It is crunch time for many businesses operating in Saudi Arabia when it comes to ensuring full compliance with the ZATCA e-invoicing mandate.
The regulation, which has been gradually rolled out over the past two years, will be enforced from 23rd June 2023, meaning the need for businesses to be fully compliant has become urgent. The impending enforcement means penalties will be applied for non-compliance, which can run to SAR 50,000. This makes it imperative that businesses that have not yet adopted systems capable of meeting requirements do so now.
In this blog, Alen Muslic, Chief Strategy Officer at ZIRA, walks through exactly what is required by the regulation and how to turn the short-term pain of implementing systems for compliance into long-term benefits for businesses in the region.
The ZATCA e-invoicing mandate explained
The aim of the ZATCA e-invoicing mandate is part of a wider transformation program across Saudi Arabia to build a thriving economy with a prominent place on the world stage. This regulation is a small part of the broader Vision 2030 framework but a crucial part of the move toward a full digital economy. What does it encompass?
The key requirement of the mandate is the digitization of all invoicing. It requires that all invoices are sent digitally, in a defined structured format, and that they are e-archived in accordance with regulation. As phase II of the mandate rolls out over the rest of 2023, taxpayers must connect their systems for e-invoicing to the ZATCA FATOORA portal. This government platform allows for e-invoices to be reported and cleared in real time and is the final step to full implementation of the e-invoicing regulation.
To make sure your business is ready for e-invoicing enforcement and meeting all requirements, our checklist runs through what your business needs to do to ensure compliance:
- Stop issuing manual invoices – this includes invoices written using text editing tools.
- Adopt a compliant e-invoicing solution capable of generating e-invoices with new required elements, including mandatory QR codes. It must also prohibit uncontrolled access and the tampering of invoices and logs.
- Ensure internet connectivity to support real-time data collection and enable e-archiving of invoices.
- Confirm all necessary information can be generated in the required format in Arabic and bilingually in English (if needed).
- Integrate with the ZATCA FATOORA portal.
- 1st July – Integration for wave two taxpayers (annual revenues above SAR 500 million)
- 1st October – Integration for wave three taxpayers (annual revenues above SAR 250 million)
- 1st November – Integration for wave four taxpayers (annual revenues above SAR 150 million)
Reaping the benefits
As with all regulatory compliance, businesses must adopt systems to meet the requirements set out. However, the implementation of e-invoicing will deliver additional benefits.
Firstly, one of the biggest advantages of moving to an e-invoicing model is the efficiency gain. It is an opportunity to streamline significant parts of the accounts process. This offers substantial time-saving benefits and reduces the potential for human error in areas such as data entry. In turn, this drives cost reduction. Businesses can run with a leaner accounts department as a result of eliminating time-consuming manual processes. This allows personnel to be redeployed and add value elsewhere in the business rather than being focused on administrative tasks.
In addition, the move to a paperless model assists as businesses look to hit sustainability targets that are an increasing priority. According to calculations from the Aalto University School of Economics, moving from paper-based invoicing to electronic invoicing decreases the carbon footprint of one invoice (lifecycle) by 63%, meaning there are significant environmental advantages to making the transition.
Saudi Arabia is the first GCC country to introduce mandatory e-invoicing, but it is undoubtedly part of a trend across the region. With similar initiatives expected in Oman, UAE, and Qatar, it is a matter of time before e-invoice becomes the rule rather than the exception. For businesses operating across multiple GCC countries, adopting an e-invoicing system allows them to become ‘future-ready’ and able to deal with new regulatory compliance across all geographies with relative ease.
Easing short-term pain
Unlocking the benefits depends on successful implementation and selecting the right software partner to suit the needs of the business. Transitionary periods to new solutions in any area have the potential to be painful, but the right partner can minimize these and allow a seamless transition. The ZIRA solution has been designed with the real-world challenges of ZATCA compliance in mind. It gives businesses the best of both worlds with an out-of-the-box solution that can meet the condensed timeline for implementation, with the flexibility and scalability that comes with a tailored option.
The solution has been designed to remove the potential pitfalls of adjusting to meet the new regulation. Businesses using ZIRA’s solution benefit from its in-built ZATCA onboarding management. This makes compliance as simple as possible, especially for businesses needing to integrate legacy e-invoicing systems. It uses automated onboarding to ensure accurate data exchange between the systems for reliable reporting in ZATCA’s Fatoora Portal. Additionally, from a compliance perspective, the platform supports both B2B and B2C e-invoice clearing, ensuring the differing requirements are met, again limiting the risk of accidental non-compliance.
The platform also encompasses self-healing elements and high-level security to consistently uphold the integrity of the e-invoicing system. In addition, it includes disaster recovery, incorporating a safety net into the platform to ensure that, in almost any circumstance, the system is robust enough to continually meet regulatory requirements.
At the heart of the development of the ZATCA-ready e-invoicing solution is efficiency. Driving time and cost efficiency through automation, removing the potential for error, streamlining audit processes, and reducing businesses’ environmental impact, every aspect of the platform is designed to drive business benefits as a welcome side-effect of compliance.
Turning regulations into returns
The introduction of penalties will undoubtedly be a significant motivator for businesses to ensure they are meeting the regulatory requirements of e-invoicing. Deloitte’s view is that “it is still unclear whether the penalties as prescribed will apply on a “per invoice” basis or a “per tax period” basis.” Applied on a per-invoice basis, the penalties have the potential to build up quickly and should act as a deterrent for non-compliance.
However, rather than simply seeing the regulation as a tick box exercise, there is potential to drive real business benefits as a result of adoption. By selecting an implementation partner with the tools to reap the benefits, businesses in Saudi Arabia stand to experience the advantages of operating a business in a fully digital economy.