a handful of examples of DEI programs that our partners have implemented, showcasing how ensuring a […]

North America Tax Information Reporting
November 22, 2023
IRS: Form 1099-K Reporting Threshold Change Delayed Again

The IRS recently announced a delay of the new $600 Form 1099-K reporting threshold for third-party settlement organizations (TPSOs) for calendar year 2023. Instead, 2023 will be an additional transition year, with reporting not required unless a taxpayer receives over $20,000 and has more than 200 transactions in 2023. “We spent many months gathering feedback […]

VAT & Fiscal Reporting
November 21, 2023
Import One Stop Shop Expanded Under ‘ViDA,’ ‘Customs Reforms’ Packages

In the last year, the European Commission has put forward two proposals, the “VAT in the Digital Age” and the “EU Customs Reform,” which could significantly expand the scope of the Import One Stop Shop over the next several years. What is the Import One Stop Shop? The Import One Stop Shop (IOSS) is a special […]

VAT & Fiscal Reporting
November 20, 2023
VAT in the Digital Age (ViDA) Potentially Delayed

In 2022, the European Commission published its “VAT in the Digital Age” initiative (ViDA), which would make widespread changes to current VAT rules under Council Directive 2006/112/EC (the EU VAT Directive). The Commission proposed an ambitious timeline for ViDA, with the first changes to take effect in January 2025. As with any amendment to the […]

North America Tax Information Reporting
November 14, 2023
Why You Need to Pay Attention to Form 1042 Changes Right Now

If in reading this blog you are realizing for the first time that the IRS made changes to the reporting requirements for Form 1042 by no longer accepting paper filings starting with tax year 2023 filings, you are unfortunately already considerably behind in your preparation. Here’s why. To electronically file Form 1042, you need access […]