This comprehensive guide explains the fundamental differences between the two types, when to use each type, and their technical requirements, helping small and medium business owners make correct decisions to ensure compliance with tax regulations.

Overview of Electronic Invoice Types

To understand the differences clearly, it's important to first learn the basic definition of each type of electronic invoice approved in Saudi Arabia and the primary purpose of each.

1. Tax Invoice

A detailed invoice used in business transactions between companies or when dealing with customers registered for VAT, containing detailed information about the supplier, customer, and transaction.

2. Simplified Tax Invoice

A shortened invoice typically used in transactions with end consumers or customers not registered for VAT, containing basic simplified information.

When to Use Each Type of Invoice?

Choosing the appropriate invoice type depends on the transaction nature and receiving party. Understanding suitable scenarios for each type helps companies ensure proper compliance and avoid errors that may lead to legal or financial problems.

1. Tax Invoice Uses

Tax invoices are used in specific and important business scenarios:

• Business-to-Business (B2B) transactions include sales to VAT-registered companies, supplies to government institutions, and large commercial transactions.
• Special transactions such as exports, intra-community supplies, deemed supplies, and advance payments require tax invoices to ensure legal compliance.
• Mandatory cases include transactions with VAT-registered customers, transactions requiring tax deduction rights, and transactions exceeding certain limits per internal policies.

2. Simplified Tax Invoice Uses

Simplified tax invoices are ideal for daily transactions and direct customer interactions:

• Business-to-Consumer (B2C) transactions include retail sales, restaurants and cafes, and personal services where speed and simplicity are priorities.
• Special sectors such as private healthcare, private education, and transportation services benefit from this invoice type's flexibility.
• Daily transactions such as cash sales, small recurring transactions, and quick services find simplified invoices the optimal solution for operational efficiency.

Tax Invoice and Simplified Tax Invoice Contents and Differences

Tax invoice content differs from simplified tax invoice in the number and type of required data. This content difference reflects each invoice type's nature and purpose, where tax invoices require more detailed information to support tax deduction processes and financial review.

1. Tax Invoice (B2B/B2G):

• Document title indicating "Tax Invoice"
• Unique sequential number for each issued invoice
• Invoice issue date
• Detailed supplier information: name, address, VAT registration number, and commercial registration number
• Comprehensive customer information: name, address, VAT registration number, and commercial registration number
• Detailed product and service data including quantity, unit price, tax rate, tax value for each item, and totals before and after tax
• Total value of goods and services before adding VAT
• Total VAT amount on the complete invoice
• Final total amount including all items with VAT
• QR Code for each invoice

2. Simplified Tax Invoice (B2C):

• Document title showing "Simplified Tax Invoice"
• Unique sequential number for each issued invoice
• Company or business establishment name
• Company or establishment address and location
• Invoice issue date
• Establishment's VAT registration number
• Product and service data including quantity, unit price, tax value, and total including tax
• Total value of goods and services without VAT
• Total VAT amount on the entire invoice
• Final total amount including all items with VAT
• QR Code for each invoice

The fundamental difference between the two types is that tax invoices require complete detailed customer data (name, address, tax number) making them eligible for tax deduction rights, while simplified invoices don't require detailed customer data and focus only on supplier and transaction information, making them faster to issue but ineligible for tax deduction.

Important Note: In Phase 2 of e-invoicing implementation, there are additional technical requirements for each invoice type, including real-time integration processes with ZATCA that differ between tax invoices and simplified invoices.

What are the Technical Differences Between Tax Invoice and Simplified Invoice?

After understanding each invoice type's content, it's important to learn the technical and operational differences between them. These differences directly affect how accounting systems are set up and internal company processes are designed, determining the technical complexity level required for each type.

Note: The following technical requirements apply specifically to Phase 2 of e-invoicing implementation, which involves integration with ZATCA systems. In Phase 1, both invoice types only require generation and storage in electronic format without real-time integration with ZATCA.

1. Tax Invoice Requirements (Phase 2)

Tax invoices require a more complex and integrated technical approach:

• Clearance process requires sending the invoice to ZATCA before delivering it to the customer, obtaining authority approval and encryption stamp, where the invoice cannot be delivered to the customer until after clearance.
• Real-time connection with the authority includes direct connection with authority systems, real-time sending, and immediate response reception from the authority, ensuring instant compliance.

