GCC Indirect Tax Weekly Digest
December 15, 2020
E-invoicing: what to expect and next steps
Following the publication by the Kingdom of Saudi Arabia (KSA) General Authority of Zakat and Tax (GAZT) of the e-invoicing regulations, Deloitte has set out below our recommendations of actions businesses should take ahead of the new rules coming into effect.
GAZT issued the final electronic invoicing (e-invoicing) regulations in Arabic on 4 December 2020, setting out that it will be mandatory for resident taxpayers to be fully equipped to issue, save and modify e-invoices by 4 December 2021.
The regulations specify the terms, requirements and conditions related to electronic invoices and electronic credit and debit notes. That said, the exact type of e-invoicing system is yet to be formally published; we expect to see this in the New Year.
It is important to note that the e-invoicing regulations will attract all the provisions related to a tax invoice in the VAT legislation, and any non-compliance will result in penalties from GAZT.
The regulations also note that in addition to these regulations and the VAT legislation, the provisions relating to proof of electronic transactions and electronic signatures provided for in the Electronic Transactions Law in force in KSA shall apply to electronic invoices and notes issued.
The following key points should be considered by businesses operating in KSA:
- E-invoices must be issued from 4 December 2021 (first phase).
- At a later date, the second phase will come into effect, whereby taxpayers’ systems of issuing electronic invoices and debit and credit notes must be linked with GAZT’s systems to share data and information.
- Details of the requirements, controls, and procedures for the above phases will be issued no later than 180 days from the date of the publication of the regulations (4 December 2020).
- E-invoices must be issued in Arabic (additional languages are permitted, in addition to the required Arabic).
- The e-invoicing provisions apply to all taxable supplies subject to the standard or zero rate of VAT and to both resident and non-resident consumers (i.e. for sales outside KSA).
Why is the KSA government implementing e-invoicing?
The KSA government is implementing e-invoicing for a number of reasons. These broadly fall into two categories: efficiency and security.
E-invoicing can increase efficiency in transactions by making trade more seamless, efficient, and result in faster payments and reduced costs, whilst providing the government with greater insights on market conditions. This also enables fair competition, increases business competitiveness and improves consumer protection in the market, in line with international best practices.
From a security perspective, e-invoicing allows the government to detect and reduce the shadow economy and to monitor the movement of goods, services, and money in (near) real-time, depending on the model that will be implemented. This in turn would lead to achieving increased tax compliance rates, provide increased transparency on commercial transactions and allow data-informed decision making.
What do we expect?
GAZT will provide further details about the e-invoicing process within 180 days of the publication of the regulations, as mentioned above.
This will likely include details about the nature and extent of the standardization
required for invoices and notes and the process that needs to be followed.
For example, some countries which have implemented e-invoicing have adopted a more passive approach, whereby the supplier and buyer directly share e-documents with each other’s systems (or through an access point) and the tax authority introduces the standards to be followed and can then get access to the data to support it on audits.
In other countries, a more controlled approach has been adopted whereby suppliers submit e-invoices to the tax authority to notify them of the transaction, or even where the tax authority must validate each invoice before it is sent to the recipient (i.e. clearance models).
Currently, GAZT has indicated that a two-phased implementation approach for electronic invoices will be followed.
The first phase indicates that businesses should be able to generate and store tax invoices and notes in a structured electronic format issued through an electronic solution, which suggests no direct interaction with the tax authority.
The second phase requires the integration of the taxable persons’ electronic solution used to generate electronic invoices and notes, with GAZT’s systems, which suggests moving towards a more clearance based approach. This suggests that GAZT will facilitate the introduction of e-invoicing in KSA with a more direct oriented model (without direct interaction between the taxpayers and GAZT), whilst afterwards move towards a more clearance based model with data being shared directly with GAZT’s systems.
Businesses should be prepared for a range of possibilities, including the possibility where approval may be required for individual invoices and transactions.
Businesses will firstly need to identify whether the e-invoicing regulations apply to them (i.e. all VAT taxable persons (except non-resident taxable persons) and any other party issuing tax invoices on behalf of a supplier). Following this, the
impacted businesses should at first conduct an impact assessment of the new
e-invoicing rules and their readiness. This should involve an assessment of the
- Determine which systems (billing, PoS, procurement, ERP) and processes are impacted, and their capabilities in relation to e-invoicing;
- Identify transactions for which e-invoicing will be applicable (from both purchase as well as sales perspective);
- Evaluate the readiness of existing billing system providers/ERP providers to configure/integrate their systems to meet the e-invoicing requirements;
- Assess (with the support of their service providers) the capabilities of how such systems could integrate with the GAZT systems or potential access points, in order to make the process of connecting them to GAZT easier;
- Current Arabic language capabilities within the business and its systems, in order to be able to issue all invoices in Arabic; and
- Potential changes to be made in order to bring the necessary capabilities to the business andindicative timelines that this process could require.
Please note that upon release of further technical guidance by GAZT, there may be further actions required in respect of master data, reporting, and the actual design, implementation and integration activities required.
Oman virtual VAT academy
As we head into the holiday season, we will take a short break from hosting our Oman virtual VAT academy. The next session is due to take place in early January 2021 and the full details will be shared in due course.
This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.