FAQs on Phase 2 of KSA e-Invoicing

Zakat, Tax and Customs Authority (ZATCA), the e-invoicing implementing authority in Saudi Arabia (SA), announced that phase 2 of e-invoicing will begin on 1st January 2023.  Also, ZATCA announced on 24th June 2022 that the first targeted taxpayer group includes the Value Added Tax (VAT) registered taxpayers whose revenue exceeded 3 billion SAR for the year ending 2021.

The applicable taxpayers shall start integrating ERP/accounting system and get ready for e-invoicing by 1st January 2023. While preparing for phase 2, you might get a few doubts, and this article provides a few FAQs and answers on Phase 2 of Saudi e-invoicing.

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Applicability of phase 2 e-invoicing

When would Phase 2 of KSA e-Invoicing starts?

Phase II of e-invoicing in KSA will start from 1st January 2023.

What is the applicability of the second phase of e-invoicing or Fatoorah?

ZATCA named the second phase of e-invoicing the integration phase. The applicable taxpayers must generate e-invoices or Fatoorah using compliant e-invoicing solutions as per the technical requirements and integrate with ZATCA’s system. 

When will phase 2 of KSA e-invoicing be implemented?

Phase II of KSA e-invoicing applies from 1st January 2023 to the targeted taxpayer groups in waves. These groups will be informed of the new system’s requirements at least six months before implementation. Accordingly, ZATCA notified the waves as shown in the below table:

How will I be informed about phase 2 of the e-Invoicing or Fatoorah?

Phase 2 shall begin on 1st January 2023 for the first target taxpayer group.

• ZATCA announced on 24th June 2022 that the first target group includes businesses that have revenue of more than SAR 3 billion during the calendar year 2021.
• Also, ZATCA announced that the businesses in KSA with greater than SAR 500 million turnover and less than 3 billion falls under wave 2 under phase 2 of e-invoicing. They must integrate their ERP/POS with Fatoorah portal starting from 1st July 2023.

Phase II will be implemented with a 6-month notice. Does that mean we have time till 30th June 2023? 

No, ZATCA will announce the targeted taxpayers group 6 months in advance of the implementation date. Accordingly, on 24th June 2022, ZATCA announced that the first targeted taxpayers group includes businesses having revenue of more than SAR 3 billion during the calendar year 2021. So, the applicable business shall integrate and get ready for phase 2 of e-invoicing by 1st January 2023.

Has ZATCA started allowing taxpayers to integrate for phase II for any industry?

ZATCA announced on 24th June 2022 that businesses with more than SAR 3 billion will start integrating with the Fatoora portal. Phase II is applicable based on the revenue but not based on the industry.

Phase 2 requirements under Saudi e-invoicing

What are the technical requirements defined for phase 2 of the e-invoicing system or Fatoorah?

The authority will implement phase 2 from 1st January 2023 in waves for targeted taxpayer groups. You must ensure that tech teams and service providers re-configure the e-invoicing solutions for a few more technical requirements in addition to phase 1. Further, such compliant e-invoicing solutions must be integrated with the system of ZATCA to generate e-invoices in a standard format.

What invoice formats do I have to handle in the new e-invoicing regime?

Usually, any business must maintain the below invoice formats:

• Standard tax invoice
• Simplified tax invoice
• Credit note
• Debit note
• Nominal invoice
• Self bill
• Export invoice
• Third-party invoice
• Summary invoice

What are the prohibited activities under phase 2 of the e-invoicing or Fatoorah system?

In addition to the prohibited activities given for phase 1, export of the stamping key and time change are also not allowed in phase 2.

How to check whether my invoice fields are ZATCA-compliant?

You need to check the ZATCA data dictionary and data implementation rules. Also, check whether the prevailing e-invoicing rules are being satisfied.

Shall I continue following phase 1 requirements until phase 2 applies to me?

Yes, you should continue following phase 1 requirements until phase 2 applies to you.

I’m complying with phase 1 requirements and have not yet been notified by ZATCA to integrate. Am I required to implement phase 2 requirements?

No, you are not required to implement phase 2 requirements until you are notified by ZATCA regarding the integration enforcement date.​

Will I need to change anything in the current business process flow of creating an invoice to comply with the new ZATCA-compliant guidelines?

