Tax Invoice in Saudi Arabia: Conditions and Method of Electronic Issuance
The tax invoice is an essential document for documenting sales operations of goods and services subject to value-added tax and proving the value of the supply and the tax collected from the customer. Its importance is not limited to providing a document to the buyer, but extends to recording sales, preparing tax returns, reviewing customer accounts, and linking revenues to inventory and financial reports.
With the implementation of electronic invoicing in Saudi Arabia, preparing an invoice manually or converting a paper invoice to PDF is no longer sufficient. The invoice must be issued and saved through an organized electronic system, including the required fields and applying the integration requirements with the "Fatoora" platform when the facility enters the second phase.
This guide explains the concept of the tax invoice, the difference between it and the simplified invoice, the most important conditions of the tax invoice, how to calculate the tax and issue the invoice electronically, in addition to the mistakes that must be avoided and the role of the accounting system in organizing the invoicing process.
What is a Tax Invoice?
A tax invoice is a document issued by a supplier subject to value-added tax to document the supply of a good or service, and it includes the details of the supplier and the buyer, transaction details, taxable amounts, and the value of the tax due.
The Zakat, Tax and Customs Authority clarifies that the tax invoice is mostly issued in transactions that take place from one business to another, and contains all the required elements of a tax invoice. As for the simplified tax invoice, it is mostly used in transactions that take place from a business to an individual consumer.
The tax invoice performs several functions:
- Proving the occurrence of the sale process or service provision.
- Clarifying the amount due from the buyer.
- Stating the value of the value-added tax.
- Supporting the recording of revenues and customer accounts.
- Assisting the buyer in documenting their purchases.
- Providing a document for auditing and tax returns.
- Linking the transaction to inventory, project, or cost center.
- Documenting returns and adjustments through notes.
A distinction must be made between a tax invoice and a price quotation or estimate; a quotation clarifies a proposed cost before completing the transaction, while a tax invoice is issued to document an executed supply or the entitlement to issue an invoice for it according to the applicable requirements.
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What is the difference between a Tax Invoice and an Electronic Invoice?
The tax invoice determines the nature of the document and the tax information it contains, while the electronic invoice refers to the method of issuing, saving, and processing the document.
Therefore, a tax invoice can be an electronic invoice when it is issued and saved in an organized electronic format through a compatible system.
The Authority defines an electronic invoice as an invoice that is issued and saved electronically through an electronic system and contains the requirements of a tax invoice. A handwritten or scanned invoice is not considered an electronic invoice meeting the concept.
| Comparison Element | Tax Invoice | Electronic Invoice |
|---|---|---|
| Concept | A tax document documenting supply and tax | Method of issuing and saving the invoice electronically |
| Focus | Commercial and tax data | Format, system, and technical procedures |
| Usage | Documenting taxable sales | Digitizing the issuance and processing of invoices |
| Form | May be a readable copy for the customer | Created from an organized electronic system |
| Relationship | May be a standard or simplified tax invoice | Includes both types of electronic tax invoices |
| Modification | Processed by a credit or debit note | The note is executed electronically from the system |
Types of Tax Invoices in Saudi Arabia
There are two main types of invoices within the Saudi electronic invoicing system: the standard tax invoice and the simplified tax invoice. Choosing the type depends on the nature of the transaction, the buyer, and the requirements that apply to it.
Standard Tax Invoice
It is mostly issued for transactions between two businesses (B2B) or between a business and a government entity, and includes detailed information about the supplier, the buyer, the supply, and the value-added tax.
It is usually used when the buyer is a business that needs to document the transaction and the tax within its accounts and records.
Simplified Tax Invoice
It is mostly issued for immediate transactions between the business and an individual consumer (B2C), such as sales that occur in shops, restaurants, cafes, and pharmacies.
Official guidelines clarify that a supplier may, in specific cases, issue a simplified invoice for a B2B transaction if the value of the taxable supplies is less than 1,000 Riyals, while a simplified invoice can be issued to an individual regardless of the supply value.
| Comparison Element | Standard Tax Invoice | Simplified Tax Invoice |
|---|---|---|
| Common Transaction | Business to business | Business to individual |
| Buyer Data | Detailed | Usually less detailed |
| Common Usage | Companies and commercial supplies | Retail, restaurants, and direct sales |
| QR Code | Subject to phase requirements and processing mechanism | An essential element in electronic invoicing |
| Phase Two | Subject to clearance through the Fatoora platform | Reported to the platform |
| Level of Detail | More detailed | Focuses on the main elements of the transaction |
Tax Invoice in Saudi Arabia: Conditions and Method of Electronic Issuance
Conditions of the Tax Invoice
The conditions of the tax invoice consist of issuing it from a registered supplier when there is a supply that requires issuing the invoice, including the mandatory data, calculating the tax correctly, and issuing and saving it through an electronic system according to the applicable phase.
