The tax invoice represents a key document to prove the supply operations of goods and services subject to Value Added Tax (VAT), and to clarify the supply value and the tax collected from the customer. Its role is not limited to delivering a document to the buyer; its importance includes proving sales, preparing tax returns, reviewing customer accounts, and linking revenues to inventory and financial reports.

With the implementation of electronic invoicing (e-invoicing) in the Kingdom of Saudi Arabia, preparing the invoice manually or converting a paper document into a PDF file is no longer sufficient. The invoice must be created and stored using an organized electronic system, while completing the required fields and adhering to the integration requirements with the "Fatoora" platform when the facility is subject to the second phase.

This guide reviews the concept of the tax invoice, the distinction between it and the simplified invoice, its most prominent requirements, the mechanism for calculating the tax and issuing the invoice electronically, in addition to common mistakes to avoid and the role of the accounting system in organizing billing procedures.

What is meant by a Tax Invoice?

A tax invoice is a document issued by a supplier registered for Value Added Tax to prove the supply of a good or service, containing supplier and buyer information, transaction details, taxable values, and the amount of tax due.

The Zakat, Tax and Customs Authority (ZATCA) clarifies that the tax invoice is mostly used for B2B (Business to Business) transactions and includes various data required by the tax invoice. In contrast, the simplified tax invoice is typically used in B2C (Business to Consumer) transactions.

The tax invoice serves a set of purposes, most notably:

• Proving the completion of selling a good or providing a service.
• Determining the value required to be paid by the buyer.
• Showing the due VAT amount.
• Contributing to recording revenues and tracking customer accounts.
• Enabling the buyer to document their purchase operations.
• Providing a reference document when preparing the tax return and for auditing.
• Linking the transaction to its associated inventory, project, or cost center.
• Proving returns and adjustments through the appropriate notes.

It is necessary to distinguish between a tax invoice and a quotation; a quotation offers a proposed value and conditions before completing the sale, whereas a tax invoice is used to prove a supply operation that has occurred or has become due for invoicing according to the applicable requirements.

Are you facing a challenge with e-invoicing? Book your consultation and contact us now.

What is the difference between a Tax Invoice and an Electronic Invoice?

The tax invoice describes the nature of the document and its tax information, while the electronic invoice expresses how the document is created, stored, and processed electronically.

Accordingly, a tax invoice can be electronic if it is issued and stored electronically in an organized manner through a system that meets the requirements.

The Authority defines an electronic invoice as an invoice created and stored electronically using an electronic system, containing the requirements of a tax invoice. An invoice written manually or scanned is not considered a compliant electronic invoice under this concept.

Comparison Element	Tax Invoice	Electronic Invoice
Concept	A tax document proving supply and tax	Method of creating and storing the invoice electronically
Focus	Commercial and tax information	Format, system, and technical steps
Usage	Proving taxable sales	Digitizing the issuance and processing of invoices
Format/Form	Can be a clear copy for the customer to view	Generated through an organized electronic system
Relationship	Can be a standard or simplified tax invoice	Includes both types of electronic tax invoices
Modification	Done via a credit or debit note	The note is issued electronically through the system

Types of Tax Invoices in Saudi Arabia

The e-invoicing system in Saudi Arabia includes two main types of invoices: the tax invoice and the simplified tax invoice. The appropriate type is determined based on the nature of the transaction, the customer, and the applicable requirements.

Tax Invoice

The standard tax invoice is usually issued in B2B transactions between two businesses or between a business and a government entity, containing precise details about the supplier, buyer, supply, and VAT.

It is frequently used when the buyer is an entity that needs to prove the transaction and tax amount in its records and accounts.

Simplified Tax Invoice

The simplified tax invoice is often used in B2C direct sales between a business and an individual consumer, such as transactions in retail stores, restaurants, cafes, and pharmacies.

Official guidelines indicate that in specific cases, a supplier can issue a simplified invoice in a B2B transaction if the value of taxable supplies is less than 1,000 Riyals, while a simplified invoice can be issued to an individual consumer regardless of the supply value.

