Is E-invoice Mandatory for B2C transactions in KSA?

As part of Saudi Arabia's efforts to digitize its financial systems and enhance tax compliance, the Kingdom has introduced a mandatory e-invoicing system for all VAT-registered businesses. The e-Invoicing Regulation, published on December 4th, 2020, requires that all transactions—both Business-to-Business (B2B) and Business-to-Consumer (B2C)—be processed in compliance with e-invoicing guidelines.

This article provides a detailed overview of whether e-invoicing is mandatory for B2C transactions in Saudi Arabia, the regulations governing it, and the key phases of its implementation.

What Is B2C E-Invoicing?

B2C (Business-to-Consumer) transactions involve the sale of goods or services by a business directly to individual consumers. These transactions typically do not require the buyer to provide detailed information about themselves.

Common examples of B2C transactions include retail sales, online purchases, and service-oriented sales like those at restaurants or salons.

E-invoicing in this context refers to the electronic generation, submission, and storage of invoices for such transactions as per the e-invoicing guidelines and regulation, replacing traditional paper-based invoicing. The goal is to increase transparency, simplify tax compliance, and ensure all transactions are accurately reported.

Is E-Invoicing Mandatory for B2C in Saudi Arabia?

Yes, e-invoicing is mandatory for B2C transactions in Saudi Arabia. The Zakat, Tax and Customs Authority (ZATCA) has made it compulsory for businesses to issue electronic invoices for all transactions, including B2C, as part of the Kingdom’s push towards full digital transformation.

Since December 4, 2021, all businesses engaged in B2C transactions in Saudi Arabia have been required to generate Simplified Tax Invoices electronically. The process of electronic invoicing has been divided into two key phases, ensuring a gradual but comprehensive shift from manual to digital systems.

Phases of E-Invoicing Implementation in Saudi Arabia

The implementation of e-invoicing for B2C transactions in Saudi Arabia has been rolled out in two main phases:

1. Phase 1: Generation Phase (December 4, 2021)

In the initial phase, all businesses were mandated to start issuing invoices electronically for B2C transactions. Some key requirements during this phase include:

• Businesses must issue Simplified Tax Invoices electronically. These invoices do not need to include detailed buyer information but must have transaction details such as VAT, total value, and product or service description.
• Storage of invoices must be done electronically, using systems compliant with ZATCA’s technical specifications.
• Integration with the ZATCA platform was not required during this phase, meaning businesses were only obligated to generate and store electronic invoices but did not need to report them in real-time.

2. Phase 2: Integration Phase (January 1, 2023)

The second phase, known as the Integration Phase, focuses on integrating business systems with the ZATCA e-invoicing platform known as FATOORA. Key features of this phase include:

• Businesses must generate Simplified Tax Invoices with additional data fields.
• Submission of invoices to ZATCA must be done within 24 hours of issuance to ensure compliance with real-time reporting requirements.
• Invoices must include a cryptographic stamp and a QR code to ensure their authenticity and to enable verification by both ZATCA and the consumer.
• Invoices must be stored and submitted in XML format, adhering to strict guidelines on invoice data structure.

This phase ensures that businesses provide ZATCA near real-time access to transaction data, enabling better tax monitoring and compliance.

What Information Is Required for B2C E-Invoices?

For B2C transactions, businesses must issue Simplified Tax Invoices that contain the following key details:

• Seller’s Information: Name, address, VAT registration number.
• Transaction Details: Description of goods or services sold, price per item, total amount before tax, VAT amount, and total value including VAT.

QR Code: A unique QR code that includes critical details about the transaction, such as invoice number, date, and VAT amount, allowing consumers and ZATCA to verify the authenticity of the invoice.

• Cryptographic Stamp: Ensures that the invoice has not been tampered with after its generation.

Compliance with E-Invoicing Regulations in B2C Transactions

In order to comply with ZATCA’s e-invoicing regulations, businesses must ensure their systems are capable of generating, submitting, and storing Simplified Tax Invoices by ZATCA’s technical guidelines. The key steps to ensure compliance include:

1. Implementing an E-Invoicing Solution: Businesses must use e-invoicing software that complies with the requirements set out by ZATCA, including the ability to generate invoices in the prescribed XML format, append QR codes, and apply cryptographic stamps.
2. Real-Time Reporting: Invoices must be submitted to ZATCA’s platform (FATOORA) within 24 hours of issuance.
3. Data Security and Storage: E-invoices must be securely stored for at least five years in case of future audits or inspections by ZATCA.

Penalties for Non-Compliance

Failure to comply with Saudi Arabia’s e-invoicing regulations can result in fines ranging from SAR 1,000 to SAR 40,000, depending on the severity of the violation. Some examples of non-compliance include:

• Not issuing electronic invoices as required.
• Failing to include the QR code or cryptographic stamp in invoices.
• Storing invoices incorrectly or not maintaining them in the required format.
• Altering or deleting invoices after they’ve been issued.
• Using unauthorized functionalities in e-invoicing systems.

Conclusion

e-Invoicing is mandatory for B2C transactions in Saudi Arabia, and it plays a crucial role in the Kingdom's vision of digitizing its financial ecosystem through e-invoicing. The gradual phased implementation allows businesses to transition smoothly into a digital-first approach to invoicing, ensuring long-term benefits for both businesses and the Saudi economy.

Consumers can easily verify the authenticity of the e-invoices and Tax authorities have complete visibility even into the consumer transactions which was unaccounted for previously.