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E-Invoicing in Saudi Arabia: Navigating Phase 2 of the Mandate

As Phase 1 of the e-invoicing mandate introduced by the Zakat, Tax and Customs Authority (ZATCA) is now live in Saudi Arabia, attention turns to Phase 2, set to commence on January 1, 2023. With the forthcoming implementation, several common queries have surfaced from our clients regarding compliance with this new legislation. Let's address these inquiries comprehensively:

  1. Understanding the Waves in Phase 2: ZATCA has delineated Phase 2 into distinct waves based on taxpayer revenues:

    • Wave 1 (commencing January 1, 2023) for entities with annual revenues exceeding SAR 3 billion
    • Subsequent waves continue on July 1, October 1, November 1, December 1, 2023, and January 1, February 1, March 1, and June 1, 2024, respectively, with decreasing revenue thresholds.
  2. Software and ERP Selection for E-Invoicing Compliance: Clients have queried the flexibility in selecting software or ERP systems for compliance. Flick assures clients that any chosen software must adhere to regulatory standards encompassing e-invoicing, VAT, Cloud Computing, and Cyber Security. Key considerations for existing ERP systems include their capability to generate electronic invoice datasets, establish technical communication interfaces, and deliver requisite content in Arabic.

  3. Scope of E-Invoicing Mandate: Contrary to common misconceptions, the e-invoicing mandate extends beyond transactions with the public sector (B2G) to encompass all taxpayers engaging in B2B and B2C transactions. However, exemptions exist for specific transactions, including exempt supplies, reverse charge supplies, and imports of goods.

  4. Addressing Arabic Content Requirements: Regarding the necessity for Arabic content, Flick emphasizes the importance of compliance while clarifying that translation services are not provided. However, managed services offered by Flick's partners encompass translations and related services to meet regulatory demands.

  5. Offline Archiving Requirements: Flick elucidates the concept of 'offline archiving' necessitating digitally archived structured data files, or e-invoices, within servers based in Saudi Arabia. These archives must adhere to specified technical standards ensuring integrity, non-tampering, and non-repudiation.

  6. Processing Inbound E-Invoices: While no specific regulations currently mandate the processing of inbound e-invoices, Saudi tax laws mandate the storage of electronic tax invoices. Flick highlights the opportunity for efficiency gains and cost reduction through the automation of supplier invoice handling.

  7. Accessibility to Non-Saudi Arabian Companies: Flick underscores the universal benefits of digitalization, asserting that businesses, irrespective of their origin, can enhance operational efficiency and compliance by transitioning to fully digital processes when engaging with Saudi Arabian entities.

  8. Penalties for Non-Compliance: To emphasize the gravity of compliance, Flick elucidates the potential penalties for non-compliance, ranging from SAR 1,000 to SAR 40,000. These penalties encompass various infractions, including failure to issue electronic invoices, non-reporting of system malfunctions, and unauthorized alterations to invoices.

By addressing these common queries, Flick aims to facilitate a smoother transition for businesses navigating the complexities of e-invoicing compliance in Saudi Arabia.