E-Invoicing in Saudi Arabia: Understanding Phase 2 and Its Waves

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E-invoicing, a significant leap towards digital transformation in Saudi Arabia, is part of the Kingdom's Vision 2030 initiative to modernize its economy and enhance business processes. Implemented by the Zakat, Tax, and Customs Authority (ZATCA), the e-invoicing mandate aims to streamline invoicing, improve transparency, and combat tax evasion.

In this write-up, we discuss about the different phases of implementation of e-invoicing in the KSA.

Implementation Phases

The ZATCA is implementing e-invoicing in two key phases. The Generation Phase (effective from 4 December 2021) required that all VAT taxpayers must generate and store e-invoices and associated notes (credit/debit) electronically. This initial phase was introduced to facilitate the adoption of e-invoicing systems, replacing manual processes. 

The Integration Phase (effective from 1 January 2023) requires that taxpayers must integrate their e-invoicing systems with ZATCA’s systems in a phased manner. This involves sharing e-invoice data and debit/credit notes in real-time. During Phase 2, subjective taxpayers must comply with Phase 2 business and technical requirements for the electronic invoices and e-invoice solutions, and the integration with ZATCA’s system. 

The Waves of Phase 2

Phase 2 is enforceable starting from 1 January 2023 and is implemented in waves by targeted taxpayer groups. ZATCA notifies taxpayers about the period of their integration at least 6 months in advance through official emails and SMSs. Waves 1 to 7 have been implemented up to 31 May 2024 as per the details provided on the ZATCA portal. Waves 8 to 12 are currently being implemented or will be implemented in the near future as set out below. 

Recently, ZATCA determined the criteria for selecting the targeted taxpayers in Wave 12, being annual taxable revenue above SAR 10 million in 2022 or 2023.

A taxpayer may use the same e-invoice solution that was used for Phase 1, by updating the e-invoice solution to comply with the Phase 2 requirements.

Transition 

A taxpayer must follow Phase 1 requirements until the integration enforcement date of the taxpayer’s wave, in which the taxpayer is required to start following Phase 2 requirements. However, taxpayers have the option to start following Phase 2 requirements on a voluntary basis before their integration enforcement date.

Conclusion

Implementation of Phase 2 for e-invoicing in a gradual manner is a step in the right direction. It started with taxpayers with a high taxable turnover and gradually progressed to taxpayers with a low taxable turnover. This ensures a smooth transition and addresses any potential challenges systematically.

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VAT E-invoicing in Saudi Arabia

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