e-Invoicing Applicability in Saudi Arabia

Phase 1 of e-invoicing in Saudi Arabia was implemented on 4th December 2021. Also, Zakat, Tax and Customs Authority (ZATCA) planning to implement phase 2 of e-invoicing from 1st January 2023. Accordingly, it notified that businesses with more than 3 billion SAR must integrate their ERP/POS with the Fatoora portal from 1st January 2023.

This article covers the scope and applicability of the e-invoicing system in the KSA.

Who should comply with the e-invoicing system in the KSA?

In the Kingdom, all taxable persons under the VAT Regulations are compulsorily required to generate electronic invoices or e-invoices. They must follow the e-Invoicing Regulations and the related implementing resolutions.

‘Taxable persons’ under the VAT law can be either natural persons (individuals) or legal persons (firms or companies) and must satisfy the following:

• Carry out an economic activity or business.
• Registered or liable to be registered under the VAT Regulations in the KSA. 

The applicability of e-invoicing to taxpayers of Saudi Arabia is explained below. 

‘Taxable person’ under the e-Invoicing Regulations covers the following persons:

• A taxable person is a resident of the Kingdom of Saudi Arabia.
• A third party or customer issues a tax invoice on the resident taxable person’s or the resident supplier’s behalf as per the VAT law. In other words, such an invoice is self-billed.
• A taxable person is prescribed as per the VAT Implementing Regulations.

‘Taxable persons’ excludes those not residents in the KSA. They are not required to issue e-invoices or electronic notes for taxable supplies or advance amounts received on them.

Transactions and documents under the e-invoicing system in the KSA

The transactions subject to e-invoicing in the KSA are classified based on whether electronic invoices or electronic notes are needed.

Scope of electronic invoices

Goods and services supplied are charged at a standard VAT rate or a zero rate:

Sellers can issue standard e-invoices for taxable goods or services valued at 1,000 riyals or more (charged by a standard VAT rate). The resident may sell such goods or services to taxable or non-taxable persons as per the VAT Regulations. The zero-rated supplies, such as exports and those notified by the VAT Implementing Regulations, are taxable supplies charged by a VAT rate of 0%.

Sellers can issue simplified e-invoices where any zero-rated services or goods are supplied domestically to a person belonging to a non-gulf country, also called a non-GCC resident. 

Goods exported from the KSA:

Irrespective of the value of supply, exporters must issue standard e-invoices for exports of goods. Such e-invoices must have a total invoice value denominated in USD, whereas the VAT amounts in SAR (riyals).

Intra-GCC supplies as per the Agreement, VAT Law and VAT Implementing Regulations:

Suppose the seller is a resident of the KSA and the buyer is a resident of any Gulf Cooperation Council member country. In that case, it is a case of intra-GCC supplies.

Standard e-invoices must be issued in all such cases. Export provisions and benefits apply to these transactions until the expiry of the transitional period prescribed under Article 79 of the VAT Implementing Regulations. After that, the inter-state supply provisions and VAT rate will apply.

Nominal supplies as per the Agreement, VAT Law, and VAT Implementing Regulations:

A standard e-invoice must be generated and stored for all the nominal supplies. However, these nominal supply e-invoices must not be issued to customers since input VAT is no benefit.

Wherever supply does not involve consideration, whether or not in monetary terms, it is classified as nominal supply. Nominal supplies do not cover samples and gifts given during business with a value below 200 riyals. 

Any advances received before the actual supply of goods or services:

Electronic invoices must be issued for advances, and part payments must be received on the same day when the supply is yet to occur.

Scope of electronic notes

• Cancellation or suspension of supply transaction, wholly or partially, after it occurs. The electronic credit note issued should be towards the earlier e-invoice. It must refer to the sequential invoice number of the original e-invoice.
• Changes or amendments in supply lead to the revision in VAT amount. 
• Amendment to the supply value in a prior agreement between the supplier and buyer.
• Sales returns. 

Transactions not subject to e-invoicing

The following supplies do not require e-invoices or electronic notes, even if the taxable persons carry them out.

• Exempted supplies or payments received on them.
• Taxable supplies are subjected to a reverse charge mechanism.
• Import of goods into the KSA.