You must modify your invoicing process to capture the mandatory fields required as per phase 2 rules and regulations. You may need to make some system changes to do so.

How can my systems create an invoice compliant with ZATCA?

Compliance with e-invoicing has two parts. The first one is functional aspects, such as invoice creation date, advance payment etc. The second aspect is technical such as QR code, UUID etc.

• Check if invoice data contains all fields to comply with functional aspects.
• Also, check if your system can generate the required technical fields.

Integration under phase 2 e-invoicing

How can I integrate my e-invoicing solution with ZATCA’s systems?

You can access the Fatoora portal​ using Taxpayer Portal credentials (ERAD) and then follow the e-Invoice Generation Solution (EGS) onboarding process. Click here for more details on the Fatoora portal.

How can I verify that my e-invoicing solution has been successfully integrated?

Once you’ve successfully onboarded the EGS, ZATCA will notify you, indicating whether the e-invoicing solution has been successfully integrated. Also, you can use the Fatoorah portal to view a summary list of all their integrated e-invoicing solutions.​

Is there a separate portal available to integrate and upload the invoices, or will it be live between ZATCA and the system?

ZATCA has notified the Fatoora portal for onboarding the EGS units. However, it has to announce the operating procedure for phase 2.

What are the different ways to implement ZATCA-compliant e-invoicing?

You can directly integrate with ZATCA using APIs; overall, six methods are available for integration. Click here to know more.

Is it compulsory to upload the invoices to the ZATCA each and every day?

e-Invoices need to be uploaded with the ZATCA platform in phase 2:

For Standard Tax invoices:

• Standard tax invoices and related Credit Debit Notes (CDNs) must be uploaded to the ZATCA Platform on a real-time basis for clearance.
• Upon successful clearance, ZATCA will provide a cryptographic stamp on a real-time basis. The e-invoicing solution has to generate a QR code (with specified fields by ZATCA) which would be inserted in the standard tax invoice.
• Only after successful clearance and valid QR code generation, you would be able to share invoices with your customer. Hence, every Standard Tax invoice needs to be uploaded on ZATCA on a real-time basis.

For Simplified Tax invoices:

• However, simplified tax invoices and related CDNs can be generated, printed and shared electronically through your e-invoicing solution (without ZATCA interaction). 
• Such simplified tax invoices and related CDNs must be reported to the authority within 24 hours from its generation. 
• Once uploaded to ZATCA, simplified electronic invoices will be validated by ZATCA. An acknowledgement will be provided as the API response.

I'm constantly getting errors/failures from ZATCA and cannot get clearance for B2B invoices. What shall I do?

You can refer to the ZATCA data dictionary and XML implementation standard and rectify errors shown by ZATCA.

If the customer doesn’t share an email or mobile number, how do we share the invoice electronically with the customer?

Sharing the invoice electronically with customers via email or mobile number is not a mandatory requirement. You can generate a print copy and share it with them. But the invoice needs to be stored in your system electronically.

Should my electronic system be certified by ZATCA for Phase I? Do the e-invoices need to be approved by ZATCA before sharing them with the buyer for Phase 1?

Integration with ZATCA is required in Phase II. However, in phase I, you need to ensure that all the requirements of the ZATCA are well-taken care of for the purpose of e-invoice generation.

We have a format inside our ERP system. If the e-invoice is generated in our solution, is it okay to keep it in the archive?

Yes, you can use your existing e-invoicing solution to maintain archival as per ZATCA Guidelines. If your e-invoicing solution is not compliant, you can contact us.

Our e-invoice solution provider generates its own unique no. Will that be considered invoice number while filing returns?

A tax invoice should include a sequential number which uniquely identifies it. The unique number generated from an e-invoice solution provider can be considered an invoice number if it fulfils the requirement of sequential numbers.

If I have ERP to generate a B2B invoice and save that invoice in PDF format in my system, does it mean we fulfil the archiving requirement?

Persons subject to the e-invoicing regulation may store their electronic invoices in a server on-premises in KSA or in the cloud as per their solution requirements and storage requirements and according to the provisions in VAT Law, VAT Implementing Regulation, e-invoicing regulation and resolutions and all other relevant Laws in KSA.

