The European Commission (EC)’s action plan for fair and simple taxation – ’VAT in the Digital Age’- continues to progress. After a public consultation process, the EC has published Final Reports discussing the best options for the European market to fight tax fraud and benefit businesses with the use of technology.

The areas covered are:

1. VAT reporting obligations and e-invoicing
2. VAT treatment of the platform economy
3. Single EU VAT registration

The EC is expected to propose legislative amendments in the VAT Directive this autumn.

Conclusions on VAT reporting and e-invoicing pillar

The report focusing on VAT reporting and e-invoicing evaluates ‘Digital Reporting Requirements (DRR)’. This is any obligation for VAT taxable persons to periodically or continuously submit transaction data digitally to the tax authority, e.g. by use of SAF-T, VAT listing, real-time reporting or e-invoicing.

According to the report, the best policy choice would be the introduction of a DRR in the form of an EU-wide continuous transaction controls (CTC) e-invoicing system covering both intra-EU and domestic transactions. Member States with an existing e-invoicing system would be able to keep this in the short term via a standstill clause, provided they ensure interoperability with the new EU system. However, in the medium term of five to ten years, national e-invoicing systems would be required to converge to the EU system.

An EU-wide CTC e-invoicing system

The report clearly favours the policy option of a full EU harmonisation through a CTC e-invoicing system, meaning the invoice will be submitted to the authorities before or after issuance. The harmonisation focus seems to be primarily on form, with a suggestion of an EU-wide common protocol and format. Whereas important decisions regarding architecture risk being left to the Member States include whether the system will be clearance or simply reporting, whether to leverage an existing domestic B2G platform and the periodicity of the reporting etc. The only requirement on Member States seems to be accepting issued and transmitted e-invoices based on a common protocol and format.

The report suggests aligning the scope of requirements and excluding non-registered taxable persons and those covered by the SME VAT scheme. In the short term, only B2B and B2G transactions are covered, with B2C transactions remaining out of scope.

Finally, the report suggests that to ease the burden on businesses Member States must consider a number of measures such as jointly removing other reporting obligations, providing pre-filled VAT returns, supporting the investment in business automation (especially for SMEs) and providing public support to the adoption of the IT compliance systems

How this will be jointly coordinated isn’t discussed but it doesn’t sound like the EC expects such measures to be harmonised by the EU.

Future expectations

Although the report concludes implementing an EU-wide mandatory e-invoicing system is the best and most future-proof measure, how to design an effective e-invoicing system is not explained in the report and doesn’t seem to be in scope for harmonisation.

However, the design of the e-invoicing system may have an important impact on fiscal and economic results. As the independent expert report ʻNext Generation Model Decentralized CTC and Exchange’ (supported by EESPA, openPEPPOL and other key stakeholder groups) describes, the greatest benefits can only be realised when an e-invoicing system allows businesses to automate other processes as well as invoicing.

It’s a welcome start that the Commission is aiming for an EU-wide CTC e-invoicing scheme. It remains to be seen how effective this harmonisation will be. When Europe’s politicians return from this year’s summer break, we’ll start to gain more insight into the overall feasibility of the Commission’s views.

As a vendor that has implemented CTC and VAT compliance solutions around the world for several decades now, our desire would be for the debate to go beyond interoperability on a data level, so that Europe can take bold steps towards a future that preserves supply chain automation and technological innovation.

In India, the e-invoicing system has been live since 2020. Taxpayers in the scope of e-invoicing mandate must issue their invoices relating to B2B and B2G transactions through the e-invoicing system, which is a form of continuous transaction controls (CTC).

However, B2C invoices are not issued through the CTC system, which means that B2C invoices don’t pass through the Invoice Registry Portal’s (IRP) clearance. The Indian authorities have announced their goal to include B2C invoices in the scope of the CTC system although there is no timeline provided for that plan.

Meanwhile, there is a separate QR code requirement for B2C invoices. We explain why and when a QR code is required and how taxpayers can generate it:

The QR code’s purpose

The QR code requirement for B2C invoices aims to promote digital payments. In that respect, it differs from the QR code for B2B and B2G invoices which include the IRP’s signature. The latter serves as proof of clearance that B2B and B2G invoices must go through. Additionally, the QR code for B2C invoices must be self-generated, whereas the IRP generates the QR code content for B2B and B2G invoices (if the supplier is in the scope of e-invoicing).

When is a QR code required?

The QR code requirement doesn’t apply to all suppliers. As per the CBIC notification, F. No. CBEC-20/16/38/2020-GST, suppliers with annual revenue of 500 Cr. Rupees or more (from 2017-2018) must comply with the QR code requirement when issuing invoices to their end customers (B2C).

How is the QR code generated?

The QR code must be dynamic. Unlike static QR codes, the system will update the content of the dynamic QR code if the payment is received. Content-wise, businesses must include the following information:

1. Supplier’s GSTIN number
2. Supplier’s UPI ID
3. Payee’s bank A/C number and IFSC
4. Invoice number and invoice date
5. Total invoice value
6. GST amount along with breakup, i.e. CGST, SGST, IGST, CESS, etc.

After printing the QR code on the invoice, customers must be able to scan it to make payments. If the supply is made through an e-commerce platform, suppliers must give cross-references of the payment received in respect of the said supply on the invoice. Then the invoice would be deemed to have complied with the requirements of the Dynamic QR Code.

The Indian authorities are making significant progress with their efforts to digitize paper processes in the country by introducing a CTC invoicing system and encouraging digital payments. In line with their ambitions, we expect further digitization developments in the near future.

