In 2020, the Authority of ZATCA (Zakat, Tax, and Custom Authority) rolled out mandatory e-invoicing in Saudi Arabia as part of a broader digital economy drive. 

ZATCA electronic invoicing provisions apply to all taxable goods and services subject to VAT, regardless of whether they are taxed at the standard or zero rate. 

So, why does ZATCA mandate e-invoicing in Saudi Arabia?

Unlike in the U.S., where e-invoicing remains optional, ZATCA enforces it as a requirement for compliance. And the main reason for ZATCA’s mandatory e-invoicing is to enhance tax transparency.

In this guide, we’ll discuss everything you need to know about ZATCA e-invoicing in Saudi Arabia. Then, we’ll also go through the step-by-step guide to create an automated ZATCA-approved e-invoice in KSA for your WordPress business.

So, let’s dive into the e-invoicing of ZATCA in KSA.

What is ZATCA e-Invoicing in Saudi Arabia? 

ZATCA (Zakat, Tax, and Customs Authority) e-Invoicing is the electronic invoicing system that mandates all VAT-registered businesses to issue and handle invoices in Saudi Arabia.

In March 2021, GAZT, which is now called ZATCA, introduced the draft e-Invoicing Regulations in the Kingdom of Saudi Arabia (KSA).

So, from then on, all taxpayers subject to VAT in KSA must send e-invoices with specific details in a set format and store electronically according to the regulations.

The invoices falling under the criteria of ZATCA are the tax invoices (for B2B), simplified tax invoices (for B2C), and credit/debit notes. It is divided into two stages.

1. The first stage (4th of December, 2021) and
2. The second stage (1st January 2023)

ZATCA e-invoicing typically includes specific details like VAT amounts, QR codes, and a unique invoice ID, all designed to comply with ZATCA regulations.

To make it more clear, let’s check out a ZATCA e-invoicing in Saudi Arabia sample below:

Key Features of ZATCA E-Invoicing:

• Electronic Invoicing 
• Real-time validation 
• Integration with accounting and ERP systems.
• QR code generation for easy invoice verification.

What is the process flow of ZATCA e-invoicing in Saudi Arabia?

Before moving on to the ZATCA process, you should know about the most important term of ZATCA e-invoicing- “FATOORA”.

But what is the ZATCA Fatoora platform? And how are FATOORAH and ZATCA related?

The name “FATOORAH” means “invoice” in Arabic. FATOORA is the electronic invoicing project for all B2B, B2C, and government B2G transactions in Saudi Arabia.

This platform serves for generating, processing, and managing e-invoices within KSA.

And ZATCA is the government authority of FATOORA. They developed a framework for FATOORA and manage this platform to ensure its compliance with tax regulations in business transactions.

Now, let’s come to the main part, how does ZATCA e-invoicing work?

Well, here is the detailed ZATCA e-invoicing process flow:

Step 1: The process starts with the e-invoice generation through your ERP system. Once the invoice data is generated, it is sent to the EGS unit to convert the invoice data into a (ZATCA-compliant XML file).

Step 2: Then, the EGS unit sends the prepared data files to ZATCA, including the XML file, to the Fatoora portal for validation. ZATCA reviews the invoice data. If it meets all the compliance rules, ZATCA clears the invoice and applies a cryptographic stamp.

Step 3: After ZATCA’s clearance, the EGS unit receives the validated XML file with the ZATCA stamp, along with a QR code. With the cleared data in hand, the EGS unit generates the invoice in PDF A-3 format and sends it back to you.

Step 4: Businesses can now distribute the PDF A-3 (XML embedded) or XML e-invoice to their customers. 

But you must email the XML with the printed copy of the tax e-invoice to the buyer to ensure full tax compliance.

Step 5: Finally, your customers can validate the standard tax e-invoice using ZATCA’s specialized app to ensure the invoice meets all regulatory requirements.