• As per VAT Implementing Regulations, if the data is hosted on the cloud, it must be accessible through a direct link that can be made available to the authority. 
• The solution must allow persons subject to the e-invoicing regulation to export and save their invoices onto an external archival system.
• Each stored invoice must follow a naming convention for the naming of the file: VAT registration (tax registration number) + timestamp (date and time at the point of invoice generation) + Invoice Reference Number.
• Taxpayer’s e-invoicing solutions may reside on the cloud following VAT Implementing Regulation. However, additional non-tax-related regulations may apply to the taxpayer entity, such as National Cybersecurity Authority published laws and any other applicable regulations or controls.
• Click here for more details on data storage and archival under KSA e-invoicing regulations.

We have an in-house customised ERP for invoicing. Can Cleartax help us and guide us on how to integrate with ZATCA servers?

ClearTax solution can be integrated with any in-house ERP or POS system. Please write to us at ME-Sales@ClearTax.in if you need further details. 

We have existing invoices that are non-compliant. Do we have an option to migrate/reissue them using the ClearTax software?

As per ZATCA Guidelines, e-invoices generated should not be deleted or altered by any user. The existing invoices can be cancelled by generating a credit note and then generating it again through ClearTax software.

Is Phase-2 just a technical integration between our system and ZATCA, or does it require any business process-wise change?

Phase 2 is an integration phase. The applicable taxpayers must use e-invoicing solutions to integrate their systems with ZATCA’s system. Each invoice has to be approved by ZATCA. This will impact your entire invoice-generating processes, such as printing invoices, presentment, reporting, auditing and VAT return filing. This will require significant process-wise change if your existing e-invoicing system is not ready for phase II. Both business and IT teams have to sit together and implement it.

We have 58 stores across the kingdom, and each store has a POS machine in them. All the sales data is pushed to the HO every hour. Should we integrate with ZATCA from the store itself or from the HO?

B2B Invoices need to be cleared on a real-time basis, and B2C invoices can be reported within 24 hours from the time of generation. Each B2B e-invoice generated electronically must be cleared by the authority before sharing it with the buyers. Then only such B2B is considered as legal and valid.

Hence, you can integrate with ZATCA based on the transaction type. However, you must integrate them with ZATCA at the store level to report B2B invoices generated at 58 stores.

What if I create a non-compliant B2C invoice and already submitted to the customer?

You must correct the invoice based on the failure reason and report it again to ZATCA. It is optional to share the corrected invoice with the buyer; however, it's better to share it with them for reconciliation purposes.

If my ERP is integrated with ClearTax, should it be registered with ZATCA or is registration of ClearTax enough?

Registration with ZATCA is mandatory for Phase 2 is mandatory for any business. Cleartax will act as an e-invoice solution provider in the integration phase.

From where can we get the ZATCA data dictionary?

ZATCA data dictionary can be downloaded from the below link:

https://zatca.gov.sa/en/E-Invoicing/SystemsDevelopers/Pages/E-Invoice-specifications.aspx

How to generate tax invoices against advance payment?

A tax invoice needs to be created for the balance amount after adjusting advances. Also, a tax invoice should be created when receiving the advance payment.

On the invoice layout, is it mandatory to show the “vat rate %” and “vat value”, or just the vat rate % is enough for each line item? This is due to space constraints on A4 size. The total vat value of the invoice is shown at the bottom of the invoice.

As per ZATCA e-Invoice Resolution document, the tax invoice should contain details of the VAT rate and VAT amount at the line item level.

For a few B2B small-scale customers, they do not provide us with their “national address & VAT registration number” even after several follow up. As per the clarification from another consultant, we were informed that “due to non-availability of complete national address, we can issue B2B e-invoices to such customers, till we get their national address”. Please clarify the exact requirement of ZATCA on fields to be filled for the customer’s address to comply with e-invoicing.

As per the e-invoicing implementation standard document, an Invoice shall contain the buyer’s postal address. Also, you can find the national address details in the VAT registration certificate. Hence, you can’t issue a B2B invoice without a VAT registration number & national address. However, this requirement does not apply to simplified tax invoices and related CDNs.

It will be real-time clearance from ZATCA for all invoices before giving them to customers. Usually, trucks leaving the plant will require an invoice. How do we provide them?