As previously predicted by Sovos, the threshold for implementing mandatory e-invoicing has been lowered by the Indian authorities. According to the Central Board of Indirect Taxes and Customs Notification No. 17/2022 – Central Tax, from 1 October 2022 compliance with the e-invoicing rules will be mandatory for taxpayers with an annual threshold of 10 Cr. rupees (approximately 1.270.000 USD) or more.

Recap of India’s e-invoicing requirements

The Indian e-invoicing system falls under the category of continuous transaction controls (CTCs) under the Goods and Services Tax (GST) framework. The legal validity of the invoice is conditional based on the Invoice Registration Portal (IRP) digitally signing the invoice and providing an Invoice Registration Number (IRN). If the IRN is not included in an invoice, the invoice will not be legally valid.

The scope covers both domestic and cross-border transactions. The IRP clearance process is mandatory for B2B, B2G and export transactions. So, taxpayers in scope must issue their invoices (as well as other documents that need an IRN) according to the new system for all B2B, B2G or export transactions.

Taxpayers in scope of e-invoicing must generate e-waybills through the e-invoicing system. It is not possible to voluntarily adhere to the e-invoicing system. This means that taxpayers not satisfying the threshold limit cannot adopt CTC invoicing.

Implementation timeline

Before the initial introduction, the e-invoicing plan was announced by the Indian authorities as early as 2018. Afterwards, the evolvement of the plan has been as follows:

1 January 2020: Voluntary period of e-invoicing for businesses with a turnover of Rs.500 Crore or more

1 February 2020: Voluntary period of e-invoicing for businesses with a turnover of Rs.100 Crore or more

1 October 2020: Beginning of the mandatory e-invoicing period for businesses with a turnover of Rs.500 Crore or more (six months later than previously intended). For the first 30 days, there was a grace period during which invoices could be reported after they had been issued.

1 January 2021: Beginning of the mandatory e-invoicing period for businesses with a turnover of Rs.100 Crore or more.

1 April 2021: Threshold for mandatory e-invoicing lowered to taxpayers with turnover between Rs. 100 Crore to Rs. 50 Crore.

1 April 2022: Threshold lowered from Rs. 50 Crore to Rs. 20 Crore. Taxpayers above Rs. 20 Crore must implement e-invoicing.

1 October 2022: Threshold will be lowered from Rs. 20 Crore to Rs. 10 Crore. Taxpayers above Rs. 10 Crore must implement e-invoicing.

What’s next for e-invoicing in India?

Some changes concerning the e-invoicing workflow are expected. Currently, there is a single platform (IRP) for the clearance process but multiple IRPs will be introduced soon. The Indian Authorities have already approved new IRPs, demonstrating that the authorities wish to have an interoperable e-invoicing market and are moving ahead with their plans to realise their goals.

Additionally, B2C invoices are not currently covered by the IRP clearance, yet the authorities have announced their intention to include those in scope of their CTC system.

India is a challenging jurisdiction for many taxpayers; businesses must have smart digitization and maintenance strategies to stay compliant. The benefits of digitization can be realised through a global strategy that businesses might put in place.

Data is one of the most valuable assets of companies and individuals. Data gathered, cleaned and analysed well enables businesses to realise their utmost capabilities. With the digitization trend, error-prone paper forms, ledgers and books are replaced by electronic versions. This development gave companies more control over their data and liquidated data for further analysis.

This is also true for governments. Since tax income is one of the most significant revenue sources for countries and transactional data is the basis of tax income calculation, transactional data analytics is also essential for governments.

Purpose of real-time data collection

Receiving data in electronic form enables tax authorities to estimate their tax income and income sources better and eventually collect taxes more efficiently. This process has led many global tax authorities to require taxpayers to transmit relevant tax data electronically. Furthermore, the reliability of real-time data has shown to be so appealing that taxpayers are required to transmit data in real-time to the tax authority in many countries.

The real-time or near-real-time tax-relevant data transmission requirement is a new trend often referred to as Continuous Transaction Controls (CTC). CTCs require each transaction to be transmitted to the tax authorities to enable immediate and continuous control. CTCs are becoming more and more common around the world. The initial purpose of the CTCs when it was first launched in Latin America, the origination point, was to reduce the VAT gap. By looking at countries which have adopted CTCs, it’s fair to say that CTCs have already achieved this goal. However, tax authorities subsequently noticed that the benefits of CTCs are not limited to closing the VAT gap.

The vast amount of data collected through CTCs presents immense opportunities for tax authorities. Tax authorities can achieve unprecedented levels of business transaction transparency. Tax authorities T can calculate taxpayers’ compliance risk, and can plan audits based on these risk calculations. Furthermore, data can be used to drive fiscal and economic policy and shared with other government bodies. For instance, during an economic crisis, it’s possible to determine the business sectors most affected through the sales data reported by taxpayers. Those effected can be granted support (through tax exemptions, reduced rates etc.). The OECD Forum on Tax Administration’s chart compares different tax jurisdictions’ data management and analytics abilities and can be used to understand different countries’ data analytics technology.

Challenges for businesses

Granular data collection and transparency of source data create challenges for businesses as there is little room for mistakes, shortcuts or later error correction. Businesses will need to ensure much more granular tax determination decision-making earlier in their processes and their trading partners’ processes.

Furthermore, ensuring compliance where CTCs are implemented can be challenging, especially for international companies, who have historically viewed taxes as something to be addressed by local accountants. Viewing tax as primarily a local concern by adopting local solutions that combine business and compliance functionality for each jurisdiction will be difficult to reconcile with a business’ broader digital and finance transformation and alignment, which is often global.