Why Do You Need to Approach to ZATCA E-Invoice Solution Provider?

ZATCA doesn’t endorse any plugins for generating the e-invoices themselves. So, if you need ZATCA E-Invoicing Solutions in Saudi Arabia, you’ve to search for the in-house technical experts or developers like ECR vendors, software vendors, etc.

However, in the midst of implementing the two phases, you may encounter some e-invoicing challenges in your business management issues. It will not always be possible for you as a taxpayer or your developer to acknowledge every problem as the process is robust.

Now, you may ask, 

How can I choose the right e-invoicing software for my business?

So, to choose the right e-invoicing API software for your business in Saudi Arabia, you should look for approved e-invoicing software like a top-class ZATCA e-invoice plugin. And, always prioritize solutions that simplify your invoicing process.

Challan: A Perfect ZATCA E-Invoicing WordPress Plugin

Since the process is just about to launch, it is impossible for all the WooCommerce invoice plugins to generate the exact electric invoices according to the E-Invoicing requirements in Saudi Arabia.

So, we had started to work on these issues and bolstered our already-popular Challan plugin to become incorporated as the E-Invoice solution provider in KSA.  

And the best part of Challan’s new addable feature, which generates QR codes, has finally become available in the e-invoices.

So, how can Challan help you generate ZATCA-compliant e-invoices, you ask?

Well, Challan is one of the ZATCA approved best e-invoicing software in Saudi Arabia. 

Let’s check out the key features of Challan:

• Create WooCommerce packing slips along with PDF invoices, shipping labels, etc.
• Compatible with Zakat, Tax and Customs authority (ZATCA) to generate ZATCA e-invoicing QR code and barcode.
• Attach the invoices to the email as per the change of the order configuration.
• 17+ paid stamps, 6 aesthetic templates, unlimited uploading option of stamps and logos are in one plugin
• Bulk downloading options for invoices, packing slips, and shipping labels
• Check out your implemented logo or template in the preview section
• Supports multilingual websites, multi-currency plugins

And the best part?

ZATKA doesn’t create any QR code apart from imposing the guidelines. Therefore, only the Challan can give you the most sophisticated e-invoices option. 

Anyone from anywhere can scan the ZATCA E-Invoicing QR code generated by the Challan to see the details like VAT registration number, debit/credit note total, seller’s name, and total VAT.

Again. Challan is a multi-language plugin that supports all the languages in WPMA. So, the non-Saudi Arabian companies can also make the best  of this Zatca e-invoicing software.

To know more about Challan’s feature, read the blog on the create pdf invoice with the best WooCommerce invoice generator.

Generate ZATCA e-invoicing in Saudi Arabia with Challan (7 Steps) 

If you use Challan, you can create a fully compatible ZATCA e-invoice in just 7 steps:

Step 1: From your WordPress dashboard, go to Plugins > Add New, find the Challan plugin, install, and activate it.

Step 2: Now, you’ll find a desiccated Challan tab on the left bar of your website. Just click on Challan>> Settings.

Step 3: Then, hit the Settings tab at the top, and turn on the toggle of Enable invoicing. 

Bonus:

Challan offers you to automatically download and send invoices with emails. You just have to select the order status for which you want to attach invoices via email. 

Step 4: After configuring all the other settings, like language, format, scroll down to the Invoice type and select Enable For Saudi Arabia (ZATCA).

Step 5: Now, just under the invoice type, you’ll find Bar code and QR code settings. As ZATCA strictly requires taxpayers to add QR code in the e-invoice, you’ve to enable the options for Enable QRcode.

You can also show it in your invoice template and then save changes.

Step 6: Now, move to Invoice section and select your preferred invoice template. Challan provides you 6 professional invoice templates.

Then, select the paper size A3 from the drop-down according to the ZATCA’s invoice rules.

Step 7: Then, scroll down a little and you can enable TAX VAT even show the bank details of your company for the e-invoice payment.