Comparison Element	Tax Invoice	Simplified Tax Invoice
Common Transaction	B2B (Business to Business)	B2C (Business to Consumer)
Buyer Data	Detailed	Usually less detailed
Common Use	Companies and commercial transactions	Retail, restaurants, and direct sales
QR Code	Determined according to the phase and processing mechanism	One of the essential elements in e-invoicing
Phase Two	Subject to clearance through the Fatoora platform	Its data is reported to the platform
Level of Detail	More comprehensive details	Focuses on basic transaction data

Conditions of a Tax Invoice

Tax invoice requirements include being issued by a registered supplier when there is a supply necessitating its issuance, containing mandatory data, calculating the tax correctly, and issuing and storing the invoice electronically according to the applicable phase.

Among the most prominent conditions:

• Issuance by the supplier themselves or by an authorized person on their behalf.
• A title clearly indicating it is a "Tax Invoice".
• Assigning a unique sequential number to the invoice.
• Recording the invoice issuance date.
• Specifying the supply date if different from the issuance date.
• Including the supplier's data and VAT registration number.
• Adding the required buyer data.
• Providing a clear description of the goods or services.
• Specifying quantities and prices.
• Showing discounts if any exist.
• Clarifying the value before VAT.
• Stating the tax rate and amount.
• Showing the final total of the invoice.
• Issuing the invoice using a compliant electronic system.
• Retaining it within relevant records and documents.
• Not deleting or modifying the invoice after issuance in violation of requirements.
• Handling any subsequent adjustment using a credit or debit note.

The Authority emphasizes that taxable persons subject to VAT are required to issue a tax invoice when making taxable supplies, provided the invoice contains the elements specified by the VAT Law and its Implementing Regulations.

Discover: Accounting software compliant with ZATCA requirements

Components of a Tax Invoice

The tax invoice includes various identification, commercial, tax, and technical data, which help document the transaction and verify its details.

Supplier Data

The invoice should contain the supplier's information, including:

• Legal name of the entity.
• Entity address.
• VAT registration number.
• An additional supplier identifier if needed, such as the Commercial Registration (CR) number.
• Branch information when required.

It is necessary to ensure the correct VAT number is entered, avoiding the use of the Commercial Registration number or the distinctive number instead.

Buyer Data

Among the required buyer data in a tax invoice:

• Name of the purchasing entity.
• Entity address.
• Its VAT registration number when requirements apply.
• Any additional identifiers required by the nature of the transaction.

It is recommended to verify customer information before issuing the invoice, especially in B2B transactions, as an error in the VAT number or legal name may result in the invoice being rejected or requiring correction.

Invoice Data

Invoice data includes:

• Document title.
• Sequential number.
• Date and time of issuance.
• Date of supply if different.
• Currency used.
• PO or contract reference number when needed.
• Payment method when required within the workflow.

Details of Goods or Services

The invoice must display clear data for each line item, including:

• Name of the good or service.
• Item description.
• Quantity.
• Unit of measurement.
• Unit price.
• Discount amount.
• Taxable amount.
• Tax rate.
• Tax amount.
• Total item value.

Totals

The invoice should clearly state:

• Total amounts before discount.
• Total discounts.
• Total value before tax.
• Total VAT.
• Final total after adding tax.

Ready to try the system?

Start your free trial or talk to the sales team to help you choose the right solution.

Start Free Trial Talk to Sales

Electronic Data

Technical data varies depending on the invoice type and the phase the entity is undergoing, and may include:

• Universally Unique Identifier (UUID).
• XML format.
• Cryptographic stamp.
• Invoice cryptographic hash.
• Quick Response (QR) code.
• Data linking the invoice to the invoice sequence.

The Authority explains that the second phase requires issuing invoices in the specified electronic format and integrating the electronic solution with ZATCA systems.