To step up their game, businesses should focus on data gathering and having a central data repository to have the “big picture” rather than acquiring local solutions to “save the day”. Real-time data transmission also requires clean data to maintain. The global digital transformation strategy must be in place to meet these requirements as well as a scalable technology to manage future tax demands.

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.

Update: 30 May 2024 by Dilara İnal

Implementation waves of Phase 2 of E-invoicing in Saudi Arabia

Implementation of Phase 2 of Saudi Arabia’s e-invoicing initiative started in January 2023 with the first wave of taxpayers. Subsequent waves – which are announced by Saudi Arabia’s Zakat, Tax and Customs Authority (ZATCA) – are based on the generated revenue subject to VAR in Saudi Arabia.

In addition to announcements on ZATCA’s website, ZATCA notifies taxpayers at least six months before the enforcement date of their new e-invoicing requirements.

Current timeline for Phase 2 waves

Waves dictate when taxpayers of particular revenue statures are required to take part in Saudi Arabia’s e-invoicing program. The table below details the waves, revenue threshold and applicable dates for the initiative’s second phase.

Read our overview for more information regarding Saudi Arabia’s push towards e-invoicing.

Update: 20 January 2023 by Dilara İnal

Voluntary participation in Phase 2

Taxpayers now have the option to start complying with the Phase 2 requirements on a voluntary basis before the integration enforcement date arrives.

Companies were previously not allowed to voluntarily start the implementation of Phase 2. ZATCA changed its approach to voluntary participation in December 2022.

Looking for further clarification on Phase 2 of Saudi Arabia’s e-invoicing system? Contact our experts now.

Update: 24 October 2022 by Dilara Inal

Upcoming phase 2 requirements for e-invoicing in Saudi Arabia

Phase 2 of Saudi Arabia’s e-invoicing system rollout is fast approaching. See below for details about the timeline and the requirements for the integration stage of implementation.

Rollout and timeline of Phase 2

Implementation will begin in January 2023 and taxpayers will need to issue and submit e-invoices in a specific format.

Phase 2 is planned as a gradual implementation. The first wave of implementation covers taxpayers with an annual turnover of 3 billion riyals (approximately 800 million USD) or more for the 2021 period.

Taxpayers who are in the scope of the first wave are notified by the tax and customs authority (ZATCA) about their obligations under Phase 2 – these obligations start six months after this notification, even though the official date has been announced as 1 January 2023.

The second wave of taxpayers are businesses with revenue subject to VAT which exceed half a billion riyals during 2021. Taxpayers in this group will be notified during the first six months of 2023 and their Phase 2 obligations start six months after this notification. The second wave of Phase 2 will be implemented during the period of 1 July 2023 to 31 December 2023.

Integration phase requirements

Firstly, all invoices must be issued in UBL 2.1 format. B2B invoices are subject to a CTC clearance regime, whilst B2C invoices are reported to the tax authority within 24 hours.

Under the new regime, B2B invoices can only be sent to the buyer after the tax authority’s approval which gives legal validity to invoices.

Each invoice must be generated in a single sequence and include a hash value computed from previous invoices’ elements. This hash function ensures that invoice data isn’t modified or tampered with.

Also, an invoice counter value and a globally unified identification number (UUID) must be included. The QR code is generated by ZATCA during the clearance of an invoice, and it must be shown in case B2B and B2G invoices are sent to the buyer in human-readable form. For B2C invoices, the QR Code is generated and applied by the taxpayer during issuance of the invoice. In addition, self-billing is permitted for domestic B2B transactions and the invoice must contain a statement declaring it is self-billed.

Taxpayers who are yet to be notified by ZATCA for phase 2 implementation should continue to comply with phase 1 requirements without any change.

How to prepare for the changes

We advise all taxpayers to follow upcoming updates to ensure they are prepared for phase 2’s complex requirements. Considering the impact of this CTC regime, other e-invoicing initiatives are expected to be implemented in the Gulf region in the near future

Still have questions about Saudi Arabia’s e-invoicing phase 2 implementation? Speak to our tax experts.

Update: 30 May 2022 by Selin Adler Ring

ZATCA launches e-invoicing developer portal for e-invoicing phase 2

Saudi Arabia´s e-invoicing system is being rolled out in two phases; the second phase’s requirements differ from the first phase. The first phase started as of 4 December 2021 for all resident taxable persons. The second phase will go live on 1 January 2023, and the impacted taxpayer group has not yet been announced. However, the Zakat, Tax and Customs Authority (ZATCA) has made considerable progress in kicking off phase 2.

Launch of the e-invoicing portal

Phase 2 will introduce a Continuous Transaction Controls (CTC) regime in which e-invoices, electronic credit and debit notes will be transmitted to the ZATCA platform in real-time. A clearance regime is prescribed for B2B invoices, while B2C invoices must be reported to the tax authority platform within 24 hours of issuance. Therefore, ZATCA was expected to introduce its e-invoicing platform well in advance of the launch of phase 2.

As expected, the ZATCA recently announced the launch of an E-Invoicing Developer Portal (Sandbox). Users will use the Sandbox to simulate the integration with ZATCA’s platform and can access details on the APIs and other requirements through this platform upon registration.

Proposed changes to e-invoicing rules

ZATCA has proposed specific changes to e-invoicing rules. The proposed changes are under public consultation and interested parties may submit their feedback until 10 June 2022.

The changes aim to clarify some requirements (e.g. Cryptographic Stamp, hash, counter etc.) rather than introducing new ones.

