Changes to e-invoicing implementation resolution and selection criteria for the fifth wave of the integration phase

15 June 2023 - The Zakat, Tax and Customs Authority (ZATCA) in the Kingdom of Saudi Arabia (KSA) has made amendments to the electronic invoicing (E-invoicing) Implementation Resolution, both in Arabic and English, on 19 May 2023. ZATCA has also announced the criteria for selecting taxpayers in the fifth wave of the e-invoicing integration phase. Additionally, ZATCA has exempted e-invoicing for profit margin schemes.

In this alert we will highlight the key KSA e-invoicing provisions and updates that businesses need to be aware of:

• Highlights of the amended Implementation Resolution and annexures
• Criteria for selecting taxpayers in the fifth wave of e-invoicing
• Suspension of electronic invoicing under a profit margin scheme
• Background on e-invoicing in KSA
• E-invoicing Accounts Payable Matrix and Policy in KSA

Highlights of the amended Implementation Resolution and related annexures

On 19 May 2023, ZATCA published the amended electronic invoicing Implementation Resolution and related annexures, including the Data Dictionary, XML Implementation Standard, and Security Feature Implementation Standards. The key changes to these documents are as follows:

E-invoicing implementation resolution:

New fields have been added, such as charge amount, prepayment sub-total, prepayment VAT amount, and prepayment rate, with detailed explanations and validation for standard and simplified tax invoices, along with related notes.

XML Implementation standards:

• The functionality for advance payments under paragraph 9.5 has been enhanced, introducing a new invoice type code, "386," for scenarios involving advance payments with additional invoice lines.
• The Arabic text has been added to the table in paragraph "11.2.4" to ensure consistency with KSA VAT Implementing Regulations.
• Multiple business rules related to discounts and prepayments have been introduced.

Our perspective:

It is important to note that despite the release date of the amended documents, these changes have been applicable since 1 January 2023, especially for taxpayers in the first wave of the e-invoicing integration phase. 

Therefore, these taxpayers must comply with the changes before 30 June 2023. Taxpayers in upcoming waves or those who have not been invited by ZATCA should also take note of these updates for future compliance. 

For more information on understanding the detailed changes and their impact on your e-invoicing readiness and deployment, please contact Michael Camburn or your usual Deloitte contact via email.

Criteria for selecting taxpayers in the fifth wave of e-invoicing

On 26 May 2023, ZATCA announced the criteria for selecting resident taxpayers for the fifth wave of the e-invoicing integration phase. The key considerations are as follows:

• Resident taxpayers who reported taxable revenue of more than SAR 100 million in VAT returns for the calendar year 2021 or 2022 will be required to integrate their e-invoicing systems with ZATCA for clearance or reporting of e-invoices.
• The integration for the fifth wave of resident taxpayers will go live with the ZATCA Fatoora Portal starting from 1 December 2023, providing them with at least six months to comply with the integration phase requirements.

Based on our experience, ZATCA will officially notify selected taxpayers about the timeline for the fifth wave. Considering that this wave was announced about a month after the fourth wave, it is likely that subsequent waves will be announced soon. 

Therefore, taxpayers who have not been included in the previous waves should plan ahead, as they may be included in upcoming waves. Timely integration with ZATCA requires significant IT and human resources.

Suspension of electronic invoicing obligation for the supply of qualified used cars under the profit margin method

On 19 May 2023, the Board of Directors of ZATCA approved changes to Article 48 of KSA VAT Implementing Regulations, suspending the obligation to apply electronic invoicing requirements to the supply of qualified used cars under the profit margin method until further notice. 

However, additional details on a tax or simplified tax invoice under such a scheme must be provided, along with the other requirements under Article 53 (5) of KSA VAT Implementing Regulations. 

ZATCA believes that the profit margin should be considered inclusive of VAT.

Background on e-invoicing in KSA

In 2020, ZATCA introduced e-invoicing in KSA, implementing it across two phases:

• The generation phase (Phase 1)
• The integration phase (Phase 2)

The generation phase, which commenced on 4 December 2021, requires resident taxpayers to generate and store electronic invoices in a structured format. The integration phase necessitates resident taxpayers to integrate their IT systems with ZATCA for tax invoice/note clearance or reporting. The roll-out of e-invoicing has covered the following taxpayers so far:

• First wave: Taxpayers with taxable revenue exceeding SAR 3 billion in 2021 VAT returns, live since 1 January 2023.
• Second wave: Taxpayers with taxable revenue exceeding SAR 500 million in 2021 VAT returns, effective from 1 July 2023.
• Third wave: Taxpayers with taxable revenue exceeding SAR 250 million in 2021 or 2022 VAT returns, effective from 1 October 2023.
• Fourth wave: Taxpayers with taxable revenue exceeding SAR 150 million in 2021 or 2022 VAT returns, effective from 1 November 2023.
  
• Fifth wave: Taxpayers with taxable revenue exceeding SAR 100 million in 2021 or 2022 VAT returns, effective from 1 December 2023.

Furthermore, taxpayers who are not currently being selected for the integration phase will be notified in the upcoming waves. However, they can request early enrollment for adoption by contacting their ZATCA relationship manager.

E-invoicing Accounts Payable Matrix and Policy in KSA

Since the integration phase went live on 1 January 2023, businesses have been receiving multiple tax invoices from suppliers in non-compliant formats, including XML and PDF formats without a QR code. It is critical to note that suppliers' invoices/notes must comply with VAT and e-invoicing regulations.

Deloitte's Indirect Tax professionals can assist clients in developing an e-invoicing accounts payable matrix and policy tailored to their business needs. This will help identify non-compliant tax documents and ensure the security of your input VAT claim.

For more information, click here.