Elements of a Simplified Tax Invoice

At a minimum, the simplified invoice contains data enabling the identification of the supplier, the transaction, and the tax amount.

According to the Authority, the basic elements include:

• Invoice issuance date.
• Supplier's name.
• Supplier's address.
• Supplier's VAT number.
• Description of goods or services.
• Amount due for payment.
• Tax amount or an indication that the amount includes tax.

Within the framework of e-invoicing, necessary technical requirements must also be included, such as a QR code according to the phase the entity falls under.

Importance of Tax Invoices for Companies

The tax invoice contributes to controlling financial transactions and proving revenues and collected taxes, as well as providing the buyer with a clear document that can be linked to purchases and accounts.

Its importance is evident in several aspects, including:

• Proving the sale of a good or execution of a service.
• Protecting the rights of both the supplier and the buyer.
• Assisting in the preparation of tax returns.
• Facilitating the review of output and input tax.
• Tracking customer accounts and amounts due.
• Linking invoices to sales and inventory movement.
• Improving the accuracy of financial statements and reports.
• Reducing disputes related to prices and quantities.
• Proving discounts and return processes.
• Facilitating internal and external audit work.
• Organizing transactions and movements between branches.
• Maintaining a record of daily and periodic sales.

When an entity relies on an integrated accounting system, invoice information is automatically transferred to customer, sales, tax, and inventory accounts, instead of re-entering the same data into multiple files.

How to Issue a Tax Invoice

The process of issuing a tax invoice begins with setting up the entity, customer, product, and tax information within the billing system, then recording the supply data and reviewing it before issuing the invoice electronically.

The process proceeds through the following steps:

1. Setting up entity data: Accurately enter the legal name, address, VAT number, and branch information.
2. Configuring tax: Define the VAT categories used in the entity, and ensure the correct rate is applied to each product or service.
3. Adding the customer: Record the customer's name, address, VAT number, and required data, especially in B2B transactions.
4. Adding products or services: Enter the item name, description, unit of measure, price, and tax classification.
5. Determining invoice type: Choose standard or simplified tax invoice according to the transaction nature and customer type.
6. Entering supply details: Add quantities, prices, discounts, supply date, and any other reference data.
7. Reviewing the tax: Verify the taxable amount, rate, and tax amount for each item and the invoice total.
8. Selecting payment method: Determine whether the transaction is cash, credit, or partially paid, and link it to a receipt voucher if needed.
9. Verifying totals: Check that the total items, discounts, and tax match the final value.
10. Issuing the invoice: Approve the invoice from the system, then the system executes Fatoora platform procedures based on the invoice type and applicable phase.
11. Sharing the invoice: Send the readable copy to the customer using an appropriate method.
12. Storing the document: Keep the invoice, its electronic data, responses, and related documents.

An integrated accounting system can be relied upon to link the invoice to sales, inventory, customer accounts, payments, and reports within a single workflow.

How an Electronic Tax Invoice Works

The mechanism of creating an electronic tax invoice differs from preparing a traditional invoice using Word or Excel, because the electronic system must automatically generate the structured data and required technical elements.

Its steps can be summarized as follows:

1. Recording the sales transaction through a compliant software.
2. Selecting the invoice type.
3. Entering supplier and buyer information.
4. Recording products and services.
5. Calculating the tax amount.
6. Generating the invoice number and its specific identifiers.
7. Generating the XML file.
8. Sending the invoice to the Fatoora platform when integration requirements apply.
9. Receiving the invoice processing result.
10. Sending the readable copy to the customer.
11. Storing the electronic invoice.

The first phase of e-invoicing launched on December 4, 2021, while the implementation of the second phase began gradually on January 1, 2023. Phase two requires targeted entities to integrate their electronic solutions with ZATCA systems and issue invoices in the specified format.

In the second phase, the standard tax invoice is sent in XML format to the Fatoora platform for clearance and verification before presenting it to the buyer. As for the simplified invoice, it is issued from the system, and its data is then reported to the platform within a maximum of 24 hours from the time of issuance.