Again, if you want to add a ZATCA e-invoicing payment in Saudi Arabia, you can easily add those with Woocommerce >> Settings >> Payments.

Step 8: Finally, just save the changes and go to Woocommer>> Oders and create ZATCA compatible e-invoice for your orders. 

The e-invoice for one of my orders is as follows:

You’ll have the most professional e-invoice with QR code integration. And, once you scan the QR code, you’ll get one as the following ZATCA e-invoicing sample:

Key Benefits of ZATCA e-invoicing in Saudi Arabia

The ZATCA e-Invoicing system is crucial for ensuring compliance with the digital invoicing in Saudi Arabia. Especially if you’re using platforms like Business Central, ZATCA integration in KSA makes it much easier to meet the regulatory requirements. 

Here are the top benefits of ZATCA e-invoicing in KSA:

• Improves tax compliance and transparency.
• Reduces paper waste and manual data entry errors.
• Speeds up automate sales tax reporting and filing.
• Reform the ZATCA e-invoicing tax returns in Saudi Arabia.
• Reduces hidden economy transactions
• Enable fraud detection.
• Ensures regulatory adherence in KSA with digital record-keeping.

However, can non-Saudi Arabian companies still benefit from this mandate?

Yes, non-Saudi Arabian companies can still benefit from the ZATCA e-invoicing mandate. By complying with the ZATCA regulations, they can streamline cross-border transactions and avoid penalties. 

This can improve their overall business operations in Saudi Arabia and strengthen their market presence.

Phases of e-invoicing in Saudi Arabia

What are the different phases of the rollout? 

ZATCA has published two main roll-out phases of e-invoice regulations in KSA:

1. Phase I (Generation)
2. Phase II (Integration)

Phase 1: Generation

Starting on December 4, 2021, Saudi Arabia’s ZATCA introduced the first phase of its e-invoicing mandate. According to Phase 1, businesses were required to generate electronic invoices, credit notes, and debit notes using approved electronic systems. 

Since this initial phase focused primarily on switching businesses from traditional paper to digital invoicing, it did not require any integration with ZATCA’s e-invoice system (FATOORAH).

So, businesses had the flexibility to choose any compatible e-invoicing software or online register to meet the requirements.

Here’s the sample of Phase 1 ZATCA e-invoicing:

Phase 2: Integration

ZATCA Phase 2 e-invoicing in Saudi Arabia, which started on January 1, 2023, is all about integrating e-invoicing solutions with ZATCA’s FATOORAH platform.

To meet the requirements of Phase 2, businesses must connect to FATOORAH using APIs, generate unique identifiers (UUID), add digital signatures, and include cryptographic stamps. This phased approach allows businesses to gradually adapt to the new requirements and minimize disruptions.

ZATCA has announced 13 e-invoicing waves till now. Currently, they’ve been rolling out wave 12 of phase 2 e-invoicing for targeting taxpayers whose turnover is more than SAR 3 billion. 

Here’s the sample of ZATCA phase 2 e-invoicing:

So, what is the difference between phase one and phase two implementation of e-invoicing in ksa?

The main difference between the two phases of e-invoicing in KSA is, that phase 1 only focused on transitioning to electronic invoices, while phase 2 requires integration with ZATCA’s system and stricter compliance measures.

What is the type of invoice in ZATCA?

There’re mainly 2 types of ZATCA invoices for Saudi Arabia.

1. Standard Tax Invoice
2. Simplified Tax Invoice

Standard Tax Invoice: 

The standard tax invoice is used for B2B and B2G transactions, including all necessary details like VAT registration numbers and VAT deductions. It must be cryptographically stamped and verified by ZATCA in real-time. 

For example, intra-GCC or zero-rated sales of SAR 1000 or more, exports, and nominal sales require a standard tax e-invoice.

Simplified Tax Invoice: 

The simplified tax invoice is issued for B2C transactions, includes just the essential details. Initially, in phase 1, it’s shared directly with customers. However, from Phase 2, it must be reported to ZATCA within 24 hours. 

