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Arcivate Q&A: All you need to know about e-invoicing in Saudi Arabia

In just over six months’ time, businesses trading in Saudi Arabia will be required to have the ability to issue, save and modify e-invoices for every transaction they complete.

The new mandatory e-invoicing legislation will come into effect on 4th December and will mark a major change in the way finance teams in the region must operate. All taxable persons resident in Saudi Arabia will be required to comply and only a small number of transactions – including supplies that are exempt from VAT and imported goods – will be exempt from the new regulations.

And it’s not just in Saudi Arabia where e-invoicing is driving the way finance professionals overhaul processes to achieve operational excellence; e-invoicing is now the norm in dozens of countries around the world, including Australia, Brazil and Mexico.

We know from conversations with clients in the Middle East that many are currently working flat out to implement e-invoicing solutions, so we spoke to Andrew Coyle, founder and managing director at invoice processing specialist Arcivate, to put our questions to him and gain his unique insight and expertise on the topic.

Saudi e-invoicing: The key questions

Hi Andrew. Can you start by explaining exactly what is an e-invoice?

Andrew: An e-invoice is a tax invoice that is issued by a business in electronic form.

It has to be delivered in a structured electronic format and needs to use Extensible Markup Language (XML); a markup language that defines a set of rules for encoding documents in a format that is both human-readable and machine-readable. You can also use PDF/A-3 format (with embedded XML).

An e-invoice is not a scanned document or an electronic document such as an Excel, Word or generic PDF file.

What will businesses be required to do?

Andrew: The e-invoicing legislation is wide-ranging and places a variety of new demands on businesses. Once the regulations come into effect, companies must:

  • Generate electronic invoices and electronic notes from 4th December 2021.
  • Submit electronic invoices and electronic notes to the tax authority; a phased approach to this will begin on 1st June 2022.
  • Follow the regulations when issuing tax invoices and simplified tax invoices.

Does an e-invoicing solution have to be verified before use?

Andrew: Yes. The GAZT, Saudi Arabia’s tax authority, will verify e-invoicing solutions, although they can also be approved by third parties or self-certified, so it’s critical for businesses to work with an experienced and reputable invoicing partner.

Why do you need a specialist e-invoicing solution? Can’t an ERP do the same thing?

Andrew: All leading ERP platforms today can provide an XML output that can be sent or emailed to the customer and the government authorities.

Though XML data can be read by a human, most business users would not be able to quickly interpret or make sense of the data and they need the system to create a readable file – which is achieved by rendering the XML data into an image or PDF file. This file can then be linked to the data and the transaction created in your ERP platform.

Even though you are receiving e-invoices from your suppliers, the data still needs to be captured and validated against the data in your ERP system. Most invoice automation tools, like our Mi Invoices solution, can import and process this data and match this to your Purchase Orders and submit the line item details, invoice totals and tax amounts to ensure you are accepting valid invoices.

What are the benefits to businesses of implementing e-invoicing?

Andrew: Once businesses in Saudi Arabia implement an e-invoicing solution, they will soon find there are numerous operational advantages and efficiencies to come out of digital invoicing.

Obtaining structured electronic invoices is highly beneficial, enabling remote and hybrid teams to carry out seamless invoicing free of the physical boundaries that are the inevitable limitation of processes based on paper documents.

By receiving invoices electronically and automating the entire process, the Accounts Payable team will need to send invoices to a defined point and/or email address rather than to individuals. This will improve communications with suppliers as e-invoices will never get lost or stuck on someone’s desk as is often the case with paper.

Quite simply, electronic documents can be processed faster, are visible earlier and ensure a full audit trail is always captured.

What about security?

Andrew: In addition to mandatory e-invoicing, the Saudi Arabian government has placed great emphasis on the security of electronic documents. These include such elements as a unique identifier, cryptographic stamp, QR code, and internal counter.

These elements are not yet required for Phase 1, but they must be taken into account when building and implementing your solution. The enforcement date for these security requirements is not yet finalised, but they will impose much greater challenges that will need to be overcome.

How tax automation can support your e-invoicing drive…

If you put bad data into your e-invoicing solution, it doesn’t matter how smooth and efficient it is, you’ll get bad data coming out. Therefore, even the best e-invoicing solution on the market is wasted if your original tax calculations are incorrect, so it’s essential to understand every stage of the journey your data goes through and automate throughout to ensure accuracy and inspire trust in the results you’re submitting.

Since Saudi Arabia implemented a VAT regime for the first time in 2018, global businesses based in the region have been automating tax determination and reporting to ensure seamless compliance with the VAT laws – and the arrival of e-invoicing only serves to expand the potential of this technology.

If your business is ready to explore the implementation of an automated invoicing solution and the benefits it brings contact global specialist Arcivate for more information.