Example of Calculating a Tax Invoice

For example, if an entity sells a service for 10,000 Riyals before VAT, and the transaction is subject to the standard 15% rate.

The calculation is as follows:

Tax Amount = Value before tax × 15%

Tax Amount = 10,000 × 15% = 1,500 Riyals

Total inclusive of tax = 10,000 + 1,500 = 11,500 Riyals

Description	Value
Service value before tax	10,000 Riyals
VAT Rate	15%
Tax Amount	1,500 Riyals
Total inclusive of tax	11,500 Riyals

Ready to try the system?

Start your free trial or talk to the sales team to help you choose the right solution.

Start Free Trial Talk to Sales

The standard 15% rate applies to supplies subject to it in Saudi Arabia, though some transactions may be subject to a zero rate or exemption based on their nature and applicable regulations.

For this reason, the system should not apply a single rate to all products and services; instead, the specific tax classification for each item must be reviewed.

Calculating Tax When the Price is Tax-Inclusive

When the price of a good or service includes VAT, the tax amount can be determined using the following formula:

Tax Amount = Tax-inclusive price × 15 ÷ 115

Example: If the total invoice value is 1,150 Riyals including tax:

Tax Amount = 1,150 × 15 ÷ 115 = 150 Riyals

Value before tax = 1,150 − 150 = 1,000 Riyals

The system must specify whether the entered prices are tax-inclusive or exclusive, to avoid adding the tax twice or calculating it incorrectly.

Difference between a Tax Invoice and a Quotation

A quotation is considered a preliminary document presented to the customer before finalizing the sale, whereas a tax invoice is used to prove the taxable transaction after executing the supply or when the invoicing becomes due.

Comparison Aspect	Quotation	Tax Invoice
Timing	Before approval or finalizing the sale	After executing supply or invoicing due date
Objective	Proposing price and terms	Proving the transaction and tax
Accounting Impact	Does not usually generate revenue	Proves sales and customer account
Obligation	Often an optional commercial document	Required tax document when conditions are met
Tax	May be mentioned for clarification	Calculated and formally recorded
Sequence	Sequence specific to quotations	Unique number within the invoice sequence

After customer approval, a quotation can be converted into an invoice from within the system, ensuring prices, quantities, and tax amounts are verified before approval.

Difference between a Tax Invoice and a Payment Receipt

The tax invoice proves the supply process and the tax amount, while a payment receipt shows that a financial amount has been collected from the customer.

The invoice may be:

• Fully paid.
• Partially paid.
• On credit (deferred) and unpaid.

As for the payment receipt or collection voucher, it documents the amount the customer has paid, the payment method, and the date of payment.

Therefore, it is incorrect to consider cash receipt as a substitute for issuing an invoice, nor can a credit invoice be considered proof of collecting the transaction value.

Tax Invoice and Returns

If a change occurs in the transaction value after issuing the invoice, the original invoice should not be deleted or modified directly; rather, the adjustment is handled by issuing a credit or debit note linked to the invoice.

Credit Note

A credit note is used when it is required to reduce the invoice value or tax amount, examples include:

• Returning some products.
• Canceling part of a service.
• Providing a discount after issuing the invoice.
• Correcting an amount recorded higher than the due value.

Debit Note

A debit note is used when the transaction requires increasing the supply value or tax, such as:

• Adding previously unrecorded fees.
• Discovering that the invoice value is less than what is due.
• Increasing a quantity or service after issuing the invoice.

Authority guidelines state the necessity of linking credit and debit notes to the original invoice, and the type of note must match the type of invoice for which the note was issued.

Most Common Mistakes in Tax Invoices

Using a simplified invoice instead of a tax invoice

Choosing an inappropriate invoice type may lead to missing some buyer data or a mismatch between the invoice processing and the transaction nature.

Entering an incorrect VAT number

You must ensure the correct VAT number for both the supplier and the buyer, and not replace it with the Commercial Registration number.