The next steps

The last clarifying changes to the e-invoicing rules are underway, and the developer portal has been launched. We’re now expecting ZATCA’s announcement of the taxpayer groups in the scope of the mandate and expect it to happen at least six months before the go-live date. As the ZATCA plans to roll out phase 2, there will be different timelines for different taxpayer groups. We expect this information within the coming months.

Over the past decade, the Middle East region has undergone impactful financial and fiscal changes. VAT was introduced as one of the solutions to prevent the impact of decreasing oil prices on the economy after the region’s economic performance started to slow down.

After realising the benefits of VAT to the economy, the next step for most governments is to increase the effectiveness of VAT controls. Currently, most Middle Eastern countries have VAT regimes in place. Like many countries, Middle Eastern countries are paving the way to introduce continuous transaction controls (CTC) regimes to achieve an efficient VAT control mechanism.

E-invoicing in the Middle East

Saudi Arabia is leading the way, introducing its e-invoicing system in 2021. This e-invoicing framework, in its current form, doesn’t require taxpayers to submit VAT relevant data to the tax authority in real-time. However, that is about to change, as the Saudi tax authority will enforce CTC e-invoicing requirements from 1 January 2023. This means that taxpayers will be required to transmit their invoices to the tax authority platform in real-time. More details on the upcoming CTC regime are expected to be published by the ZATCA.

The introduction of the CTC concept in Saudi Arabia is expected to create a domino effect in the region; some signs already indicate this. Recently, the Omani tax authority issued a request for information that revealed their plans to introduce an e-invoicing system. The tax authority’s invitation to interested parties stated that the timelines for implementing the system have not been set yet and could involve a gradual rollout. The objective is to roll out the e-invoicing system in a phased manner. The e-invoicing system is expected to go live in 2023 on a voluntary basis and later on a compulsory basis.

The Bahrainian National Bureau for Revenue (NBR) has made similar efforts. The NBR requested taxpayers to take part in a survey asking the number of invoices generated annually and whether taxpayers currently generate invoices electronically. This development signals upcoming e-invoicing plans – or at least a first step in that direction.

In Jordan, the Ministry of Digital Economy and Entrepreneurship (MODEE) published a “Prequalification Document for Selection of System Provider for E-Invoicing & Integrated Tax Administration Solution” that was, in fact, a request for information. The tax authority in Jordan previously communicated its goal to introduce e-invoicing. As the recent developments suggest, Jordan is moving closer to having an up and running platform for e-invoicing which will likely be followed by legal changes in the current legislation concerning invoicing rules.

The global future of CTCs

The overall global trend is clearly toward various forms of CTCs. In recent years, VAT controls and their importance and the advantages presented by technology have changed the tax authorities’ approach to the digitization of VAT control mechanisms. As governments in the Middle East countries are also noticing the benefits that the adoption of CTCs could unlock, it’s reasonable to expect a challenging VAT landscape in the region.

On 24 February 2022, the Indian Central Board of Indirect Taxes and Customs (CBIC) issued a notification (Notification No. 01/2022 – Central Tax) that lowered the threshold for mandatory e-invoicing.

In India, e-invoicing is mandatory for taxpayers when exceeding a specific threshold (businesses operating in certain sectors are exempted). The current threshold for mandatory e-invoicing is 50 Cr. Rupees (approximately 6.6 million USD). From 1 April 2022, taxpayers with an annual threshold of 20 Cr. Rupees (approximately 2.65 million USD) or above must comply with the e-invoicing rules.

Evolution of e-invoicing in India

E-invoicing has been mandatory in India since October 2020. The IRP must approve and validate e-invoices before being sent to the buyer. Therefore, the Indian e-invoicing system is categorised as a clearance e-invoicing system, a type of continuous transaction controls (CTC).

From the beginning, the Indian tax authority clearly expressed their intention to gradually expand the scope of e-invoicing. In line with its message, the threshold limit has been lowered twice; in January 2021 (from 500 CR. To 100 Cr.) and April 2021 (from 100 CR. To 50 Cr.). Once again, the threshold limit is reduced to require more taxpayers to transmit their transactional data to the tax authority’s platform.

One important thing to be noted in this context is that voluntary adoption of e-invoicing is still not possible. Taxpayers cannot opt in to use the e-invoicing system and transmit their invoices to the IRP voluntarily. Given the recent developments, this might change in the future.

E-invoicing and E-waybill relationship

Suppliers in the mandatory scope of e-invoicing must generate e-waybills relating to B2B, B2G and export transactions through the e-invoicing platform because their access to the e-waybill platform is blocked for generating e-waybills relating to these transactions. E-waybills relating to transactions outside of the scope of e-invoicing can still be generated through the e-waybill platform.

Therefore, it would be advisable for taxpayers who are getting ready to implement e-invoicing to consider this aspect.

South Korea has an up-and-running e-invoicing system that combines mandatory e-invoicing with a continuous transaction controls (CTC) reporting obligation. This mature and well-established system, launched over a decade ago, is seeing its first significant changes in years.

Presidential Decree No. 31445 (Decree) has recently amended certain provisions of the Enforcement Decree of the Value-Added Tax Act. Among other changes, the scope of e-invoicing has been expanded and a new timeline and threshold limits introduced. This means that more taxpayers in South Korea must comply with e-invoicing rules in accordance with the timelines.

What is the new timeline and threshold limits for e-invoicing?

