Tax regimes in general are relatively new in the Gulf Cooperation Council (“GCC”) region. With the improvement in technology, an increasing number of countries in the world have adopted tax-technology mechanisms to automate and integrate their revenue collection systems. In the GCC, the Kingdom of Saudi Arabia (“KSA”) was the first country to introduce a comprehensive electronic invoicing (“e-Invoicing”) system. Also recently, the United Arab Emirates (“UAE”) published amendments to its VAT Law and the Tax Procedures Law to set up the legal framework for an e-Invoicing system. This briefing explores the e-Invoicing mechanisms in KSA and the UAE.
1. What is e-Invoicing and what is its purpose?
E-Invoicing is the exchange of invoice documents between a Supplier and a Buyer in an integrated electronic format. The e-Invoice is an invoice that is issued, transmitted and received in a structured data format which allows for its automatic and electronic processing. Importantly, unstructured invoice formats, such as pdf, word documents, images, scanned copies and emails are not e-Invoices. The e-Invoices must be in a machine-readable format (i.e., XML format).
The main objectives of e-Invoicing are:
- To be a key enabler of a digital and paperless economy;
- To maximise revenue collection;
- To reduce tax gaps and tax evasion; and
- To enhance the ease of doing business, by creating a balanced playing field for all businesses.
2. How was the e-Invoicing mechanism developed in KSA?
e-Invoicing in KSA is currently implemented by the Zakat, Tax and Customs Authority (“ZATCA”) in two phases:
- Phase 1 (Generation Phase); and
- Phase 2 (Integration Phase).
Phase 1 commenced in late 2021, which required taxpayers subject to the so-called E-invoicing Regulation dated 4 December 2020 to generate and keep tax invoices, debit notes and credit notes using electronic systems compatible with the e-Invoicing requirements.
Phase 2 is enforced in waves for targeted taxpayer groups depending on their annual VAT relevant revenues. From 1 January 2023, as part of the first wave, companies with an annual VAT relevant revenue of more than SAR 3 billion (approx. EUR 767 million) have been required to comply with the e-Invoicing requirements and integrate with ZATCA’s systems. As of the date of this publication, ZATCA announced the 18th wave for taxpayers having annual VAT relevant revenues between SAR 2 million (approx. EUR 500,000) and SAR 2.5 million (approx. EUR 625,000) to integrate their electronic solutions with the ZATCA system between 1 June 2025 and 31 August 2025. Further details on the waves and the respective timelines are available in various ZATCA guidelines here.
3. What are the e-Invoicing updates in the UAE?
In July 2023, the UAE Ministry of Finance (“MoF”) announced the “eInvoicing” system as one of the five major strategic transformational projects to align with the ‘We the UAE 2031’ vision.
Following this, recently, the UAE amended the Federal Decree-Law No. 8 of 2017 (“VAT Law”) and Federal Decree-Law No. 28 of 2022 (“Tax Procedures Law”) to delineate the legal framework for e-Invoicing.
4. How is e-Invoicing expected to work in the UAE?
The UAE will follow the Decentralized Continuous Transaction Control and Exchange model over the so-called ‘Peppol’ network. The eInvoicing portal of the MoF provides a pictorial representation here.
The framework encompasses all business-to-business and business-to-government transactions, regardless of the registration status of the entities involved. The UAE’s e-Invoicing system has five so-called ‘Corners’, explained below:
- Corner 1: Supplier transmits e-Invoice data in an agreed format with its accredited service provider;
- Corner 2: Supplier’s accredited service provider validates the e-Invoice data and converts it into the UAE standard e-Invoice XML format (the latter only if it received the e-Invoice in a different format);
- Corner 3: Buyer’s accredited service provider receives the e-Invoice in the permissible format from Supplier’s accredited service provider;
- Corner 4: Buyer receives the e-Invoice from its accredited service provider who provides an acknowledgment in return; and
- Corner 5: The Federal Tax Authority (“FTA”) operates a central data platform. The Supplier’s UAE accredited service provider reports the tax related data of the e-Invoice to the platform. The FTA sends an acknowledgment to the Supplier’s accredited service provider that the e-Invoice is successfully reported. The Supplier’s accredited service provider forwards the relevant acknowledgments.
The expected timelines are as below:
- By Q4 of 2024, procedures for the accreditation of UAE service providers will be established. Also, a ‘UAE Data Dictionary’ is expected to be developed.
- By Q2 of 2025, e-Invoicing related legislation updates are expected to be released.
- By Q2 of 2026, Phase 1 of the e-Invoice reporting is expected to go live.
5. Outlook and Conclusion
The Kingdom of Saudi-Arabia is at the forefront of the development of tax technology related invoicing systems in the GCC-region. With the introduction of an e-Invoicing system, the UAE will soon be able to catch up with its neighbour and various other jurisdictions that have already implemented comprehensive e-Invoicing systems (especially those in Europe, Latin America, and East Asia).
The effects of implementing e-Invoicing systems are widely regarded as positive. In jurisdictions that have already introduced e-Invoicing systems, the feedback between tax authorities and taxpayers has become seamless and almost real-time. Tax authorities across the world have also reported a higher level of tax compliance, and a more efficient fraud detection system following the implementation of e-Invoicing regimes. With KSA being a pioneer in the GCC-region in relation to e-Invoicing, it can be expected that the UAE will be able to benefit from the experiences recently made by Saudi-Arabia in the implementation process of its own e-Invoicing system.
The introduction of an e-Invoicing regime further reflects the overall commitment of the UAE to ensure transparency, align with international best practices, and reaffirm its position as a leading global hub for business and investment, which were also the fundamental principles based on which the UAE federal corporate taxation regime was introduced back in 2022.
While businesses operating in KSA will already have familiarized themselves with the Saudi e-Invoicing system, businesses operating in the UAE are well advised to acquaint themselves with the new developments in the UAE and to monitor the UAE’s official channels for updates on e-Invoicing.
Dr. Constantin Frank-Fahle, LL.M.
Founding Partner
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