INTRODUCTION TO E-INVOICING – A GLOBAL PERSPECTIVE
Globally, the Countries like India, Albania, Hungary, Italy, Poland, UK, Belgium, China, France, Portugal, Germany, Egypt, Australia, Vietnam are announcing implementation of e-invoicing regulations especially during the pandemic to compensate the loss of tax revenue due to pandemic, incentives & stimulus packages provided to the businesses during pandemic and also as a tool to plugin the loopholes for tax evasion.Several Latin American countries like Brazil, Mexico and Columbia have witnessed significant gains in VAT collections after the introduction of e-invoicing. The trend of tax administrations making e-invoicing mandatory for all businesses has gained momentum in the last few years.
Considering the Global Best Practices, the GCC VAT implementing Countries are moving forward with the world by introducing E-Invoicing Regulations to check tax evasion&shadow economy. This will definitely be a challenge for Tax Authorities to implement the E-invoicing Regulations successfully alongwith scaling up the technology which is the key to its success. Therefore the Tax Authorities will look towards adopting Artificial Intelligence Blockchain based technologies for Data Analytics to analyse the E-invoicing Data.
Currently Saudi Arabia is the first Nation in the GCC to officially announce the E-Invoicing regulations as part of VAT Implementation regulations which has officially announced December 4, 2021 as the date for mandatory implementation of E-Invoicing by the VAT Registered Taxpayers. An interesting point is that Saudi Arabia is implementing E-invoicing for all resident VAT registered taxpayers irrespective of any invoice monetary limits or business turnover criteria. So this means all sales transactions carried out by Resident VAT registered taxpayers will be mandated to issue electronic invoice which will be a huge challenge for the businesses to upgrade their ERP technology and provide training to their workforce keeping themselves updated with the latest E-Invoicing developments.
WHAT IS E-INVOICING
Electronic Invoicing is a procedure that aims to convert the issuing of paper invoices and notes (e.g.handwritten or scanned invoices and notes) into an electronic process that allows the exchange and processing of invoices, credit notes and debit notes in a structured electronic format between buyer and seller through an integrated electronic solution.
Now there are quite a few important terms which needs to be looked at for a better understanding of the E-Invoicing regulations :
Electronic Invoice- An invoice generated, stored and amended in a structured electronic format through an electronic solution, which includes all the requirements of a tax invoice. A tax invoice that is generated in a structured electronic format through ‘electronic means’.
Electronic Notes– These are Debit and credit notes that must be issued in accordance with the VAT Law and its Implementing Regulation, and which are issued in a structured electronic format through electronic means. Credit and Debit Notes that are issued in an Electronic format, as a result of amendments conducted in the Electronic Invoice.
‘Electronic Means’ - Any device, electronic solution, or application used for the generation of Electronic Invoices and Electronic Notes that meets the following minimum requirements:
1. Ability to connect to the Internet.
2. Compliance with the requirements and controls for data & information security or Cybersecurityin the Kingdom.
3. A tamperproof solution, which allows the detection of any tampering performed (anti-tampering).
4. Ability to integrate with external systems using Application Programming Interface (API).
NEED FOR E-INVOICING
The Kingdom of Saudi Arabia is implementing Electronic Invoices for several reasons. These include, but are not limited to:
1. Reducing the shadow economy
2. Increasing compliance with tax obligations
3. Reducing commercial concealment
4. Adopting global best practices and improving the Kingdom’s ranking in relevant international indices
5. Enabling fair competition and improving consumer protection
APPLICABILITY OF E-INVOICING
The generation and storing of Electronic Invoices and Electronic Notes (Electronic Debit Notes & Credit Notes) will be mandatory starting on December 4th, 2021 for all taxable persons for VAT purposes (excluding non-resident taxable persons) as well as any other party issuing tax invoices on behalf of a taxable supplier. Therefor taxable persons subject to the Electronic Invoicing regulation will have a grace period to comply with the Regulation, starting from the date of official publication of the regulation i.e. December 4, 2020 and ending on December 4, 2021.
The following are subject to this Regulation:
• Taxable person that is a resident in the Kingdom.
• The customer or any third party that issues a tax invoice on behalf of the taxable person that is a resident in the Kingdom according to the VAT Implementing Regulation.
Persons subject to this Regulation in accordance with paragraph (A) of this article must issue Electronic Invoices in respect of all their transactions which require the issuance of tax invoices, in addition to issuing Electronic Notes in cases that is required by the VAT Law and its Implementing Regulation.
Persons who are not resident in the Kingdom are not required to issue Electronic Invoices or Electronic Notes for supplies or amounts received which are subject to tax in the Kingdom.
Also it is mandatory to generate Electronic Invoices for the following :
CONTENTS OF E-INVOICING
Terms, requirements and conditions applicable to tax invoices as per Article (53)of the VAT Implementing Regulation, inaddition to any other data fields that willbe determined at a later stage by GAZT toensure the successful transition to ElectronicInvoicing.
Article 53 - Tax Invoices
1. Each Taxable Person must issue or arrange for the issuance of a Tax Invoice in respect of either of the following events:
a) any Taxable Supply of Goods or services which he has made to another Taxable Person or to a non- taxable legal Person,
b) any payment made in respect of a Supply of Goods or services to a Taxable Person or non- taxable legal Person before that Supply takes place.