In South Korea, e-invoicing has been mandatory for all corporate businesses since 2011. From 2012, individual businesses (entrepreneurs) have also been required to comply with e-invoicing obligations if they meet the threshold limits which have been updated a couple of times over the years. Currently, an individual business whose aggregate supply value (including transactions that are tax exempt) for the immediately preceding tax year is KRW 300,000,000 or more, is required to comply with the country’s e-invoicing rules.

After the recent amendments, the current threshold is now lowered to KRW 200,000,000 and the new threshold limit will be applicable from 1 July 2022. The tax authority has already communicated further adjustments, announcing that from 1 July 2023, the threshold will be reduced further to the limit of KRW 100,000,000. The Korean tax authority aims to enhance the transparency of tax sources by requiring more businesses to comply with the e-invoicing rules.

What´s next for e-invoicing requirements in South Korea?

The expansion of the scope of e-invoicing obligations does not come as a surprise. Like in many other CTC jurisdictions, transactional data collected from a larger number of taxpayers provides greater insight to the tax authority about VAT, market trends and more.

Due to its success and maturity, e-invoicing in South Korea continues to inspire other countries in the Asia Pacific region. The Philippines tax authority is in the process of launching an e-invoicing pilot for the country’s 100 largest taxpayers from 1 July 2022. When designing their e-invoicing system, the Philippines tax authority had several meetings with its South Korean counterparts to benefit from Korean expertise and experience. Therefore, the Philippines is introducing a relatively similar CTC system to the Korean one.

On 30 January 2022, the Zakat, Tax and Customs Authority (ZATCA) published an announcement on its official web page concerning penalties for violations of VAT rules, and it is currently only available in Arabic. As part of the announcement, the previous fines have been amended, ushering in a more cooperative and educational approach for penalizing taxpayers for their non-compliance with VAT rules than previously.

What’s the new approach?

If ZATCA officials detect a violation during a field visit, the taxpayer will first be given a warning about the violation without any penalty. The ZATCA aims to raise awareness instead of penalizing taxpayers for their first violation. Taxpayers will be granted three months to comply and make necessary changes in their processes.

If non-compliance continues after the first inspection, the taxpayer will be fined 1.000 Riyals, roughly 267 USD. The penalty charge will gradually increase if the taxpayer fails to comply with the rules and doesn’t make necessary changes within three months after the notice.

The fine for each additional repetition time will be as follows: 5.000 Riyals for the third time, 10.000 Riyals for the fourth time and 40.000 Riyals for the fifth time. If the same violation is repeated 12 months after its discovery, it is considered a new violation, and the process will begin with a warning without a fine.

What are the violations of e-invoicing?

According to the announcement, the violations of e-invoicing rules will be penalized per the new procedure described above. The instances that require a notice/fine are slightly different than the initial violations described previously and highlighted as follows:

• Not issuing and storing invoices electronically
• Not including a QR code
• Non-compliance with keeping electronic invoices and electronic notes in the form stipulated
• Not notifying the authority of any malfunction that hinders the issuance of electronic invoices
• Deleting or modifying electronic invoices after their issuance
• Including any of the prohibited functions in the e-invoicing solutions
• Violation of any other provision of electronic invoicing.

What´s next?

The ZATCA states that the new approach ensures proportionality between the violation and the penalty imposed on taxpayers while giving taxpayers a chance to comply within a specific time frame. Considering that the introduction of both VAT and mandatory e-invoicing is fairly recent in the country, there are certain aspects that are unclear for taxpayers. This approach will educate businesses and is expected to be welcomed by stakeholders.

The Zakat, Tax and Customs Authority (ZATCA) announced the finalised rules for the Saudi Arabia e-invoicing system earlier this year, announcing plans for two main phases for the new e-invoicing system.

The first phase of the Saudi Arabia e-invoicing system is set to go live from 4 December 2021.

With the mandate just around the corner, we’ve highlighted the latest news on a reform that is still evolving.

The Detailed Guidelines

The latest documentation communicated on the requirements was the Detailed Guidelines, published in August 2021. The Detailed Guidelines provided clarity on the following topics:

• Even though tax invoices must be generated electronically, they can be shared by sellers to buyers in an agreed format. For the first phase, the agreed format to exchange invoices may be electronic, human readable format, or a paper format. However, in the second phase, only XML format or PDF/A-3 with an embedded XML can be used to exchange e-invoices. In case the human readable format is used, it must be in Arabic (in addition to any other language) and Arabic or Hindi numerals can be used.
• A printed copy of the simplified tax invoice must be provided to the buyers, however, and based on mutual agreement between the seller and buyer, the invoice can be shared electronically or through any other way where the buyer can read it.
• The e-invoices generated by a third party will contain an electronic mark indicating this fact. This marker will be generated automatically and will not be visible on the human readable version of the e-invoice. The human readable format of the invoice must contain a statement declaring that the invoice is a third-party billing invoice.
• For the second phase, specific integration requirements will be published in the future.

Overview of readiness for the first phase

The first phase requirements are not as complex as the second phase requirements that will be enforced from 1 January 2023.

The ZATCA has been successful in providing taxpayers with the necessary information. The go live date is set to go ahead as planned and a delay is not currently expected.

More than 170 countries throughout the world have implemented a VAT system, and some of the most recent adopters are the Gulf countries. In a bid to diversify economic resources, the Gulf countries have spent the past decade investigating other ways to finance its public services.

As a result, in 2016 the GCC (Gulf Cooperation Council), consisting of Saudi Arabia, UAE, Bahrain, Kuwait, Qatar and Oman, signed the Common VAT Agreement to introduce a VAT system at a rate of 5%.

