Understanding Phase 2 of ZATCA E-Invoicing in Saudi Arabia

1. Understanding Phase 2 of ZATCA E-Invoicing in Saudi Arabia Introducing ZATCA e-invoicing in Saudi Arabia is an important step toward digital transformation by the Kingdom of Saudi Arabia. This is in response to improving the tax compliance, reducing the fraud, streamlining corporate processes and comes about in collaboration with the Zakat, Tax and Customs Authority (ZATCA). In Saudi Arabia, the implementation of a structured, automated invoicing system is a watershed moment in the change as it is required in Phase 2 of ZATCA e-invoicing. In this post, we will discuss Phase 2 of the ZATCA e-invoicing in Saudi Arabia, standards, implementation recommendations and benefits to businesses. What is ZATCA e-invoicing? E-invoicing, also known as electronic invoicing in Saudi Arabia, is a system that replaces traditional paper invoices with digital invoices that are generated, saved, and transmitted electronically. The project seeks to modernize financial operations,

2. eliminate tax avoidance, and increase transparency in the Saudi business sector. ZATCA implemented e-invoicing in Saudi Arabia in two phases: Phase 1 (Generation Phase) : Invoices had to be prepared and stored electronically starting from December 4, 2021, including mandatory fields. Phase 2 (Integration Phase) - Waves will begin in January 1, 2023, for integration with the ZATCA systems for real time validation and reporting. Key requirements for Phase 2 of ZATCA E-Invoicing Phase 2 of ZATCA e-invoicing in Saudi Arabia imposes tighter compliance requirements and requires full interaction with ZATCA's Fatoora system. The key requirements include: 1. ZATCA will enforce mandatory Integration over their Fatoora platform to ensure real time validation of issued invoices by integrating their e-invoicing systems. 2. ZATCA must approve all invoices before they are submitted to purchasers (B2B transactions) or reported in 24 hours (B2C transactions). 3. Universally Unique Identifiers (UUID) and a cryptographic stamp - In order for electronic invoices to be verified their authenticity, they should contain a UUID and a cryptographic stamp assigned by the platform in which they were generated. 4. Security Features - Among security features that Invoices can use during Phase 1, we have digital signatures among other things. 5. E-invoices must be in the XML or PDF/A-3 format with embedded XML for interoperability with ZATCA systems. 6. Businesses have to store invoices electronically for the minimum period of time stipulated by ZATCA, and these invoices are easily accessible for auditing purposes. Who must comply with Phase 2? ZATCA is rolling out Phase 2 in waves based on business turnover. Businesses that fulfill the stipulated revenue thresholds must comply by their deadlines. Large firms with annual revenues greater than SAR 3 billion were the first to adopt

3. Phase 2 in January 2023. Smaller enterprises will be gradually brought in, with ZATCA announcing compliance deadlines in advance. Benefits of ZATCA E-Invoicing Phase 2 The implementation of ZATCA e-invoicing in Saudi Arabia brings numerous benefits for businesses, the government, and the overall economy. These include: Enhanced Tax Compliance – Real-time validation ensures accurate tax reporting and minimizes errors in invoicing. Reduced Fraud & Tax Evasion – Digital records prevent invoice manipulation and fraudulent tax claims. Operational Efficiency – Automating invoicing processes saves time, reduces paperwork, and minimizes human errors. Seamless Audits & Record-Keeping – Businesses can easily retrieve and manage invoices for audits and compliance checks. Global Competitiveness – Digital invoicing aligns businesses with international best practices, facilitating smoother cross-border trade. Improved Cash Flow Management – Faster processing and payment cycles contribute to better financial planning. How to Prepare for Phase Two of ZATCA E-Invoicing To ensure a smooth transition, firms should do the following: Assess Current Systems: Evaluate existing invoicing systems to ensure they are compatible with ZATCA's criteria. Choose a ZATCA-Compliant Solution: Implement an e-invoicing solution that meets technical and security requirements. Integrate with Fatoora: Collaborate with software suppliers to link invoicing systems to ZATCA's platform for real-time validation. Train Employees - Educate employees on the new billing procedures and compliance standards.

4. Ensure Data Security – Implement cybersecurity steps to safeguard invoice data and prevent unauthorised access. Selecting the Right E-Invoicing Solution A ZATCA-approved e-invoicing solution in Saudi Arabia should offer the following features: Integrate seamlessly with accounting and ERP systems. Real-time invoice validation and clearance through ZATCA Secure storage and quick retrieval of invoices. Compliance with the XML and PDF/A-3 formats QR code creation and cryptographic stamping. Conclusion The second phase of ZATCA e-invoicing in Saudi Arabia represents a significant step forward in the country's digital transformation agenda. Businesses must react to these developments by installing ZATCA-compliant e-invoicing systems to assure compliance, increase efficiency, and remain competitive in a changing market. Companies can seamlessly handle this change while reaping the benefits of digital invoicing if they plan ahead of time and choose the correct solution.