It is to be noted that clearance applies only to B2B invoices. Hence, you should integrate your ERP/accounting system with ZATCA to get clearance for the B2B e-invoices. Once invoice data is shared, ZATCA will be validated that data, stamp the invoice and then return the XML file to you. Finally, you can share the invoice with truck drivers and with buyers.

The exchange of Phase II data with ZATCA will be in English only, or it will be bilingual?

ZATCA requires all invoice fields to be mandatorily in Arabic. Thus, the exchange can be only in Arabic or both English and Arabic.

Does ZATCA allow zero-value invoices?

ZATCA toolkit is not allowing invoices with zero values.

How can we be sure that we are in line with Phase I and Phase II and that we will not support any penalties or problems? Can Cleartax check for us if we are in line with ZATCA rules?

Yes, the ClearTax solution can help you comply with Phase I and Phase II. Please write to us at ME-Sales@ClearTax.in in case you need further details. 

Our invoices are not being generated in sequence. How can we change the format of our invoice number now?

ClearTax solution can help you generate invoices in sequence and comply with ZATCA guidelines. Please write to us at ME-Sales@ClearTax.in in case you need further details.

Why am I unable to create the invoice in PDF/A3 format?

You need to re-assess the convertor tool and the PDF A/3 tool.

Saudi Arabia e-invoicing solution

Can I use the same e-invoicing solution to comply with phase 2 (integration) that was used for phase 1 (generation)?

Yes, you can use the same e-invoicing solution that was used for phase 1, by updating the e-invoicing solution to comply with the phase 2 requirements.​

What are the examples of e-invoicing solutions or e-invoicing systems?

The EGS units systems must comply with the ZATCA specifications. EGS providers must note those requirements, and taxpayers must ensure that tech teams and service providers comply.

The examples of e-invoicing systems include the following-

• Cash registers are available either online on web browsers or virtually on tablets.
• e-Invoicing software is either installed on computer systems, phones, tablets, or cloud-based.

Our e-invoicing setup is unable to address the invoice volumes and is very slow. What to do?

You must improve the infrastructure and storage capabilities. You can contact your e-invoicing software provider for the same.

Archiving files can be saved on the ClearTax server. Do we have to subscribe to any server in KSA while subscribing to your solution?

ClearTax servers are hosted in KSA. You don’t have to subscribe to any servers if you subscribe to Cleartax e-Invoicing Solution. 

Does ClearTax assess existing VAT system compliance with VAT as part of your solution, or is it separate?

VAT Assessment and VAT Compliance are not part of the current ClearTax e-Invoice Solution. However, we will launch such a product in a few months.

Is there any ready solution from ClearTax available to integrate with SAP ECC 6.0?

Yes, we can integrate with SAP ECC 6.0. ClearTax solution can be integrated with any ERP or POS system. Please reach out to us at ME-Sales@ClearTax.in in case you need further details. 

Has ClearTax done integrations with JDE ERP?

ClearTax solution can be integrated with any Point of Sale (POS) or ERP system. Please write to us at ME-Sales@ClearTax.in in case you need further details. 

We are using Xero; Can ClearTax integrate with that?

ClearTax solution can be integrated with any POS or ERP system. Please write to us at ME-Sales@ClearTax.in in case you need further details. 

Can we continue using the current accounting software OR a software/ERP compatible with the ClearTax e-Invoicing Solution?

Yes, the ClearTax solution integrates with your existing ERP or POS solution. You can continue to use your existing systems. Please write to us at ME-Sales@ClearTax.in in case you need further details. 

My system is not ERP and is cloud-based and allows modifications and cancellations. Should I have an ERP system first and then integrate it with ClearTax? or just use the excel template provided by ClearTax?

You may start using the ClearTax Platform for e-invoice generation with ClearTax Excel templates for the interest of time. However, at the same time, you should have the right ERP that prohibits a few functions, as mentioned in the ZATCA guidelines. It is clearly mentioned in guidelines that modification and cancellation of the invoice should not be allowed or done. Please connect with the ClearTax team by emailing us at ME-sales@cleartax.in for our experts’ complete guidance on understanding prohibitory functions.

If we use SAP and how will ClearTax do the integration, which Integrator are you using to get data? Is it views or API, and what is the customer’s need to be prepared?

You can connect with the ClearTax team by writing an email to ME-sales@cleartax.in. Our team will connect with you and guide you through the process of API Integration with SAP.