For taxable or zero-rated sales less than SAR 1000, a simplified tax e-invoice can be used.

So, what are the main difference between tax invoice and simplified tax invoice in KSA?

The main difference between tax invoice and simplified tax invoice is that a simplified tax invoice does not require details like recipient’s name, address, and tax identification number compared to a standard tax invoice.

Again, credit and debit notes are issued to make adjustments as per the original invoice type.

E-Invoicing Regulations in Saudi Arabia

The e-invoicing compliance and regulatory updates in Saudi Arabia mark a significant step toward digitalizing the country’s tax system. This initiative aligns with Saudi Arabia’s Vision 2030 of enhancing transparency, and compliance in tax processes. 

Here’s a breakdown of the key regulatory compliance in KSA:

• Official Introduction Date:  

E-invoicing regulations were officially introduced with phase 1 on December 4, 2021. And, ZATCA Phase 2 e-invoicing was first introduced on 28th May 2021 and released the final regulations on 24th June 2022.

• Laws and regulations:

These regulations must be followed accordingly with the Unified VAT Agreement, VAT Law, VAT compliance in Saudi Arabia, and additional resolutions provided by ZATCA.

• Rollout Phases:

The implementation is being carried out in phases, with specific deadlines and requirements for different taxpayer groups.

This digital transformation of invoicing practices is aimed at fostering a more favorable business environment, attracting investments, and driving economic growth in line with global standards.

ZATCA e-Invoicing Compliance Requirements and Timelines 

The two phases of ZATCA have their own unique requirements. Some are required in the first stage, whereas some are compulsory in the second stage.

Again, some requirements are in common between the two stages. However, the first phase is slightly milder in terms of the strictness of the law, whereas the second one expects all the taxpayers to follow the hard and fast regulations. Let’s take a look at how the ZATCA defines them.

These e-Invoicing Guidelines for Saudi Arabia cover the most essential specifications and overall requirements.

E-invoice Information

For a ZATCA-compliant e-invoice, businesses must include specific details such as the seller’s and buyer’s information, invoice number, date, VAT amount, and a unique identification code. 

These details ensure clarity and adherence to ZATCA’s e-invoicing standards, as specified in the ZATCA e-Invoicing in Saudi Arabia form. 

ZATCA Timelines

The ZATCA e-invoicing deadlines began with Phase 1 on December 4, 2021, and Phase 2 started on January 1, 2023. For the sixth wave of Phase 2, ZATCA will notify eligible taxpayers to go live between January 1, 2024, and April 30, 2024. 

Again, ZATCA extended the e-invoicing requirements to the 12th group of all taxpayers from December 1, 2024. 

Businesses must generate e-invoices within 30 days from the invoice date, an increase from the previous seven-day limit. Compliance with these deadlines is crucial to avoid penalties.

Technical Requirements

Security requirements for e-invoices include using secure encryption methods and ensuring data integrity through digital signatures. These measures protect the authenticity and confidentiality of e-invoices. 

Again, your system must be connected via Application Programming Interface (API).

Clearance and Reporting

Invoices must be cleared by ZATCA in real-time and reported within 24 hours of generation. This ensures that invoices are valid and comply with regulatory standards. Again, clearance applies to all tax invoices with the associated credit/debit notes. 

Prohibited Functions

According to the ZATCA e-invoicing requirements, the use of manually created invoices or those not generated through approved electronic systems is prohibited. Businesses must use ZATCA-compliant software to avoid non-compliance issues.

E-Invoice Format

For e-invoices, ZATCA requires (XML or PDF/ A-3) format in Saudi Arabia, according to the technical specifications. The XML format is for machines, and the PDF format is for humans. These formats ensure that invoices are structured and processed correctly from both sides.

QR Code

QR code is mandatory for e-invoices in KSA. It must be included to facilitate quick verification and processing, especially for online stores.