Among the most important conditions:
- The invoice must be issued by the supplier or by a party authorized to issue it on their behalf.
- It must bear a title indicating it is a "Tax Invoice".
- It must contain a unique and sequential number.
- It must include the date of issue of the invoice.
- It must indicate the date of supply when it differs from the issue date.
- It must include the supplier's details and their value-added tax registration number.
- It must include the required buyer's details.
- It must display a description of the goods or services.
- It must indicate the quantities and prices.
- It must show discounts, if any.
- It must clarify the amount before value-added tax.
- It must show the tax rate and its value.
- It must include the final total.
- It must be issued from an electronic system meeting the requirements.
- It must be saved with its related records and documents.
- It must not be deleted or modified after issuance in an irregular manner.
- Any subsequent change must be processed through a credit or debit note.
The Authority confirms that taxpayers subject to value-added tax are obligated to issue a tax invoice for taxable supplies, and that the invoice must include the elements specified in the Value-Added Tax Law and its Implementing Regulations.
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Components of the Tax Invoice
The tax invoice consists of a set of identification, commercial, tax, and technical data that helps to document and verify the transaction.
Supplier Data
The invoice must include the supplier's data, such as:
- The legal name of the entity.
- The entity's address.
- Value-added tax registration number.
- An additional identifier for the supplier when applicable, such as the commercial registration number.
- Branch details when needed.
It is important to use the correct tax number and not replace it with the commercial registration number or the unique number.
Buyer Data
The buyer data required in the tax invoice includes:
- The name of the purchasing entity.
- Its address.
- Its value-added tax registration number when applicable.
- Any additional identifiers required according to the transaction.
The customer's data must be reviewed before issuing the invoice, especially in B2B transactions, because an error in the tax number or legal name may lead to the rejection of the invoice or the need to correct it.
Invoice Data
Includes:
- Document title.
- Sequential number.
- Date and time of issue.
- Date of supply when different.
- Currency used.
- Reference number for the order or contract when needed.
- Payment method if required in the workflow.
Details of Goods or Services
Clear information must be displayed for each item, including:
- Product or service name.
- Item description.
- Quantity.
- Unit of measurement.
- Unit price.
- Discount.
- Taxable amount.
- Tax rate.
- Tax value.
- Item total.
Totals
The invoice must clearly display:
- Total amounts before discount.
- Value of discounts.
- Total excluding tax.
- Total value-added tax.
- Final amount including tax.
Electronic Data
Technical data varies depending on the phase and invoice type, and may include:
- Universally Unique Identifier (UUID).
- XML format.
- Cryptographic stamp.
- Invoice hash.
- Quick Response (QR) code.
- Data linking the invoice to the invoice sequence.
The Authority clarifies that the second phase requires issuing invoices in the required electronic format and integrating the electronic solution with the Authority's systems.
Elements of the Simplified Tax Invoice
The simplified invoice includes, at a minimum, a set of elements that allow identifying the supplier, the transaction, and the tax.
The Authority clarified that the main elements include:
- Date of invoice issue.
- Supplier's name.
- Supplier's address.
- Supplier's tax number.
- Description of goods or services.
- Consideration payable.
- Tax value or a clarification that the amount includes tax.
In the electronic invoicing system, the required technical elements must also be included, such as the QR code, according to the phase to which the entity is subject.
Importance of the Tax Invoice for Companies
The tax invoice helps organize financial transactions and prove revenues and collected tax, and it gives the buyer a clear document that can be linked to purchases and accounts.
Its importance lies in:
- Proving the sale of the good or provision of the service.
- Documenting the rights of the supplier and the buyer.
- Supporting the preparation of the tax return.
- Facilitating the review of output and input tax.
- Tracking customer accounts and receivables.
- Linking the invoice to inventory and sales.
- Improving the accuracy of financial statements and reports.
- Reducing disputes over prices and quantities.
- Documenting discounts and returns.
- Facilitating internal and external auditing.
- Organizing transactions between branches.
- Providing a record for daily and periodic sales.
When the entity uses an integrated accounting system, the invoice data is transferred directly to the customer's account, sales, tax, and inventory, instead of re-recording the transaction in more than one file.
