What Is Saudi Arabia’s ZACTA?: Know The E-Invoicing Regulations

Riyadh, Saudi Arabia: Zakat, Tax, Customs, and Excise Authority (ZATCA) is a government agency in Saudi Arabia that collects taxes, zakat, and customs duties. Earlier known as GAZT, ZATCA was established in 2021 by merging the General Authority of Zakat and Tax and the General Customs Authority. 

The ZATCA’s salient feature is that it requires an e-invoicing system, a paperless and secured system that generates and manages invoices in digital format, making the business organizations use e-invoice software to comply with ZATCA’s regulations in the kingdom. The e-invoicing system of ZATCA aims to improve transparency and reduce tax fraud in the country.

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ZATCA and Its Services

A government agency under the Ministry of Finance in Saudi Arabia that is responsible for the assessment and collection of taxes and zakat, a form of mandatory donation in Islam, ZATCA has been entrusted with various roles and responsibilities.

The major services of the agency include collecting taxes, zakat, and customs fees; in addition to providing services to Zakat payers, following up with Zakat payers to ensure dues are collected, streamlining customs and tax processes, and simplifying tax regulations. It also explores ways to foster transparency and strengthen national and international trade relations in the Gulf nation. 

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ZATCA E-Invoicing Mandate And Government Regulations

As part of the broader Saudi Vision 2023, the kingdom had introduced several measures to digitalize its economy by promoting e-invoicing, and the government implemented the projects in different phases in the past few years. The ZATCA has made it mandatory for resident taxpayers to embrace electronic invoicing (e-invoicing) as part of modernizing the economy and enhancing efficiency.

The businesses in the country have to adopt the e-invoicing procedures, and with the use of an online integrated solution, the system substitutes conventional paper invoices with electronic versions that include Credit & Debit Notes (CDNs), which are transferred between buyers and sellers.

ZATCA’s online integrated system, the FATOORAH platform, or e-invoicing software generates and archives electronic invoices by verifying and storing the invoice details, and within the allotted period, e-invoices are submitted to ZATCA’s FATOORAH system. If the buyers’ enterprise systems are connected to ZATCA’s system, e-invoices are transmitted straight to it via an integrated network.

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The person subject to the e-invoicing regulation must modify their accounting and invoicing software to support the issuance of an e-invoice in ZATCA-compliant XML format. The businesses also have to configure their software to send e-invoices to a ZATCA-designated service provider and save issued e-invoices in the ZATCA-designated XML format.

The e-invoice regulations that the Saudi government has issued are:

• All taxable products and services subject to VAT will be subject to the e-invoicing provisions (whether standard or zero rates).
• All VAT-registered business owners in Saudi Arabia (except for non-resident taxable people) who sell within and outside the country should use the e-invoicing system.
• Third parties in Saudi Arabia that are issuing a tax invoice on behalf of a taxable individual must use the e-invoicing process. The regulations apply to accounting firms issuing invoices on behalf of vendors.
• E-invoicing is mandatory for all B2B, B2G, and B2C transactions. A printed copy should also be sent when sending an e-invoice to a customer.
• You must write the invoices in Arabic. You can translate them or add another language, but you must issue the e-invoice in Arabic.

Notably, the kingdom has introduced two phases, and the first phase introduced in 2021 requires the e-invoices be stored in an electronic database, online cash register, or a cloud-based e-invoicing solution, among other requirements. The second phase introduced in January 2023 required the business to integrate the e-invoicing solution with ZATCA’s system to allow them to send invoices to their portal for verification and validation. It also made it mandatory to issue invoices in specific formats such as PDF/A-3, XML, or embedded XML, and having a system that complies with ZATCA’s guidelines due to the more technical requirements.

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The business’ system should also connect to external systems with Application Programming Interfaces (APIs) and produce a UUID (Universally Unique Identifier), a digital signature, a unique sequential number for each invoice, and a cryptographic stamp. The companies need to also share the data and report invoices to ZATCA for validation and verification in this phase.

The platform is also meant to reduce the administrative burden and improve transparency. Some of the benefits of e-invoicing software for the business include that they are paperless and thus more environmentally friendly while being more efficient and time saving. It is also secure and reduces the risk of fraud while promoting transparency and helping to keep track of their activities. It also equips businesses to comply with government regulations.