E-Invoicing Compliance Software

To meet the ZATCA e-invoicing Phase 2 requirements, businesses need to use certified e-invoicing compliance software. This software must support the necessary formats and security features specified by ZATCA.

By following these guidelines, businesses can ensure they meet ZATCA’s compliance requirements and align with the regulatory timelines for e-invoicing.

E-Invoicing Penalties for Non-Compliance

In Saudi Arabia, non-compliance with e-invoicing regulations can lead to varying penalties, depending on the nature and frequency of the offense. 

Here’s a clear breakdown of what the penalties are for non-compliance with ZATCA e-invoicing:

Initial Warnings: For first-time violations, ZATCA usually issues warnings. This gives businesses a chance to correct their mistakes without immediate fines.

Penalties for Specific Violations:

• Non-Issuance or Non-Archiving of E-Invoices: Fines range from SAR 5,000 to SAR 50,000.
• Incorrect Amendments or Cancellations: These can cost between SAR 10,000 and SAR 50,000.
• Missing QR Code on Simplified Invoices: Typically results in a warning.
• Failure to Report System Issues: Also usually met with a warning.
• Absence of Buyer VAT Registration Number on B2B Invoices: Generally results in a warning.

Penalties for repeated offenses:

• First Offense: A warning notice is issued.
• Second Offense: A fine of SAR 1,000.
• Third Offense: The fine increases to SAR 5,000.
• Fourth Offense: Penalty rises to SAR 10,000.
• Subsequent Offenses: Fines can reach up to SAR 40,000.

So, ZATCA’s non-compliance penalties start with warnings and move to fines if issues aren’t resolved. Keeping up with the latest regulations is crucial to avoid these penalties and maintain a smooth e-invoicing process.

ZATCA e-Invoicing in Saudi Arabia for foreigners

According to ZATCA phase 2, the non-resident taxpayers in Saudi Arabia are exempt from issuing electronic invoices for any supplies that are subject to tax within the country. 

This exemption simplifies tax compliance for foreign businesses operating in Saudi Arabia.

Still, foreigners should consider partnering with a local entity in Saudi Arabia to assist with compliance and navigate the local business environment.

What are the best practices for ZATCA e-invoicing?

ZATCA e-invoicing rules and laws always keep updating. So, you also have to be updated with the e-invoicing guidelines. 

Here are the best practices for ZATCA e-invoicing that will help you stay compliant and keep your operations running smoothly:

1. Double-Check Your e-Invoice Data: 

Accuracy is key! Ensure every detail on your invoices—like VAT numbers, dates, and amounts—is spot-on. Small mistakes can lead to compliance issues, so make sure your data is in the correct format from the start.

2. Use ZATCA-Compliant Software: 

Don’t cut corners with your e-invoicing software. Choose a solution that’s fully compliant with ZATCA standards, like Challan. Again, make sure your software has the ability to generate XML invoices and embed the required QR codes.

3. Generate e-invoices in Real-Time: 

Speed matters. So, make sure you’re issuing invoices immediately after transactions to stay within ZATCA’s timelines and avoid any penalties.

4. Secure Your Invoices: 

Store your e-invoices safely in a tamper-proof format, as ZATCA requires you to keep them for six years. Having a solid storage solution protects your data and keeps you compliant.

5. Stay Ahead of Regulatory Changes: 

As I said above, ZATCA regulations can evolve, so keep an eye on updates. Staying informed ensures you’re always compliant and prepared for any new requirements.

Frequently Asked Questions

Conclusion

To stay updated about this new Saudi E-invoice, aka ZATCA e-invoicing, it is crucial that you exercise due diligence for its viability. For better business management, you can go with Challan, which provides the best electric invoice experiences to the taxpayers in terms of transparency and tax avoidance. Also, you must inform all of your staff to constantly take the updates on the e-invoicing solutions in Saudi Arabia.