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How to Issue a Tax Invoice
The process of issuing a tax invoice begins with setting up the data of the entity, customers, products, and taxes within the invoicing system, then entering the supply details, reviewing them, and issuing the invoice electronically.
The process is carried out according to the following steps:
- Entity Data Setup: Enter the legal name, address, tax number, and branch data correctly.
- Tax Setup: Determine the value-added tax categories used by the entity, and ensure the appropriate rate is applied to each good or service.
- Add Customer: Enter the customer's name, address, tax number, and required data, especially in transactions between companies.
- Add Products or Services: Record the item's name, description, unit of measurement, price, and tax classification.
- Determine Invoice Type: Choose the standard or simplified tax invoice based on the nature of the customer and the transaction.
- Enter Supply Details: Add quantities, prices, discounts, date of supply, and any reference information.
- Review Tax: Review the taxable value, rate, and tax value at the level of each item and the total invoice.
- Choose Payment Method: Determine whether the invoice is cash, credit, or partially paid, and link it to a receipt voucher when needed.
- Review Totals: Ensure the matching of the total items, discounts, tax, and final total.
- Issue Invoice: Approve the invoice from the system, then the system will execute the Fatoora platform procedures according to the invoice type and the applied phase.
- Share Invoice: Share the readable copy with the customer according to the appropriate method.
- Save Document: Keep the invoice, electronic data, responses, and related documents.
An accounting system can be used to link the invoice to sales, inventory, customer account, payments, and reports within one cycle.
How to Make an Electronic Tax Invoice
The method of making an electronic tax invoice differs from preparing a regular invoice in Word or Excel, as the system must generate the structured data and technical elements automatically.
The method can be summarized as follows:
- Registering the sale process within a compatible program.
- Choosing the invoice type.
- Entering supplier and buyer data.
- Adding products and services.
- Calculating the tax.
- Generating the invoice number and its identifiers.
- Generating the XML file.
- Sending the invoice to the Fatoora platform when integration requirements apply.
- Obtaining the processing result.
- Sharing the readable copy with the customer.
- Saving the electronic invoice.
The first phase of electronic invoicing began on December 4, 2021, and the application of the second phase began gradually on January 1, 2023. The second phase obliges the targeted entities to integrate their electronic solutions with the Authority's systems and issue invoices in the required format.
Regarding the standard tax invoice in the second phase, it is sent in XML format to the Fatoora platform for verification and clearance before sharing it with the buyer. As for the simplified invoice, it is issued from the system, then its data is sent to the platform within a period not exceeding 24 hours from issuance.
Example of Calculating a Tax Invoice
Let's assume an entity sold a service worth 10,000 Riyals before value-added tax, and the transaction was subject to the standard rate of 15%.
The calculation is as follows:
Tax Value = Value before Tax × 15%
Tax Value = 10,000 × 15% = 1,500 Riyals
Total including tax = 10,000 + 1,500 = 11,500 Riyals
| Description | Value |
|---|---|
| Value of service before tax | 10,000 Riyals |
| Value-Added Tax rate | 15% |
| Tax value | 1,500 Riyals |
| Total including tax | 11,500 Riyals |
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The standard rate of 15% applies to supplies subject to it in Saudi Arabia, with the existence of transactions that may be subject to a zero rate or exemption according to their nature and the applicable regulations.
Therefore, the system should not apply a uniform rate to all products and services without reviewing the tax classification for each item.
Calculating Tax When the Price is Inclusive of Tax
If the price of the good or service is inclusive of value-added tax, the tax value can be extracted using the following formula:
Tax Value = Price including tax × 15 ÷ 115
Example: If the total invoice is 1,150 Riyals including tax:
Tax Value = 1,150 × 15 ÷ 115 = 150 Riyals
Value before tax = 1,150 − 150 = 1,000 Riyals
The system must clarify whether the entered prices are inclusive or exclusive of tax, so that the tax is not added twice or calculated incorrectly.
Difference Between a Tax Invoice and a Price Quotation
A price quotation is an initial document presented to the customer before completing the sale, while the tax invoice documents a taxable transaction after the supply is realized or the entitlement to issue the invoice occurs.
| Point of Comparison | Price Quotation | Tax Invoice |
|---|---|---|
| Timing | Before approval or sale | After executing the supply or invoicing entitlement |
| Objective | Providing a proposed price and terms | Documenting the transaction and tax |
| Accounting Impact | Usually does not generate revenue | Records sales and customer account |
| Obligation | Mostly an optional commercial document | A required tax document when conditions apply |
| Tax | May appear for illustration purposes | Officially recorded and calculated |
| Sequence | Sequence of price quotations | Unique number within the sequence of invoices |
The price quotation can be converted into an invoice within the system after customer approval, with prices, quantities, and tax reviewed before issuance.