Not showing the tax clearly

The VAT rate and amount must be clarified, or an indication made that the amount includes tax, according to the invoice type and required display method.

Entering unclear descriptions for products

Descriptions like "various services" or "sales" may not be sufficient to determine the nature of the supply. Therefore, it is better to write a description that clearly explains the good or service.

Forgetting the supply date

The supply date should be included when it differs from the invoice issuance date.

Calculating tax incorrectly after discount

Tax must be calculated on the taxable amount after applying the discount according to the correct treatment.

Modifying the invoice after issuance

Changes must be handled by issuing a credit or debit note instead of modifying or deleting the original invoice.

Considering a PDF file a complete electronic invoice

Creating a PDF file alone is not enough; the invoice must be issued from an electronic system and stored in a structured format, fulfilling applicable technical requirements.

Not integrating all cashier POS devices

Entities using multiple devices or branches must ensure the setup and integration of all invoicing units covered by the application of Phase Two.

Neglecting to follow up on rejected invoices

Fatoora platform responses must be monitored, and errors and warnings dealt with, without assuming the submission was successful just because the invoice was issued to the customer.

How Does an Accounting System Help in Issuing a Tax Invoice?

An accounting system helps create the invoice based on recorded sales data, then automatically posts the transaction's impact to the customer's account, inventory, tax, and reports based on system settings.

Among the most prominent advantages:

• Saving entity information and VAT number.
• Recording customer data.
• Classifying products and services according to tax treatment.
• Calculating the tax amount.
• Managing discounts.
• Generating sequential invoice numbers.
• Issuing standard and simplified invoices.
• Generating XML files.
• Generating QR codes.
• Executing integration with the Fatoora platform.
• Recording accounting entries.
• Updating inventory balances.
• Tracking collection operations.
• Managing returns and notes.
• Preparing sales and tax reports.
• Saving invoices and user logs.

Ready to try the system?

Start your free trial or talk to the sales team to help you choose the right solution.

Start Free Trial Talk to Sales

An integrated accounting system helps reduce the gap between billing and accounting operations, while a cloud accounting solution is suitable for entities needing to access their accounts and invoices from multiple locations.

Smart reporting software can also be utilized to track invoices, returns, sales, and customer and supplier accounts whenever the data is linked to the system.

How does DigitalPro help manage tax invoices?

The Aamal Raqmia (Digital Business) website presents DigitalPro as a solution combining accounting, Point of Sale (POS), inventory, and reports, along with smart invoicing that allows saving, printing, sharing invoices, and handling returns and adjustments. The company also offers solutions designed for compliance with e-invoicing Phase Two requirements.

Among the functions highlighted by the system's pages:

• Managing sales and payment operations.
• Managing invoices and return processes.
• Supporting items, taxes, and price levels.
• Linking sales operations to inventory.
• Preparing financial and accounting reports.
• Analyzing sales and profits.
• Tracking warehouses and suppliers.
• Supporting Point of Sale (POS) devices.
• Cloud solutions for Small and Medium Enterprises (SMEs).
• Supporting e-invoicing and Phase Two requirements.

If the business is a restaurant or cafe, you can benefit from restaurant and cafe management solutions to link dine-in, takeaway, and delivery orders' invoices to sales, inventory, and accounts.

As for retail establishments, they can run the system via suitable POS devices, such as the Digital H6 POS cashier device, after ensuring device compatibility and configuring it with the used system.

How Do You Choose Software for Issuing Tax Invoices?

First, start by identifying the types of invoices and operations the entity needs to execute, then test the software using an actual sales cycle.

Among the most important selection criteria:

1. Providing Arabic language support.
2. Supporting standard and simplified tax invoices.
3. Compliance with VAT requirements.
4. Supporting Phase Two when the entity is subject to it.
5. Generating XML files and QR codes.
6. Managing branches and cashier devices.
7. Issuing credit and debit notes.
8. Preventing deletion or modification of invoices after issuance.
9. Saving invoices and creating backups.
10. Tracking submission and rejection statuses.
11. Integration between accounts and inventory.
12. Managing user permissions.
13. Extracting tax reports.
14. Supporting operations during connectivity issues.
15. Providing clear technical support.
16. Allowing data transfer and export.
17. Scalability when adding new branches.

