E-invoicing – Expectations and preparedness

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With effect from 1 December 2021, the Kingdom of Saudi Arabia (KSA) has made electronic invoicing mandatory for all taxpayers of the country, implying that all resident taxable persons for VAT purposes, in addition to any other party issuing tax invoices on behalf of a supplier subject to VAT, are required to follow the e-invoicing regulations in KSA.

This was introduced by way of project called ‘Fatoorah’, which was intended to promote digital transformation and to curb any hidden economical transactions in the region. The project was laid out to be one of the crucial initiatives, as spearheaded by the Zakat, Tax and Customs Authority (ZATCA), in alignment with the targets laid down as per Kingdom’s Vision 2030.

ZATCA had declared that the implementation of the electronic invoicing system shall be implemented primarily in two phases:

a) Phase -1 constituted issuance of electronic invoices by taxpayers with all the required fields to be presented on the invoice

b) Phase – 2 required a direct integration with ZATCA, including the electronic invoicing solution to integrate with external systems         through ZATCA’s API

Whether e-invoicing is mandatory in UAE?

Currently, there is no mandatory requirement to follow e-invoicing norms as per UAE VAT. However, the regulations on electronic transactions as published by the Federal Tax Authority (FTA), clearly define the intent of Revenue to move every step closer towards implementation of e-invoicing in the region.

The current system though recognizes the use of electronic invoices, documents, records and signatures and therefore, it opens a larger window of scope for entry of digitization of invoicing function.

Expectations on advent

The age of rapid technological progress has prompted the nations to recognize the pivotal role of digitization, prompting the imposition of e-invoicing mandates. Notably, most of the countries including India, have been demonstrating the potential of electronic invoice systems to enhance business efficiency, curtail tax evasion and optimize the customer billing experience.

As the adoption of e-invoicing system is picking up a great pace in the Gulf region, it is reasonably expected that UAE shall also be following the path of KSA’s e-invoicing regulations. There is expected to be a regime following a taxable revenue-based threshold in phase-wise manner where e-invoicing shall become mandatory.

Key factors for taxpayers

Considering the region inching closer towards e-invoicing, it becomes pertinent to gear up with internal systems and practices to align with the upcoming new norms.

a) Setting the basics right

Moving towards digitization rapidly, the industry is expected to gear up with the guards of their accounting systems, internal controls and tools in alignment with the pace of technology. Be it fast internet or be it constant digital support in billing tools, it shall become crucial to target the basic pillars of accounting set up right.

The basic internal controls and practices around accounting and billing systems shall play a pivotal role to be prepared for e-invoicing in UAE.

b) Role of master data updation

In many firms, the current method of reporting in VAT returns still revolve around manual punching of details from invoice copies, such as VAT registration number, etc. This practice eventually leads to major details not being captured in system reports in one go and the chances of manual data overpowering system data are high.

Once the basic system reports incorporating details of customers and sales i.e. customer masters and billing masters, are updated on real time basis, it will pave a clear way for e-invoicing implementation in the organisation.

c) Gearing of cross functional systems

It is important for the management to determine the systems that shall get impacted with the advent of e-invoicing in UAE. Starting from procurement system to the billing system, it becomes necessary to have a due diligence in place to check the capability status of these systems and processes in place, in alignment with upcoming new norms.

Driving from the existing e-invoicing regulations as applicable across other regions, the transactions which shall come under the ambit of e-invoicing applicability, shall play a key role in determining the consequential functional and system impact.

d) It’s not just the sales side

E-invoicing shall not only impact the Accounts Receivable (AR) side of the organization, but it shall equally impact the Accounts Payable (AP) side. Depending on the phased manner of implementation of e-invoicing, it shall be interesting to see how the Government carves out the mandatory imposition of checking QR code/e-invoice reference of vendors for a taxpayer.

Accordingly, it’s not just the AR / billing aspects which an assessee shall be required to focus on, but it is also the vendor management system which would add value to comply with e-invoice norms.

e) Amendment / Cancellation of invoices

Basis the detailed guidelines issued by ZATCA, taxpayers subject to the regulations, are not allowed to modify or delete invoices once they are issued whether these are generated by the system or outside it. If a user wishes to “cancel” an invoice, this may only be done through issuing an associated credit note and reissuance of a new invoice.

It becomes pertinent to ensure that once invoices are issued, the route of cancellation or amendment stands as a hurdle to get through the process of final billing, therefore the diligence of issuance of invoices in one go becomes more important.

f) Interaction between ERP and ZATCA

Considering the requirements of ZATCA, the integration between ERP with tax portal on implementation of e-invoicing is a factor to be considered in cost benefit analysis for the organisation. As the intent of Revenue is to curb the malpractices in accounting systems, the direct integration with ERP of taxpayers is a way to reach this vision.

As of now, in most of the countries where e-invoicing is applicable, taxpayers have either explored the routes of external outsourcing tools to generate e-invoices or have integrated with tax portal within their ERP systems. The latter becomes a little complex option varying on the capabilities of ERP systems.

Considering the above factors, organisations need to gear up with the readiness to align their internal accounting systems and policies with the expected e-invoicing norms.  

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