ZATCA e-invoicing phase II: Compliance and challenges
Category: e-Invoicing in KSA, Posted on: 03/10/2022 , Posted By: Webtel
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Phase II of ZATCA e-invoicing is approaching at a lightning speed while there pertain unanswered questions and unsolved challenges from Phase I. To prepare you better for Phase II and help you out with the challenges of Phase I, a webinar was conducted recently by Webtel, and the key takeaway from the same has been mentioned in this blog.

Applicability of e-invoicing phase II

As per the e-invoicing guidelines issued by ZATCA for phase II, irrespective of the annual turnover, every taxable person who is a resident of KSA is eligible to generate e-invoices. Moreover, third parties that issue tax invoices on behalf of a resident taxable person also come under the applicability radar. Must be noted that all the non-resident tax-payers are not eligible to generate e-invoices in KSA.

Here, simplified tax invoices/ Dr/Cr notes issued by a business to an unregistered customer and tax invoices /Dr/Cr notes issued by a registered business to another registered business are applicable for e-invoice generation.

Additionally, e-invoicing applies to all the zero rates and standard rate taxable supplies to the residents as well as non-residents (exports) in KSA. As an exception, e-invoicing is not applicable on exempt supplies, imports, and supplies subject to the reverse charge mechanism.

Now, as we are all aware, phase I, or the generation phase of e-invoicing was implemented on December 4th, 2021 for all the taxpayers’ residents of KSA. The second phase or the integration phase is to be implemented w.e.f. January 1st, 2023 in waves by target taxpayer groups.

Hereby, taxpayers with revenue above 3 billion SAR will be required to pay e-invoices from the 1st of January, 2023, whereas, the applicability dates for those with revenue up to 3 billion SAR will be released at a later stage.

Requirements in Phase II of e-invoicing

  1. As opposed to the e-invoicing requirements in the first phase of e-invoicing where QR Code was mandatory for simplified invoices, in phase II e-Invoice contains additional fields, such as Cryptographic Stamp, etc. have been made mandatory.
  2. The first phase of e-invoicing required the generation and storage of invoices in an electronic format, whereas, in the second phase, the generation of e-invoices in an XML format is made mandatory in order to be uploaded on the ZATCA portal.
  3. As far as connectivity is concerned, the solution for generating and storing invoices must be able to have internet connectivity for both phases.
  4. The second phase requires the ability to submit invoices in real-time and receive a response from ZATCA which was not needed in the first phase.

Other technical requirements of Phase II of ZATCA e-invoicing have been listed below,

  1. The e-Invoicing solution to be connected to the internet
  2. It is important to ensure that e-Invoices contain additional fields required
  3. Generate & store e-invoice in required format (XML or PDF/A3 with embedded XML)
  4. Integrated e-invoicing solution with ZATCA to share e-invoices

Challenges in e-Invoicing phase II

The second phase of e-invoicing in KSA brings an additional set of challenges to the taxpayers, but we have them all covered. Here is a list of challenges that are bound to happen in the second phase of ZATCA e-invoicing and how these challenges can be solved,

  1. Mandatory fields
  2. Although there is a list of fields that need to be filled in to generate e-invoices as per ZATCA guidelines, certain specific fields have been made mandatory for the purpose of e-invoicing in KSA.
    As per the e-invoicing norms, fields like seller name, building number of the buyer, vat category code, etc. are the mandatory fields that need to be included in the invoices.

  3. Validation
  4. There are various validations specified within the different mandatory fields for the online filing of e-invoices. These validations have a huge impact on business operations and IT infrastructure. Where earlier only the summary information in VAT return was required, the complete information is required to be provided now.

  5. E-Invoicing Solution
  6. It is important to ensure whether the ERP or accounting package will be ready with necessary changes well in time, what will be the cost, time & effort of updating, and what alternative e-invoice generation solutions are available.

  7. Reconciliation Challenge
  8. Reconciliation is also a big challenge as there is likely to be a mismatch in data of ERP, e-invoices uploaded, and VAT returns.

There are various other challenges relating to e-invoicing such as invoice modification /cancellation /deletion, month-end closing entries, and invoice for advance payment that have been discussed in the webinar.

Requisites of a Good Solution

Listed below are the requirements from a good e-invoicing solution provider,

  1. A good e-invoicing solution should be capable of real-time upload of invoices and getting back validated invoices from ZATCA in real-time.
  2. The e-invoicing solution should be capable of managing large volumes.
  3. Additionally, the e-invoicing solution should be scalable, flexible, and user-friendly.
  4. It is also important for the solution provider to have experience in integrating with APIs.
  5. Real-time upload of simplified tax invoices is also recommended after validation, even though not mandatory.
  6. The solution provider must be capable of providing prompt updates.
  7. Look for available solutions, take demos, weigh the pros and cons and take a quick decision.
  8. Keep in mind that cheap is not always the best.
  9. Take into account data security concerns.
  10. Involve both IT and domain teams in the decision-making process.
  11. Go for a solution that assists in both phases.
  12. The on-premise solution suits large corporates due to the criticality of data.

Steps in Phase II

The steps involved in ZATCA e-invoicing phase II are listed below,

Penalties for e-invoice violations

The violations of e-invoicing have been mentioned below,

  1. Not issuing and saving invoices and notes electronically
  2. Non-compliance with keeping e-invoices and electronic notes according to the specified format
  3. Failure to inform the authority of any malfunctions that hinder the process of issuing invoices and electronic notes
  4. Not including QR code in e-invoice
  5. Including any of the prohibited functions in the e-invoicing
  6. The system used to issue and save invoices electronically
  7. Deleting Invoices or electronic notes, or adjusting them after issuance

Corresponding penalties for these violations,

E-invoicing solution offered by Webtel

The e-invoicing solution offered by Webtel offers seamless integration with all the ERPs and provides both on-premise and cloud-based services that fit all the business requirements. Additionally, our e-invoicing solution is equipped with all the ZATCA e-invoicing updates Webtel excels in providing an integrated solution with different ERPs for an accurate, seamless, and real-time experience.

To know more about Webtel’s KSA e-invoicing solution, visit:- ZATCA e-Invoicing with Webtel

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