Saudi Arabia: From no VAT to promoting a centralised e-invoicing solution – what’s next?

Following the introduction of the brand-new Value Added Tax (VAT) regime in January 2018, the Kingdom of Saudi Arabia has also started promoting a national electronic invoicing platform called ESAL. This is a joint effort between the Saudi Arabian Monetary Authority (SAMA) and the General Authority of Zakat and Tax (GAZT). These measures are in response to the low oil price of recent years, as well as the increasing levels of tax evasion in the country.

This national e-invoicing platform aims to provide suppliers and buyers with a single point to where eInvoices can be sent, received and processed. By building ESAL’s e-invoicing platform on top of an existing e-bill payment service called SADAD – which facilitates connections between businesses and Saudi Arabian banks – the aim is to also provide a “single source of truth between suppliers and buyers”. More importantly, the platform facilitates communication channels for suppliers and buyers for invoicing processes, including real-time notification and technical means for rejection and approval of eInvoices.

As Saudi Arabia has relatively strict record-keeping rules that require taxpayers to store invoices locally in the Kingdom, it is not surprising to see that the platform also provides an eInvoice archiving facility for the transacting parties. This functionality will further enhance the tax record centralisation and localisation in the country.

By establishing such a platform, the tax authority aims to monitor business activities and track billing and invoicing status to ensure better collection of VAT and reduce tax evasion. Although it is a platform involving only suppliers and buyers – and while there has so far been no indication of real-time clearance of transaction data in the invoicing process – using this platform would, of course, imply a certain level of compliance under the invoicing requirements set out in the Saudi Arabian VAT law. What we have seen in past years is that in countries where there is a centralised e-invoicing solution provided by government authorities either for public procurement invoicing or for businesses to use on a voluntary basis, such systems could be the basis for future e-invoicing mandates and the entering point for government clearance.

As one of the two members that implemented VAT and relevant technical measures in a timely manner following the Gulf Cooperation Council (GCC) VAT Framework Agreement, Saudi Arabia could be the key indicator of the future trend of VAT control in the GCC.