Any such Tax invoice must be issued at the latest the fifteenth day of the month following the month in which the Supply took place.
2. A self-billed Tax Invoice may be issued by the Customer on behalf of a Supplier in respect of a Taxable Supply made to the Customer, provided that a prior agreement between the Supplier and the Customer has been made to this effect.
Such agreement must confirm a procedure for the acceptance of each Invoice by the Supplier of the Goods or services, and include an undertaking by the Supplier not to issue Tax Invoices in respect of those Supplies.
3. A Tax Invoice may be issued by a third party on behalf of a Supplier who is a Taxable Person in respect of a Taxable Supply of Goods or services. The Supplier shall be responsible for the accuracy of the information shown on the Tax Invoice and for reporting Output Tax on the supply.
4. A summary Tax Invoice may include more than one separate supply of Goods or services, provided all Supplies included on a summary Tax Invoice are made by the same Supplier and within the same Tax Period.
5. A Tax Invoice must include the following details in Arabic, in addition to any other language also shown on the Tax Invoice as a translation:
a) the date of issue,
b) a sequential number which uniquely identifies the Tax Invoice,
c) the Tax Identification Number of the Supplier,
d) in cases where the Customer is required to self-account for Tax on the Supply, the Customer's Tax Identification Number and a statement that the Customer must account for the Tax,
e) the name and the address of the Supplier and of the Customer,
f) the quantity and nature of the Goods supplied or the scope and nature of the services rendered,
g) the date on which the Supply took place, where this differs from the date of issue of the Tax Invoice,
h) the taxable amount per rate or exemption, the unit price exclusive of VAT and rebates if they the unit prices, any discounts or are not included in the unit prices,
i) the rate of Tax applied,
j) the amount of in riyals, Tax payable, shown
k) in the case where Tax is not charged at the basic rate, a narration explaining the Tax treatment applied to the supply,
l) in cases where the profit margin method for Eligible Used Goods is applied, reference to the fact that VAT is charged on the profit on those Eligible Used Goods.
6. Tax Invoices shall be issued in an electronic format in cases where this is prescribed in any regulations issued by the Minister of Finance or the Board of Directors surrounding the requirements and conditions for issue of electronic Invoices, provided these Regulations are in force as at the date of the Supply.
7. A simplified Tax Invoice may be issued for a Supply of Goods or services valued at less than one thousand (1,000) riyals. A simplified Tax Invoice may not be issued in respect of an Internal Supply or an Export of Goods.
8. A simplified Tax Invoice must include the following details:
a) the date of issue,
b) The name, address and Tax Identification number of the Supplier
c) a description of the Goods or services supplied,
d) the Consideration payable for the Goods or services,
e) the Tax payable or a statement that the Consideration is inclusive of Tax in respect of the Supply of the Goods or services.
9. Without prejudice to the foregoing provisions in this article, in all other cases to which the foregoing paragraphs of this article are not applicable, a Taxable Person shall issue a Tax Invoice containing the information listed under paragraph 8 of this article.
IMPLEMENTATION OF E-INVOICING
The officialdate for implementing E-Invoicing in the Kingdom of Saudi Arabia is December 4, 2021.
Following is the chronology of E-Invoicing Regulation Announcements -
September 17th, 2020 - Publication of the Regulations draft for public consultation.
December 4th, 2020 - Issuance of the Regulation
Within a maximum of - Taxable Persons that are subject to VAT need to develop the capabilities 12 months from the to generate and store electronic invoices.
Issuance of the
December 4th, 2021 - Enforcement of e-invoicing. Taxable Persons are required to begin generating and storing electronic invoices.
The implementation of Electronic Invoicing in the Kingdom of Saudi Arabia will be implemented in two main phases:
Phase One : Generation and storing of tax invoices and electronic notes in a structured electronic format issued through an electronic solution, and including all the requirements of tax invoices.
Phase Two : Integration of the taxable persons’ electronic solution used to generate electronic invoices and notes, with GAZT’s systems, with the objective of sharing data andinformation.
GAZT will issue following two resolutions in no more than (180) days from the publication date of the Electronic Invoicing Regulation.
Resolution One : Specifications for generation and storage of Electronic Invoices, Credit Notes and Debit Notes
Resolution Two : Specifications for the integration of the taxpayers solution used to generate Electronic Invoices and Electronic Notes, with GAZT’s systems
Further the Governor has the authority to determine the time limits and targeted groups as well as issuing the necessary decisions and instructions to implement the provisions of this Regulation. This Regulation shall come into force and take effect as of the date of its publication in the Official Gazette.
Also the Governor may issue decisions related to the requirements, controls, details and procedures for integration of the electronic invoicing systems within a period not exceeding one hundred eighty (180) days from the date of publishing this Regulation in the Official Gazette i.e. before 01.06.2021. The Governor has the authority to determine the time limits that precede the obligation to implement the integration requirements.
PENALTIES FOR NON-COMPLIANCE
Non-compliance penalties stipulated in the VAT Law will be applicable at the end of the grace period i.e. December 4th, 2021.
Since the E-invoicing regulation mandates generation of electronic invoices, debit notes & credit notes irrespective of any monetary limits, this will result in enormous compliance burden for small taxpayers with scaling up the technology capabilities which will result in increased compliance costs for their business.
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