E-invoicing (FATOORAH) is the process of issuing and storing tax invoices, and debit and credit notes, in a structured electronic format instead of paper invoices. It was rolled out in the Kingdom in two phases: the issuance and storage phase, which began on 4 December 2021, and the integration phase, which began on 1 January 2023 on a phased basis.
What Is an Electronic Invoice?
An electronic invoice is an invoice that is issued and stored in a structured electronic format through an electronic system and contains the requirements of a tax invoice. A handwritten invoice or one converted through a scanner is not considered an electronic invoice under this framework. There are two types of tax invoices:
- Tax Invoice: generally issued from one establishment to another, containing all the elements of a tax invoice.
- Simplified Tax Invoice: generally issued from an establishment to an individual, containing the main elements of a simplified tax invoice.
Phase One: Issuance and Storage
E-invoicing was implemented in two phases. The first phase, the "Issuance and Storage" phase, began on 4 December 2021 for all persons subject to the E-Invoicing Regulation, and for any party issuing an invoice on behalf of a taxpayer. In this phase, issuing electronic invoices resembles issuing paper invoices previously, but through a compliant e-invoicing system, with the invoice containing all elements required according to its type.
Phase Two: Integration
Phase two began on 1 January 2023 on a phased basis. In this phase, the electronic solution used by the establishment must be integrated with the Zakat, Tax and Customs Authority's system (the FATOORAH platform), and electronic invoices must be issued in the required format for this integration.
Why Was E-Invoicing Adopted?
The purpose of the e-invoicing system is to convert the process of issuing paper invoices and notes into an electronic process that allows invoices and debit and credit notes to be exchanged and processed in a structured electronic format between the seller and the buyer, in an integrated electronic format, instead of relying on paper or scanned documents. The E-Invoicing Regulation is an integral and complementary part of the VAT Implementing Regulation, meaning all the provisions that apply to ordinary tax invoices -- including the fines, penalties, and record-keeping rules -- also apply to electronic invoices, as stated in Article Four of the E-Invoicing Regulation itself.
Who Is Subject to E-Invoicing?
The E-Invoicing Regulation applies to the taxable person who is a resident of the Kingdom, as well as to the customer or any third party who issues a tax invoice on behalf of a resident taxable person; such persons must issue electronic invoices for all their transactions that require the issuance of a tax invoice.
Technical Requirements of the E-Invoicing Solution
The technical solution used to issue electronic invoices and electronic notes must be able to connect to the Internet, and must be able to connect with external systems using an Application Programming Interface (API). The solution must also be tamperproof and must include a mechanism that allows the detection of any tampering performed by the user or any other party, so that the integrity of the data recorded in the electronic invoice is preserved from issuance through storage.
Legal References
- What Is E-Invoicing? (ZATCA guidance) — definition of the electronic invoice and its types.
- Roll-out phases: E-Invoicing (FATOORAH) implementation in the Kingdom — the dates of phase one and phase two.
- E-invoicing Regulation December 4th 2020 — Articles 2, 3, 4, and 5: the Regulation's relationship to VAT, the definition of an e-invoice, who is subject to it, and the technical requirements of the solution.
For questions about your specific situation, you can ask the Saudi Arabia Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.