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The Saudi Arabian government is welcoming digitization with open arms. The ZATCA e-invoicing mandate is one of the many initiatives taken by the government to make business transactions transparent and standardized.
Explained: ZATCA and the e-invoicing mandate
ZATCA (earlier known as GAZT) is the tax and revenue collection agency under the Saudi Arabian Ministry of Finance. ZATCA assists taxpayers in carrying out their financial obligations, which include paying income tax, value-added tax and zakat (a form of Islamic almsgiving).
The e-invoicing mandate was introduced by ZATCA to ensure taxes are correctly detected and reported from all electronic invoice transactions by all VAT-registered businesses in Saudi Arabia. The mandate was rolled out in two phases, Phase I and Phase II.
ZATCA implemented Phase I on December 4, 2021.This will be followed by Phase II, which will come into effect from January 1, 2023. The e-invoicing mandate requires businesses to adopt an electronic restaurant billing software system that generates e-invoices compliant with all the requirements set forth by the Kingdom of Saudi Arabia.
Phase I and Phase II: Requirements for businesses
Phase 1, or the generation phase, was implemented on December 04, 2021, for all VAT-registered businesses in Saudi Arabia. In this phase, businesses should
- Use an electronic system to generate and store e-invoices
- Must include all the mandatory fields as outlined by ZATCA
- Add QR codes on tax invoices (mandatory for simplified tax invoices)
- Add invoice titles based on invoice type
- Add VAT number of the buyer (if applicable)
Phase 2, or the integration phase, will come into effect on January 01, 2023, and it will be implemented in waves. Taxpayer groups will be notified 6 months in advance about the date of their integration. In this phase, businesses should
- Continue complying with all the requirements of Phase I
- Generate invoices in XML format or PDF-embedded XML format
- Generate invoices that contain a dynamic QR code, invoice counter, and UUID
- Use an API key to connect with ZATCA
- Make sure that invoices are tamper-proof by using cryptographic stamp and hash identifier
- Integrate with the ZATCA portal
What happens if you do not comply
Taxpayers will initially receive a warning from ZATCA without penalties upon discovery of non-compliance. Taxpayers will then have three months to adjust their business procedures as necessary before penalties are levied.
If non-compliance persists, taxpayers will be fined 1,000 SAR, or approximately 267 USD. The penalty will gradually increase for prolonged non-compliance. This is followed by 5,000 SAR (~USD 1300) for the third offense, 10,000 SAR (~USD 2660) for the fourth offense, and 40,000 SAR (~USD 10640) for the fifth. The maximum penalty can go up to 50,000 SAR (~USD 13,300)
Choosing a ZATCA compliant e-invoicing provider for your business
All the steps being taken by ZATCA go to show that the Kingdom of Saudi Arabia is actively making sure businesses are becoming more transparent in their everyday transactions. ZATCA also seeks to increase knowledge of duties and the larger significance of the tax system and how it ultimately leads to the growth of the country and its citizens.
Positive change starts with businesses becoming fully compliant with ZATCA’s e-invoicing mandates. To make the transaction smoother and hassle-free for your business, it is recommended that you adopt an e-invoicing solution that is pre-approved by ZATCA.
Sapaad is a Cloud POS service provider for the restaurant industry that is fully compliant with ZATCA’s E-Invoicing Guidelines. Our Cloud POS and restaurant management system is fully compliant with the Saudi Arabian regulatory standards for e-invoicing format, content, e-signature, reporting, and clearance.
If you are passionate about starting your restaurant or are already a restaurant owner looking for an e-invoice solution provider, talk to us. You can try Sapaad for free, request a demo, or contact Sapaad to help you succeed in your culinary journey.
You may also like: 6 Tips For Efficient Tax Invoice Management
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