The first step: VAT adoption across the GCC

Following the VAT agreement, Saudi Arabia and UAE implemented VAT in 2018. Bahrain followed with a VAT regime in 2019. Most recently Oman enforced a 5% VAT from April 2021, and looking ahead both Qatar and Kuwait are expected to enact VAT laws within the next year.

The second step: VAT digitization

After the implementation of VAT and the increase of VAT rate from 5% to 15%, Saudi Arabia has taken the next step to digitize the control mechanisms for VAT compliance.

The E-invoicing Regulation enacted in December 2020 sets out an obligation for all resident taxable persons to generate and store invoices electronically. This requirement will be enforced from 4 December 2021.

Saudi Arabia has made considerable progress since it first introduced VAT in 2018. The Saudi E-invoicing Regulation is expected to not only encourage digitization and automation for businesses, but also to achieve efficiency in VAT controls and better macro-economic data for its tax authority, a development which will likely be replicated by other GCC countries soon.

Considering the efforts involved in the digitization of government processes and the VAT implementation timeline, the next candidate for similar e-invoicing adoption would likely be the UAE. While there are currently no plans for a mandatory framework, the UAE has announced bold plans for general digitization. According to the UAE government website, “In 2021, Dubai Smart government will go completely paper-free, eliminating more than 1 billion pieces of paper used for government transactions every year, saving time, resources and the environment.”

The spread of VAT digitization is typically the second reform following VAT adoption. As Bahrain and Oman also have VAT systems in place, introduction of mandatory e-invoicing in the next a few years in these countries would not come as a surprise. The adoption of e-invoicing in Qatar and Kuwait would depend on the success of VAT implementation, therefore it is not easy to estimate when their VAT digitization journey will begin but there is no doubt that it will happen at some stage.

The next step for VAT adoption across the GCC

After the adoption of e-invoicing, the Gulf countries may continue to digitize other VAT processes, including VAT returns. Pre-population of VAT returns using the data collected through e-invoicing systems is another trend that the countries are moving towards.

Regardless of the shape and form of digitization, there will be many moving parts in terms of VAT and its execution. Businesses operating in the region should be prepared to invest in their VAT compliance processes to avoid unnecessary fines and reputational risk for non-compliance.

Turkey’s e-transformation journey, which started in 2010, became more systematic in 2012. This process first launched with the introduction of e-ledgers on 1 Jan 2012 and has since reached a much wider scope for e-documents.

The Turkish Revenue Administration (TRA), the leader of the e-transformation process, has played an important role in encouraging companies to embrace the digitalization of tax and created a successful model for following tax-related procedures.

You can read more about Turkey’s e-transformation in our e-book Navigating Turkey’s Evolving Tax Landscape.

The process was further accelerated with new requirements for e-documents.

Latest developments and expectations in Turkey’s e-transformation

The TRA continues to widen the scope of e-documents and the types of e-documents in use are:

• Expense E-Note: This application helps you create electronic expense notes in accordance with TRA standards, retain electronic and hard copies of these notes, submit them to relevant parties and prepare reports.</
• E-Bank Receipt: With this application, you can create electronic bank receipts in accordance with TRA standards, keep copies of receipts or submit these copies to relevant parties and prepare reports.
• E-Foreign Exchange Receipt: This allows you to convert forex trading documents into electronic documents via relevant institutions and banks.</
• E-Insurance Commission Expense Letter: This is an expense note which is created by insurance brokers in an electronic format according to the legislation.
• E-Insurance Policy: This document is the electronic version of insurance policies issued by insurance, pension and reinsurance brokers.
• E-Tab: This document shows the list of orders placed by customers in restaurants and cafés.

The digitization journey of e-documents

Many taxpayers have voluntarily adopted the new system since the TRA launched this whole process and TRA’s latest updates for e-documents are critically important to monitor for tax-related procedures.

As e-documents become more popular, any income loss arising from tax procedures will reduce. E-documents offer additional advantages for public institutions and private businesses, such as saving time, minimising costs and improving productivity. It’s certain that the scope of e-documents in Turkey will keep expanding in the future, which will affect taxpayers and tax procedures.

The General Authority of Zakat and Tax’s (GAZT) previously published draft rules on ‘Controls, Requirements, Technical Specifications and Procedural Rules for Implementing the Provisions of the E-Invoicing Regulation’ aimed to define technical and procedural requirements and controls for the upcoming e-invoicing mandate. GAZT recently finalized and published the draft e-invoicing rules in Saudi Arabia.

Meanwhile, the name of the tax authority has changed due to the merger of the General Authority of Zakat and Tax (GAZT) and the General Authority of Customs to form the Zakat, Tax and Customs Authority (ZATCA).

The finalised rules include a change to the go live date of the second phase from 1 June 2022 to 1 January 2023. They revealed the time limit to report B2C (simplified) invoices to the tax authority´s platform for the second phase.

According to the final rules, the Saudi Arabia e-invoicing system will have two main phases.

Saudi Arabia E-Invoicing System: The First Phase

The first phase begins on 4 December 2021 and requires all resident taxpayers to generate, amend and store e-invoices and electronic notes (credit and debit notes).

The final rules state businesses must generate e-invoices and their associated notes in a structured electronic format. Data in PDF or Word format are therefore not e-invoices. The first phase does not require a specific electronic format. However, such invoices and notes must contain all necessary information. The first phase requires B2C invoices to include a QR code.

There are a number of prohibited functionalities for e-invoicing solutions for the first phase:

• Uncontrolled access
• Tampering of invoices and logs
• Multiple invoice sequences

Saudi Arabia E-Invoicing System: The Second Phase

The second phase will bring the additional requirement for taxpayers to transmit e-invoices in addition to electronic notes to the ZATCA.

