Zatca e-Invoicing Phase 2 Requirements in Saudi Arabia

What is Zatca e-Invoicing Phase 2?

Zatca e-Invoicing Phase 2, also known as the second phase of the Saudi Arabian e-invoicing system, builds upon the foundation laid by its predecessor, Phase 1. This phase represents the government’s commitment to streamlining and enhancing the invoicing processes for businesses operating in the Kingdom.

• During Phase 2, which is known as the Integration Phase, taxpayers are required to create a Tax Invoice in an electronic format. This Tax Invoice should include additional data fields as specified in Annex 2 of the E-Invoicing Resolution. To accomplish this, taxpayers must utilize a compliant E-Invoice Generation Solution (EGS) that has been successfully onboarded. Detailed technical guidelines outlining the onboarding process can be found here. Tax Invoices for Phase 2 must be generated in either XML format or as a PDF/A-3 document with embedded XML.
•  In the Phase 2 Integration Phase, Tax Invoices must be submitted to the FATOORA Platform for “Clearance” exclusively in XML format, with PDF/A-3 not being an acceptable format. The FATOORA Platform will carry out a thorough validation process to ensure that the Tax Invoice complies with the XML Implementation Standard. Additionally, it will perform additional referential checks. Once the Tax Invoice successfully passes these validation checks, the FATOORA Platform will mark it as “Cleared.” This designation will be accompanied by the addition of a Cryptographic Stamp and a QR Code to the XML. The “Cleared” XML will then be transmitted back to the taxpayer through the use of APIs. For more detailed information, please refer to Section 7 of this guideline.
• In the Phase 2 Integration Phase, invoices must be shared with or presented to buyers in either XML format or as a PDF/A-3 document with embedded XML. These Tax Invoices should contain all the requisite fields in accordance with VAT legislations. This includes information about the seller and buyer, transaction particulars, goods and services details, and various technical fields that must be generated by the electronic invoicing solution. Sample images of the human-readable format of the Tax Invoice are provided in Section 4.6 of this guideline. It’s important to note that the sample images for Phase 1 and Phase 2 must be distinct from each other.

Key Objectives of Phase 2

• Enhanced Compliance: Phase 2 aims to further improve tax compliance by introducing advanced reporting and validation mechanisms.
• Wider Scope: It expands the coverage of e-invoicing to include a broader range of business transactions.
• Integration: Phase 2 emphasizes the integration of e-invoicing with other financial systems, ensuring seamless data flow.

Who Does It Apply To?

Mandatory Compliance : Mandatory compliance with Zatca e-Invoicing Phase 2 is extended to various categories of businesses, including but not limited to:

• Large Corporations
• Small and Medium-sized Enterprises (SMEs)
• Foreign Companies with Saudi Operations

Exemptions: Certain exceptions may apply to specific business types, but it is crucial for every business to assess its eligibility and compliance obligations accurately.

The Technical Requirements

• Digital Signature: One of the fundamental technical requirements is the use of a digital signature to ensure the authenticity and integrity of e-invoices.
• XML Format: All e-invoices must be generated and transmitted in the prescribed XML format, which aligns with the Zatca standards.
• Integration with GAZT: Businesses must establish a robust integration with the General Authority of Zakat and Tax (GAZT) systems to facilitate real-time data transmission and validation.
• Invoice Archiving: Phase 2 mandates the archiving of e-invoices for an extended period to meet regulatory requirements.

Implementation Challenges and Solutions

• Integration Complexity: Integrating e-invoicing with existing systems can be challenging. Businesses should consider adopting specialized software or seeking professional assistance.
• Compliance Training: To ensure smooth compliance, employees should receive training on the new requirements and processes.
• Outsourcing Solutions: Many businesses are opting to outsource e-invoicing tasks to specialized service providers to ensure compliance and efficiency.

The Benefits of Zatca e-Invoicing Phase 2

• Enhanced Accuracy: The stringent validation processes reduce the likelihood of errors in invoicing and reporting.
• Streamlined Processes: Businesses can benefit from streamlined invoicing processes, leading to faster payment cycles.
• Reduced Tax Evasion: The increased transparency and data accuracy contribute to a significant reduction in tax evasion.

Conclusion

Zatca e-Invoicing Phase 2 represents a significant leap forward in Saudi Arabia’s efforts to modernize its tax infrastructure. Businesses operating in the Kingdom must adapt to these new requirements to ensure compliance and reap the benefits of streamlined processes and reduced tax risks.