As part of bringing transparency in the entire value chain of business transactions and for plugging the tax gap, Saudi Arabia started moving towards adopting the e-invoicing throughout the kingdom. The Zakat, Tax & Customs Authority (ZATCA) first published the e-invoicing regulations on December 04,2020 and then issued further details on May 28, 2021 related to the controls, requirements, technical specifications and procedural rules for implementing the provisions of the E-invoicing Regulations.
ZATCA has taken a phased approach to implement e-invoicing in the kingdom. Each of the phase has its own requirements that need to be complied with according to the timelines as below.
Based on our interaction with various entities in the Kingdom below are the 3 mistakes the organizations may fall prey to and must be avoided.
- Thinking that an E-Invoice Solution or your existing system on its own is sufficient
For an organization that is currently not using any system for invoice generation, an obvious choice would be to procure and start using an E-Invoice solution available in the market. However, for entities that already have an ERP or an invoicing system, simply getting an E-Invoice software is not a solution to the problem. They need to start from making the requisite changes in the existing system to generate an invoice in a form that can be converted into an XML format through an E Invoice Solution. Some of those changes may be as follows:
On the other hand, thinking that your existing system will help all the way along may not be a feasible option for many companies. For instance, existing invoicing systems may not be customizable for implementing the hashing algorithm, data encryption, XML conversion, etc. for which one needs to use an E Invoice Solution.
2. Focusing on Dec 4th,2021 Timeline only
It’s true that certain requirements are to be fulfilled only till Dec 4th 2021 and many in the next phase starting from Jan 01, 2023. Organizations may fall into prey of getting an e-invoicing solution that currently meets the needs of Dec 4th timeline only. This may result in additional costs or changes in procured e-invoicing solution to comply with requirements of the next phase.
3. Settling for a Solution not aligned with your business needs
For organizations making a transition from manual system to a system-based invoice generation tool, they may settle for something that is not aligned with their business needs. As an example, a company may have different locations from where each responsible person raises the invoice. The system that an organization get may not have such a feature where a specific person is able to generate invoice only for its designated location.
Another example is the way internal controls are designed within the system. For instance, the system must be flexible enough to enable an invoice approval mechanism or in cases where it is not required or practical, this functionality can be disabled. Same goes with the segregation of duties e.g., in functions like product creation, price setting, invoice creation and payment posting.
Summing up all this, it is the need of the hour to start taking steps in the right direction in order to comply with the kingdom’s e-invoicing regulations and that too within the stipulated timelines before it is too late.