The final rules state the second phase will begin 1 January 2023 and will be rolled-out in different stages. A clearance regime is prescribed for B2B invoices while B2C invoices must be reported to the tax authority platform within 24 hours of issuance.

As a result of the second phase requirements, the Saudi e-invoicing system will be classified as a CTC e-invoicing system from 1 January 2023. All e-invoices must be issued in UBL based XML format. Tax invoices can be distributed in XML or PDF/A-3 (with embedded XML) format. Taxpayers must distribute simplified invoices (i.e. B2C) in paper form.

In the second phase, a compliant e-invoicing solution must have the following features:

• Generation of a Universally Unique Identifier (UUID) in addition to the invoice sequential number
• Tamper-resistant invoice counter that increments for each invoice and electronic note issued
• Contain some functionalities which enable taxpayers to save e-invoices and electronic notes and archive them in internal and external archive
• Generation of a cryptographic stamp for each e-invoice or electronic note
• Generating a hash for each generated e-invoice or electronic note
• Generation of a QR code

The second stage will furthermore bring additional prohibited functionalities for e-invoicing solutions on top of requirements mentioned in the first phase:

• Time change
• Export of stamping key

What’s next for Saudi Arabia’s e-invoicing system?

After publishing the final rules, the ZATCA is organising workshops to inform relevant stakeholders in the industry.

Some of the details remain unclear at this point, however the Saudi authorities have been very successful in communicating the long-term goals of the implementation of its e-invoicing system, as well as making clear documentation available and providing opportunities for feedback on the documentation published for each phase. We expect provision of the necessary guidance within the near future.

The Turkish Revenue Administration (TRA) has published updated guidelines on the cancellation and objection of e-fatura and e-arsiv invoice. Two different guidelines are updated: guidelines on the notification of cancellation and objection of e-fatura and guidelines on the notification of cancellation and objection of e-arsiv.

The updated guidelines inform taxable persons about the new procedures for objection against an issued e-fatura and e-arsiv invoice. And how this must be notified to the TRA. Due to changes in the objection procedure, the e-arsiv schema has also changed. There has not yet been a change in the e-fatura schema, however it could also change in the near future. The updated guidelines state that the TRA platform can be used to notify the TRA about objection requests made against an issued e-fatura and e-arsiv invoice.

Why are the updated guidelines important?

From July 2021, electronically issued documents won’t be mentioned in the so called ‘BA and BS forms’. The BA and BS forms are generated to periodically report issued or received invoices when a total invoice amount is 5.000 TRY or more. All limited liability and joint stock companies are obliged to create and submit the forms to the TRA even if they don’t have any invoices to report.

The TRA recently published a new provision stating that electronically issued documents will not be shown in BA and BS forms and instead will be reported directly to the TRA in the clearance (e-fatura) and reporting(e-arsiv) process. Considering that the TRA receives the invoice data for electronically issued invoices in real-time, relieving taxpayers from reporting invoices through BA and BS forms creates a more efficient system in which the relevant data will be collected only once from taxpayers.

At its current stage, e-documents won’t be mentioned in these forms. However, in order for the TRA to have accurate invoice data about each taxpayer, it needs to be notified which are the final invoices and disregard any objected or cancelled documents when evaluating taxpayer data.

Although the cancellation process is already performed through the TRA platform for basic e-fatura and e-arsiv, objection requests are made externally (through a notary, registered letter or registered e-mail system), meaning the TRA does not have visibility of all objections. There could therefore be a risk that the TRA considers a cancelled document (due to objection) as issued which could result in discrepancies between the taxpayer records and the data that the TRA considers relevant for tax collection.

Therefore, taxpayers must now notify the TRA about objection requests to avoid any discrepancies between their records and BA and BS forms. The final goal of this application is that the BA and BS forms will be completely auto populated by the TRA in future.

How will the new process work?

According to the Turkish Commercial Code, any objections or cancellation requests must be made within eight days. Suppliers and buyers can raise an objection request which must be made externally (through a notary, registered letter or registered e-mail system) and registered in the TRA system.

For e-arsiv application, there are two ways for suppliers to notify the TRA about the objection request. They can either use the e-arsiv schema (automated) or register the request in the TRA portal. Buyers can see this request on the TRA platform and may respond, although they are not obliged to. Because e-self-employment receipts are also reported through e-arsiv application, the same objection rules apply.

For e-fatura, since there is no change in the schema, it is not possible for suppliers or buyers to notify the TRA using e-fatura schema. Currently, they can only notify the TRA about e-fatura objections through the TRA platform. Taxpayers can also respond to objection requests only through the platform.

What’s next?

The TRA has taken a step towards the digitalization of cancellation and objection requests. However, there is still not an automated way to perform these actions. Before the digitized objection process becomes reality in the country, the authorities must take a more sophisticated approach towards automating the process as well as introducing or amending applicable legislation.

An amendment in the General Communiqué No. 509 has announced healthcare service providers and taxpayers providing medical supplies and medicines or active substances must use the e-invoice application from 1 July 2021.

The mandated scope for transition to e-invoice and e-arşiv invoice applications in the healthcare industry

Published in the Official Gazette the implementation will cover healthcare service providers who have signed contracts with the Social Security Institution (SSI) and all taxpayers providing medicines and active substances and medical supplies.

This includes:

• Hospitals, medical centres, branch centres, dialysis facilities
• Other specialised treatment centers licensed by the Ministry of Health
• Diagnosis, medical examination and imaging centres
• Laboratories, pharmacies, medical device and material suppliers
• Optometry organisations, auditory centres, spas
• Private legal entities providing or producing human medicinal products, in addition to their unincorporated branches and pharmaceutical warehouses.

