Compliance updates - Saudi Arabia

The Kingdom of Saudi Arabia is further extending for taxpayers to adhere to the requirements for obligatory issuance of electronic invoices and integration to the FATOORA platform. The required participants for the third wave of Phase 2 (Integration Phase) are taxpayers with revenues subject to VAT surpassing SAR 0,25 billion (ca. EUR 62 million).

This next wave is scheduled to commence as of 1 October 2023. Businesses fitting the given criteria should prepare to adhere to the new regulation.

Pagero continues to follow the Kingdom of Saudi Arabia’s progress in introducing electronic invoicing. Stay tuned for more updates in KSA.

The Kingdom of Saudi Arabia’s venture to join the digital era started on 4 December 2021, as Phase One (Generation Phase) was implemented. This phase required all taxpayers to generate and archive invoices electronically according to the new content requirements.

Furthermore, Phase Two (Integration Phase) became effective on 1 January 2023, and it was decided to implement it in waves. Entering Phase Two means that taxpayers required to comply will have to adhere to several additional requirements. These new regulations regard the mandatory issuance of e-invoices in a specific format and the integration of the e-invoicing systems into the (FATOORA) platform, among others.

On 23 December 2022, the Zakat, Tax and Customs Authority (ZATCA) announced that taxpayers with revenues subject to VAT surpassing SAR 0,5 billion (ca. EUR 124 million) are in the scope for wave two. This next wave is scheduled to start on 1 July 2023, and businesses falling under the criteria should be prepared to adhere to the new regulation.

As we wrote in a previous update, earlier in June this year ZATCA announced an initiative to suspend fines and penalties for taxpayers subject to all tax laws in the KingdomZATCA announced an initiative to suspend fines and penalties for taxpayers subject to all tax laws in the Kingdom earlier in June this year. The initiative was effective from the beginning of June 2022 until the end of November this year.

Yesterday, the ZATCA announced a re-scheduling of the timelines – the exemption extension will further be applied, starting from 1 December 2022 until 31 May 2023.

Moreover, ZATCA emphasized that the fines enclosed in the initiative include, among others, registration in all tax systems, late payments, and late submission of a declaration in all tax systems. Penalties for field violations related to the application of electronic invoicing rules and provisions are listed as well.

In tandem with the announcement, ZATCA published an updated guideline that includes a detailed clarification of the scope and the applicability of the exemptions with various illustrative examples.

To get the compensation, taxpayers can apply by filling in the “E-invoicing Subsidy Request” form available on the taxpayer portal and provide the following details:

• Invoice reference number, purchase date, and the total amount for the purchased solution;
• Name of the purchased solution’s service provider;
• Sample of an invoice issued by the e-invoicing solution in use.

After successfully submitting the subsidy form, taxpayers should wait for a reply from ZATCA on the estimated financial support they will receive.

After concluding the public consultation on 10 June 2022, the Zakat, Tax and Customs Authority (ZATCA) approved the proposed amendments to the earlier released e-invoicing rules and regulations issued on 4 December 2020 and published the latest versions on 24 June 2022.

Furthermore, ZATCA released a new Fatoora portal dedicated to issuing digital certificates and signatures to integrate with the mandatory infrastructure. A corresponding detailed guide on how to use it has also been published.

Finally, on 29 June 2022, ZATCA published a new E-invoicing Detailed Technical Guideline. This guideline will help taxpayers prepare for successful onboarding of the E-invoice Generation Solution Units and fulfil and monitor their compliance with the Phase 2 e-invoicing requirements.

On 24 June 2022, ZATCA announced that taxpayers with annual revenues subject to VAT exceeding SAR 3 billion (ca. EUR 750 million) would be included in the first wave of businesses to comply with Phase 2 e-invoicing requirements. Businesses included in the first integration will have to comply with Phase 2 requirements, starting from 1 January 2023 and no later than 30 June 2023.

Taxpayers falling in this wave should fully meet all ZATCA e-invoicing requirements and fully integrate all their electronic solutions with ZATCA systems by the end of the above-mentioned date. Taxpayers not compliant by 1 July 2023 will face penalties.

ZATCA published in the official gazette that it will notify the concerned taxpayers directly via its official channels to confirm who is part of the wave 1 timelines.

This is a very important milestone for the e-invoicing implementation in KSA. Pagero closely monitors the developments in KSA - stay tuned.