Difference Between a Tax Invoice and a Payment Receipt
The tax invoice documents the supply and the tax value, while the payment receipt proves that an amount has been collected from the customer.
The invoice may be:
- Fully paid.
- Partially paid.
- Credit and unpaid.
As for the payment receipt or receipt voucher, it records the amount paid by the customer, the payment method, and its date.
Therefore, cash collection must not be considered a substitute for issuing an invoice, nor should a credit invoice be considered evidence of receiving the amount.
Tax Invoice and Returns
When the transaction amount changes after issuing the invoice, the original invoice must not be deleted or modified directly, but rather a credit note or debit note linked to it must be issued.
Credit Note
Used when the value of the invoice or tax must be reduced, such as:
- Returning products.
- Canceling part of the service.
- Granting a discount after issuing the invoice.
- Correcting a value recorded higher than what is due.
Debit Note
Used when the value of the supply or tax must be increased, such as:
- Adding fees that were not recorded.
- Discovering a shortfall in the invoice value.
- Increasing a quantity or service after issuance.
The Authority's guidelines clarify that credit and debit notes must refer to the original invoice, and the type of note must follow the type of invoice for which it was issued.
Common Mistakes in Tax Invoices
Using a simplified invoice instead of a standard tax invoice
Choosing the wrong type may lead to a lack of buyer data or the incompatibility of the invoice processing with the nature of the transaction.
Writing an incorrect tax number
The tax number of the supplier and buyer must be reviewed, and the commercial registration number should not be used instead of it.
Not clarifying the tax
The rate and value of the value-added tax must be stated, or it should be clarified that the amount includes it, according to the invoice type and the required display format.
Using a general description for products
Phrases like "various services" or "sales" may not clarify the nature of the supply. It is better to use a description that allows understanding the good or service.
Omitting the date of supply
The date of supply must be added when it differs from the date of invoice issuance.
Calculating tax incorrectly after a discount
Tax must be calculated on the taxable value after applying the discount according to the correct treatment.
Modifying the invoice after its issuance
A credit or debit note must be issued instead of modifying or deleting the original invoice.
Considering a PDF as a complete electronic invoice
Generating a PDF file is not enough; the invoice must be issued from an electronic system, saved in an organized format, and contain the applicable technical requirements.
Not linking all cashier devices
Establishments with multiple devices and branches need to ensure the configuration of all invoicing units subject to the second phase.
Not tracking rejected invoices
The Fatoora platform's responses must be reviewed, errors and warnings addressed, and transmission success should not be assumed merely by issuing the invoice to the customer.
How does the Accounting System Help in Issuing a Tax Invoice?
The accounting system helps issue the invoice from the recorded sales data, then automatically posts its impact to the customer account, inventory, tax, and reports according to its settings.
Among the most important advantages:
- Saving entity data and tax number.
- Recording customer data.
- Classifying products and services for tax purposes.
- Calculating tax.
- Managing discounts.
- Generating sequential numbers.
- Issuing standard and simplified invoices.
- Generating XML file.
- Generating QR code.
- Executing integration with the Fatoora platform.
- Recording accounting entries.
- Updating inventory.
- Tracking collections.
- Managing returns and notes.
- Extracting sales and tax reports.
- Saving invoices and user logs.
Using an integrated accounting system helps reduce the separation between invoicing and accounts, while a cloud accounting system suits establishments that need to track accounts and invoices from different locations.
A smart reporting program can also be used to track invoices, returns, sales, and accounts of customers and suppliers when the data is linked to the system.
How does DigitalPro help manage Tax Invoices?
Aamalsoft DigitalPro presents itself as a system that combines accounting, point of sale, inventory, and reporting, with smart invoicing that allows saving, printing, and sharing invoices, as well as managing returns and adjustments. The company also offers ready-made solutions for compliance with the second phase of electronic invoicing.
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Among the functions offered by the system pages:
- Managing sales and payments.
- Managing invoices and returns.
- Supporting items, taxes, and prices.
- Linking sales to inventory.
- Financial and accounting reports.
- Analyzing sales and profits.
- Tracking warehouses and suppliers.
- Supporting Point of Sale devices.
- Cloud solutions for small and medium enterprises.
- Supporting electronic invoices and Phase Two.
If the business is a restaurant or cafe, an accounting system for restaurants and cafes can be used to link dine-in, takeaway, and delivery order invoices with sales, inventory, and accounts.