2. Simplified Tax Invoice Requirements (Phase 2)

Simplified invoices follow a more flexible and practical approach:

• Reporting process allows sending the invoice to the authority within 24 hours of issuance, without needing prior authority approval, with ability to deliver it to the customer immediately upon issuance.
• Timing flexibility includes batch sending capability, no need for immediate connection, and batch invoice processing, suitable for fast business operations.

Encryption Stamp Requirements for Each Invoice Type

Encryption stamps play a central role in ensuring electronic invoice security and reliability. The source and creation method of encryption stamps differ between invoice types, affecting security level and required technical system requirements.

1. In tax invoices, the authority places the encryption stamp after invoice clearance, with prior verification of data accuracy before stamping, ensuring high reliability and preventing tampering.

2. In simplified tax invoices, the accounting system creates the encryption stamp, which must contain a specific identifier code, and requires prior system unit registration with the authority to obtain the identifier code.

QR Code Contents for Tax Invoice and Simplified Invoice

QR codes are mandatory in both invoice types, but encrypted data content within the code differs by invoice type. Understanding these differences is important for producing correct codes compliant with each type's requirements.

1. In Tax Invoice

QR code must contain the following data:

• Supplier name
• VAT registration number
• Timestamp
• Invoice total including tax
• Total VAT amount
• Invoice hash function
• Encryption stamp from authority
• Public key used in encryption

2. In Simplified Tax Invoice

Contains the same basic data with the following differences:

• Encryption stamp from accounting system
• Encryption stamp identifier code
• Platform-specific encryption stamp (in some cases)

Invoice Type Impact on Tax Deduction Rights

One important difference between invoice types is their impact on customer's right to deduct VAT. This difference has direct impact on companies' financial decisions and determines when to use each invoice type.

1. Tax invoice qualifies for full deduction, where registered customers can use it to deduct VAT, but it must be authority-approved and contain all required deduction data.

2. Simplified tax invoice usually doesn't qualify customers for tax deduction, may be used for internal accounting purposes only, and doesn't meet tax deduction right requirements due to legal restrictions.

How Mezan Helps You Manage Invoice Types

Mezan offers an integrated platform that simplifies electronic invoicing management for all types:

1. Advanced Technical Solutions

• Full support for both types: issuing tax and simplified invoices
• Automatic connection: seamless integration with ZATCA systems
• Encryption stamp management: automatic protection and management of encryption stamps

2. Additional Features

• Automatic type selection: system automatically determines appropriate invoice type
• Compliance monitoring: instant alerts for violations
• Detailed reports: tracking status of all sent invoices

3. Support and Training

• Specialized technical support: team helps you at every step
• Comprehensive training: on system use and invoice types
• Continuous updates: to keep up with regulatory changes

Conclusion

Understanding differences between tax invoice and simplified tax invoice is crucial for ensuring proper compliance with electronic invoicing system. Each type has specific uses and technical requirements.

Success in implementing electronic invoicing requires deep understanding of invoice type differences, choosing appropriate systems supporting all requirements, good technical integration planning, and continuous team training.

With Mezan, you get a comprehensive solution ensuring full compliance and simplifying electronic invoice management, allowing you to focus on business growth with confidence.

Frequently Asked Questions

1. When should I use tax invoice instead of simplified?

Use tax invoice when selling to VAT-registered companies or government entities, use simplified with end consumers.

2. Can simplified invoice be converted to tax invoice later?

No, you must issue a new separate tax invoice. Invoice type cannot be modified after issuance.

3. What's the difference in sending times to authority?

Tax invoice requires immediate clearance before delivery, simplified is sent within 24 hours.

4. Do QR codes differ between types?

Yes, tax invoice QR contains encryption stamp from authority, simplified contains stamp from accounting system.

5. Which qualifies for VAT deduction?

Only tax invoice qualifies registered customers for tax deduction, simplified doesn't qualify for deduction.

6. Can the same system be used for both types?

Yes, most approved systems support issuing both types automatically based on customer type.