The transition process to e-invoice and e-arşiv invoice applications in the healthcare industry

Within this scope, organisations must use the e-invoice application as of 1 July. Organisations signing contracts with SSI after this date must use e-invoice prior to their issue of invoices to SSI.

From 1 January 2020 all organisations included in the e-invoice application scope have to apply the e-arşiv invoice on the date of e-invoice application. Any healthcare organisations included in the amendment will then have to apply the e-arşiv invoice on 1 July.

What are the benefits of e-invoice and e-arşiv invoice transition to the healthcare industry?

The digitisation process will minimise physical contact, a significant benefit following the Covid-19 outbreak. Furthermore, organisations will no longer have to prepare or store physical documents as they are stored electronically.

For organisations that issue invoices to SSI, transactions such as payment terms will become faster and more efficient via the e-invoice and e-arşiv invoice applications. In addition to the transfer of all invoice-related processes to the digital environment.

Organisations that carry out the e-issuance process via the TRA Portal or via a third-party integrator will benefit from easy access to documents, improved efficiency, and business continuity as a result.

Russia introduces a new e-invoicing system for traceability of certain goods on 1 July 2021. Federal Law No. 371-FZ will amend the Russian Tax Code to introduce the new procedure for the traceability system, which will bring the introduction of mandatory e-invoicing for taxpayers dealing with traceable goods.

Since its introduction, B2B e-invoicing in Russia has remained voluntary. However, this is changing as of this summer when the issuance and acceptance of e-invoices will be mandatory for taxpayers trading goods subject to the traceability system.

What is the traceability system?

The traceability system aims to monitor the movement of certain goods imported into Russia and the Eurasian Economic Union (EAEU). In the scope of the traceability system, each consignment of goods is assigned a registration number during import. This is then controlled at all transaction stages. Businesses within the scope of this new traceability system will need to include the registration number in invoices and primary accounting documents. They must also provide information on the transactions involving the traceable goods through VAT returns and related transaction reports.

Legal entities and individual businesses participating in the circulation of traceable goods are in scope of the traceability requirements. From 1 July 2021, invoices for these goods must be electronic. Buyers of goods subject to traceability must accept invoices in electronic form. Furthermore, the new requirement for mandatory electronic invoices for sales of traceable goods doesn’t apply to export/re-export sales and B2C sales.

What type of goods are subject to the traceability requirements?

The goods included in the list of traceable goods are currently:

• Refrigeration and freezing equipment (refrigerators, freezers)
• Industrial trucks (forklift trucks, bulldozers, graders, planners, power shovels, excavators, shovel loaders, tampers in addition to road rollers)
• Washing and drying machines (household and for laundry facilities)
• Monitors and projectors (not including receiving television equipment)
• Electronic integrated circuits and elements
• Baby strollers and child safety seats

What’s next for Russian regulation of electronic documents?

Considering that by the end of 2024 Russia aims to have 95% of invoices and 70% of waybills in electronic form, it’s likely more digitization changes are coming. The digitization of accounting records is another area the Russian tax authority is making progress on. It would therefore not come as a surprise to see more changes in the Russian legislation in the next couple of years.

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For companies operating in Turkey, 2019 was an eventful year for tax regulatory change and in particular, e-invoicing reform. Since it was first introduced in 2012, the e-invoicing mandate has grown, and companies are having to adapt in order to comply with requirements in 2020 and beyond. Turkey’s digital transformation and e-invoicing landscape continues to evolve.

According to the General Communique on the Tax Procedure Law (General Communique), more taxpayers now need to comply with the mandatory e-invoicing framework. The General Communique published on 19 October 2019 covers other e-documents such as e-arşiv, e-delivery note, e-self-employment receipts, e-producer receipts, e-tickets, e-note of expenses, e-Insurance Commission Expense Documents, e-Insurance Policies, eDocument of Currency Exchange, and e-Bank Receipts.

The scope of e-invoicing

From 1 July 2020, taxpayers with a gross sales revenue of TL 5 million or above in fiscal years 2018 or 2019 must switch to the e-invoice system. Taxpayers who meet these requirements in 2020 or later, should switch to the e-invoice system at the beginning of the seventh month of the following accounting year.

Mandatory e-invoicing is not only based on the threshold

Turkey’s tax authority has set some sector-based parameters for businesses operating in Turkey. Companies licensed by the Turkish Energy Market Regulatory Authority, middlemen or fruits or vegetable traders, online service providers facilitating online trade, importers and dealers are some of the taxpayers also required to switch to e-invoices, irrespective of their turnover.

The scope of E-Arşiv invoice

E-arsiv fatura documents B2C transactions. But also in case the transacting counterparty is not registered with the TRA for e-invoicing. Similar to e-invoice, the e-arşiv invoice, became mandatory for intermediary service providers; online advertisers; and intermediary online advertisers who switched to the system from 1 January 2020.

Taxpayers not in scope for e-invoice and e-arşiv must issue e-arşiv invoices through the Turkish Revenue Administration´s portal. That is if the total amount of an invoice issued, including taxes, exceeds:

• TL 5.000 for B2B
• TL 30.000 for B2C transactions.

Turkey’s Government continues to tackle its VAT gap through digital transformation. By taking greater control of reporting and requiring more granular tax detail.  So, businesses operating in Turkey need powerful e-invoicing strategies to comply with the growing demands for digital tax transformation.