During the demo, request testing the following scenarios:

• Issuing a tax invoice to a company.
• Issuing a simplified invoice to an individual.
• Creating an invoice including a discount.
• Issuing a credit invoice.
• Recording a partial payment.
• Issuing a credit note.
• Executing an item return.
• Verifying the QR code.
• Viewing the XML file.
• Viewing the invoice status within the platform.
• Extracting the tax report.

You can check the packages and prices and available software solutions from Aamal Raqmia to choose the system closest to the nature of your business.

Review the services and products, then book a demo to experience issuing tax invoices, notes, and returns, and linking them to accounts and inventory before actually running the system. You can also register and get the trial period or contact us to clarify your entity's requirements.

Frequently Asked Questions

What is meant by a tax invoice?

It is a document issued by the supplier to prove a supply subject to VAT, containing the buyer and seller data, goods or services details, tax amount, and total.

What are the most important conditions of a tax invoice?

It must contain a sequential number, issuance date, supplier and buyer data, supply description, quantities, prices, discounts, tax rate and amount, and total. It must also be issued and stored through a compliant electronic system.

What is the difference between a standard and simplified tax invoice?

The standard tax invoice is mostly used in B2B transactions and contains more detailed data, while the simplified invoice is usually used for B2C direct sales.

Is the QR code mandatory in a tax invoice?

The QR code is one of the essential elements in a simplified tax invoice, while its inclusion method in a standard tax invoice varies based on the e-invoicing phase and the Fatoora platform's processing mechanism.

Can an invoice be issued from Excel?

Manually preparing an invoice using Excel then converting it to a PDF is not enough to issue a compliant electronic invoice. The invoice must be created and stored through a structured electronic system.

Must the invoice contain the buyer's VAT number?

The tax invoice includes the buyer's data and VAT number when requirements apply, particularly in transactions between registered entities.

How is an error in an invoice corrected?

The invoice is not deleted or modified directly after issuance. When reducing the value, a credit note is issued, and when increasing it, a debit note is issued, linking the note to the original invoice.

Can a simplified invoice be issued to a company?

This is possible in specific cases if the value of the taxable supply is less than 1,000 Riyals, provided the supplier chooses to issue the simplified invoice while meeting the conditions related to the transaction.

What is the VAT rate in the invoice?

The standard VAT rate in Saudi Arabia is 15% on supplies subject to it, though there are supplies that may be subject to a zero rate or exemption based on regulatory classification.

When did e-invoicing start in Saudi Arabia?

The generation and storage phase started on December 4, 2021, and the integration phase began gradually on January 1, 2023.

Must the software be integrated with the Fatoora platform?

Integration becomes required when the entity falls into the targeted categories in Phase Two and receives a notification of the integration date, requiring the preparation of the solution and devices used in issuing invoices.

Can an invoice be issued without an accounting software?

An independent e-invoicing solution can be relied upon if it meets the requirements, but linking invoicing to the accounting and inventory system helps reduce duplicate entry and discrepancies between invoice data and reports.

Conclusion

The tax invoice is not just a document handed to the customer; rather, it represents a key link connecting the sales process to VAT, customer accounts, inventory, revenues, and financial reports.

To ensure it is issued correctly, one should choose approved accounting software, enter supplier and buyer information accurately, clarify products, prices, discounts, and tax, then create and store the invoice via a compliant electronic system. Any subsequent modification must also be handled with a credit or debit note rather than altering the original invoice.

An integrated accounting system contributes to organizing these procedures, while the entity's responsibility remains regarding the accuracy of its settings, data, and compliance with applicable requirements.

Get your free trial period and test issuing the tax invoice and linking it to accounts and inventory.