The Zakat, Tax, and Customs Authority (ZATCA) announced an initiative to suspend fines and penalties for taxpayers subject to all tax laws in the Kingdom, starting from 1 June 2022 until 30 November 2022.

Following fines have been included in the exemption decision:

• Penalties imposed for late registration in all tax systems;
• Late payments fines;
• Late submission of the declaration in all tax systems;
• Late correcting fines of the declaration for value-added tax;
• Fines related to the violations of electronic invoicing provisions and other general provisions of the value-added tax law.

Furthermore, ZATCA published a guideline that includes a detailed clarification of the scope and conditions of the above exemptions with various illustrative examples.

As we wrote previously, ZATCA reclassified the violations of VAT law and penalties earlier this year. When a violation is committed for the first time, the taxpayers are warned and educated before being imposed any fines.

On 27 May, ZATCA (Zakat, Tax and Customs Authority) proposed several changes to the previously published e-invoicing requirements materials. The proposals are currently open for public consultation until 10 June 2022. Taxpayers can submit feedback via the Istitlaa platform.

Furthermore, on 29 May 2022, ZATCA launched the E-Invoicing Developer Portal (Sandbox), which can be used for simulating the integration with ZATCA’s platform and viewing the API details of Integration Phase (phase 2) requirements.

ZATCA announced new classifications for the penalties imposed for some violations of VAT Law. The decision will be applicable as of 30 January 2022.

Key highlights of the decision

• Re-classification of violations and determining penalties, to begin with, first warning and educating the taxpayer before imposing a monetary;
• Granting the violator an appropriate period of up to 3 months from the date of inflicting the penalty to correct the violation, except for the violation of preventing or impeding the employees of the Authority from performing their duties and tasks;
• 12 months is the defining limit for a non-recurring violation, provided that the violation is treated and not committed again within the 12 months.

With relevance to e-invoicing regulations, earlier in November 2021, ZATCA published the most prominent violations of the e-invoicing rules application and their potential corresponding fines. The punishments were supposed to range between a warning and a monetary fine of between SAR 5 000 to SAR  50 000 According to the new decision, the following rules will now apply:

Below are some examples of violating e-invoicing requirements:

• Non-issuance of e-invoices and/or non-maintenance of the e-archiving;
• The absence of the QR code on a simplified tax invoice;
• Not notifying ZATCA of any malfunctioning that hinders the e-invoice issuance;
• Deleting or editing an invoice after its issuance.

ZATCA accompanied the decision with a simplified guideline. The guide includes detailed explanations and several illustrative examples of the non-compliance actions and how they would be handled.* SAR 1 000 equals ca. EUR 239

On 12 November 2021, ZATCA, approved the proposed amendments to the provisions of Articles (53, 54, and 66) of the VAT Implementing Regulations. The final version of the amendments has been published in the Official Gazette and will enter into force along with the start of the mandatory e-invoicing in KSA on 4 December 2021.

The main goal of the amendments is to make the VAT executive regulations consistent with the provisions and requirements of the e-invoicing regulations.

Some key highlights of the amended law text entitle the following:

• A Standard tax invoice must be issued when invoicing a taxable person, a legal person not subject to tax, sole proprietor, or any other entity established in KSA. To private individuals, a simplified tax invoice must be issued;
• Issue time for the simplified tax invoice is either the supply date or receipt of payment (in whole or partially), whichever is sooner. There is an exception to this requirement in the case of simplified invoices issued in the financial services companies (banks, insurance, etc.) licensed by the concerned authorities in KSA. The exception also applies to other supplies that may be exempt by the Governor of ZATCA - these will follow the standard invoice issue time (no later than 15 days of the month following the month in which the supply was made);
• ZATCA Governor has the right to change the invoice content requirements or introduce additional requirements to comply with the e-invoicing requirements;
• ZATCA will have the power to suspend or cancel the obligation to apply the provisions of the e-invoicing regulations wholly or partially for a specific category of taxpayers after studying the reasons for such measures;
• The law now states clearly that local archiving in KSA is mandatory and that keeping records is also subject to Saudi Arabia's cyber security legislation rather than solely to VAT legislation.

While the deadline to comply with the e-invoicing mandate is approaching soon, Pagero is ready to help you implement your e-invoicing solution for Saudi Arabia.