As for retail businesses, they can operate the system through appropriate Point of Sale devices, such as the Digital H6 POS cashier device, after ensuring the device's compatibility and setup with the used system.
How to Choose Software for Issuing Tax Invoices?
Start by determining the type of invoices and operations executed by the entity, then test the software on a real sales cycle.
Selection criteria include:
- Support for the Arabic language.
- Support for standard and simplified tax invoices.
- Compatibility with Value-Added Tax.
- Support for Phase Two when applicable.
- Generation of XML and QR.
- Managing branches and cashier devices.
- Issuing credit and debit notes.
- Preventing deletion or modification of invoices.
- Saving invoices and backups.
- Tracking sending and rejection statuses.
- Integration with accounts and inventory.
- Managing user permissions.
- Extracting tax reports.
- Supporting operation during connection issues.
- Availability of clear technical support.
- Ability to transfer and export data.
- Scalability with the addition of branches.
During the demo, request the execution of:
- A tax invoice for a company.
- A simplified invoice for an individual.
- An invoice containing a discount.
- A credit invoice.
- A partial payment.
- A credit note.
- An item return.
- QR code review.
- Displaying the XML file.
- Showing the invoice status inside the platform.
- Extracting the tax report.
You can review Aamalsoft Software solutions to identify the system closest to the nature of your business.
Discover the services and products, then book a demo to experience issuing a tax invoice, notes, and returns, and linking them to accounts and inventory before actually running the system. You can also request a free version or contact us to explain your facility's requirements.
Frequently Asked Questions
What is meant by a Tax Invoice?
It is a document issued by the supplier to document a supply transaction subject to Value-Added Tax, containing the seller and buyer data, details of products or services, the tax value, and the total.
What are the most important conditions of a Tax Invoice?
It must include a sequential number, issue date, supplier and buyer data, description of supply, quantities, prices, discounts, tax rate, tax value, and total, and be issued and saved through a compatible electronic system.
What is the difference between a standard and simplified tax invoice?
The standard tax invoice is mostly used between two businesses and contains more detailed data, while the simplified invoice is mostly used when selling to an individual consumer.
Is a QR code mandatory in a tax invoice?
The QR code is an essential element in the simplified tax invoice, while the method of its inclusion in the standard tax invoice varies according to the invoicing phase and the Fatoora platform's processing mechanism.
Can an invoice be issued from Excel?
Preparing an invoice manually on Excel and then converting it to PDF is not considered an adequate method for issuing a compliant electronic invoice. The invoice must be issued and saved through an organized electronic system.
Must the invoice contain the buyer's tax number?
The tax invoice includes the buyer's data and tax number when requirements apply, especially in transactions between registered businesses.
How is an error in an invoice corrected?
The invoice is not deleted or modified directly after issuance. A credit note is issued when reducing the value, or a debit note when increasing it, with reference to the original invoice.
Can a simplified invoice be issued to a company?
This is possible in specific cases when the value of the taxable supply is less than 1,000 Riyals, if the supplier chooses to issue the simplified invoice and fulfills the conditions related to the transaction.
What is the Value-Added Tax rate in the invoice?
The standard VAT rate in Saudi Arabia is 15% for supplies subject to it, with the existence of supplies that may be subject to a zero rate or exemption according to statutory classification.
When did electronic invoicing start in Saudi Arabia?
The issuance and storage phase began on December 4, 2021, and the integration and connection phase began gradually on January 1, 2023.
Must the software be integrated with the Fatoora platform?
Integration is required when the entity falls within the targeted categories in Phase Two and receives a notification of the integration date, along with configuring the solution and devices used to issue invoices.
Can an invoice be issued without an accounting program?
An independent electronic invoicing solution can be used if it meets the requirements, but linking invoicing with the accounting system and inventory reduces data entry duplication and discrepancies between invoices and reports.
Conclusion
The tax invoice represents more than just a document handed to the customer; it is an essential link that connects the sales process with the value-added tax, customer accounts, inventory, revenues, and financial reports.
To issue it correctly, an approved accounting software must be selected, supplier and buyer data must be entered accurately, and products, prices, discounts, and tax must be clarified, then the invoice is issued and saved through a compatible electronic system. Any subsequent change must also be processed using a credit or debit note instead of modifying the original invoice.
An integrated accounting system helps execute these procedures in a more organized manner, but the entity remains responsible for the accuracy of its settings, data, and compliance with the applicable requirements.
Book a free trial now and experience issuing a tax invoice and linking it to accounts and inventory.
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