Global Content Lead - Tech & Consulting
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On August 18, 2023, the Saudi Arabia Zakat, Tax and Customs Authority (ZATCA) declared through its official website that taxpayers residing in Saudi Arabia having a taxable turnover surpassing 40 million Saudi Riyal (SAR 40m) during the calendar year 2021 or 2022, will be encompassed in the eighth wave of Phase 2 e-invoicing integration and are required to adhere to the Phase 2’s requirements. ZATCA will notify the affected taxpayers to prepare to link and integrate their electronic invoicing systems with ZATCA’s e-invoicing platform, FATOORA.
Moreover, the ZATCA Governor issued Decision No. 3930 on 01/22/1445 AH, published in the Official Gazette on August 18, 2023. This directive specifies that taxpayers falling within the eighth wave must comply with the Phase 2 e-invoicing requirements between March 1, 2024, and June 30, 2024, inclusive of both dates.
As the deadline approaches, businesses within this revenue bracket must gear up for seamless integration. Ensuring that your e-invoicing solution aligns with FATOORA’s specifications is important. The objective of this compliance is to enhance tax transparency between the organization and the regulator, enabling businesses to handle high-volume transactions while staying compliant efficiently.
This blog guides you through the e-invoicing phases, offering insights into preparing for compliance with the ZATCA e-invoicing requirements.
An overview of e-invoicing phases in KSA
The implementation of ZATCA e-invoicing in KSA occurred in two distinct phases: Generation (Phase 1) and Integration (Phase 2). Phase 1 commenced in December 2021, while Phase 2 is further divided into waves. Here’s a concise overview of each phase:
Phase 1 (Generation phase)
This phase obligated all taxpayers—both residents and non-residents within the Kingdom—to create and maintain e-invoices with the required fields using electronic solutions that adhere to Phase 1’s specifications. This requirement became enforceable on December 4th, 2021, for all taxpayers and parties issuing tax invoices on behalf of VAT-subject suppliers.
Phase 1 generated consumer protection and raised awareness among taxpayers. As per the regulations of this phase, VAT-registered taxpayers were required to:
- Avoid the use of handwritten invoices
- Discontinue the practice of issuing computer-generated invoices through text editing software
- Embrace a ZATCA-compliant e-invoicing solution
- Archive e-invoices and associated CDNs (credit or debit notes)
Phase 2 (Integration phase)
The integration phase is rolled out in waves, focusing on specific taxpayer groups. It involves the introduction of Phase 2 technical and business requirements for electronic invoices and electronic solutions, with seamless integration of these solutions with ZATCA’s systems.
The go-live dates for the integration phases, as published on the ZATCA portal, are as follows:
| Wave | Taxpayers with taxable revenues threshold | Integration period |
| Wave 1 | Taxpayers with annual taxable revenue above 3Bn SAR in 2021 | 1st January 2023 to 30th June 2023 |
| Wave 2 | Taxpayers with annual taxable revenue above 0.5Bn SAR in 2021 | 1st July 2023 to 31st December 2023 |
| Wave 3 | Taxpayers with annual taxable revenue above 250Mn SAR in 2021 or 2022 | 1st October 2023 to 31st January 2024 |
| Wave 4 | Taxpayers with annual taxable revenue above 150Mn SAR in 2021 or 2022 | 1st November 2023 to 29th February 2024 |
| Wave 5 | Taxpayers with annual taxable revenue above 100Mn SAR in 2021 or 2022 | 1st December 2023 to 31st March 2024 |
| Wave 6 | Taxpayers with annual taxable revenue above 70Mn SAR in 2021 or 2022 | 1st January 2024 to 30th April 2024 |
| Wave 7 | Taxpayers with annual taxable revenue above 50Mn SAR in 2021 or 2022 | 1st February 2024 to 31st May 2024 |
| Wave 8 | Taxpayers with annual taxable revenue above 40Mn SAR in 2021 or 2022 | 1st March 2024 to 30 June 2024 |
| Wave 9 | Taxpayers with annual taxable revenue above 30Mn SAR in 2021 or 2022 | 1st June 2024 to 30 September 2024 |
The announcement of the remaining waves is pending. ZATCA notifies taxpayers of their Phase 2 waves at least six months in advance.
Preparation of checklist for e-invoicing phase 2
Getting ready for the Phase 2 implementation involves two crucial aspects. Firstly, a comprehensive understanding of ZATCA’s e-invoicing regulations and guidelines is essential to ensure compliance. Secondly, assessing your internal capabilities to manage e-invoicing or considering the engagement of a technology partner to assist in the integration process is imperative.
Understanding ZATCA’s e-invoicing regulations
Your tax team must stay abreast of the evolving guidelines set by ZATCA by actively monitoring the latest regulatory updates. This proactive approach allows your team to conduct a thorough impact analysis, identifying potential gaps that could hinder meeting your compliance requirements.
An illustrative list is provided below, showcasing mandatory, conditional, and optional fields for each electronic invoice. Your tax team should evaluate the relevance of conditional fields to your business operations. Additionally, it’s crucial to note that while optional fields might not be included in your e-invoices, your e-invoicing solution must support these fields.
| Obligation | Invoice Fields – Phase 1 | Invoice Fields – Phase 2 |
| Mandatory | Invoice reference number (IRN) Invoice type description Invoice issue date and time Seller name, address VAT registration number Buyer name and address Goods or services description, unit price and quantity Means of payment | Universally Unique Invoice Identifier in UUID format Previous invoice/node hash QR code Tamper-resistant invoice counter value Additional seller ID Subtotal exclusive of VAT VAT category code Cryptographic stamp |
| Conditional | Self-billing flag Supply date Buyer VAT registration number Special tax treatment | Third-party billed invoice flag Special transaction type flag Additional buyer ID Discount percentage of line item Payment terms Additional notes |
| Optional | N/A | Purchase order number Contract number |
Evaluating internal readiness for e-invoicing
Assess whether your organization possesses the requisite technical infrastructure and a skilled team capable of managing e-invoicing. This includes the ability to:
• Continuously monitor ZATCA’s evolving rules and guidelines
• Interpret guidelines for implementation strategies
• Establish and maintain the necessary technical infrastructure for generating, storing, and managing e-invoices
• Employ a proficient team comprising legal counsel and IT resources for e-invoicing integration in Phase 2
If your internal assessment indicates that you already possess the necessary technology infrastructure and legal expertise, it’s a plus. However, any gaps identified in this evaluation will necessitate seeking support from an experienced technology partner with a global presence.
Ensure ZATCA compliance with Confiz’s expertise
Non-compliance with ZATCA Phase 2 integration mandates can result in severe penalties and fines. Businesses must integrate their ERP and POS systems with Fatoora (ZATCA’s e-invoicing portal) within specified timelines.
Confiz, a renowned global technology expert and Microsoft solutions partner provides seamless integration services for Dynamics ERP and Microsoft Point of Sale systems with ZATCA. With an unwavering commitment, we ensure strict adherence to all ZATCA rules and regulations, establishing ourselves as the preferred partner for comprehensive IT solutions and integrations.
Learn more about our services by contacting us at marketing@confiz.com.
