ZATCA e-Invoicing Phase 2: Saudi Arabia Applicability, Rules, and Regulations

In Saudi Arabia (KSA), e-Invoicing was implemented as a continuation of the country's economic revival and digital transformation. This approach will help increase consumer protection and decrease hidden economy transactions, both of which are desirable outcomes.

The standards, technical specifications, controls, and procedural regulations for implementing phase 2 of e-invoicing in SA were published by the Zakat, Tax and Customs Authority (ZATCA) or Authority. Additionally, it released data dictionaries for Phase 2 as well as XML implementation guidelines that will take effect on January 1st, 2023.

The crucial thing to keep in mind is that, in accordance with the rules, once an invoice is generated using this system of electronic invoicing, it cannot be changed or updated. Any time there is a modification, the original invoice must be referenced in a debit note or credit note that is issued. Additionally, a scanned copy of the actual invoice won't qualify as an electronic invoice.

Saudi Arabia's e-Invoicing process in stages – Phase 1 and Phase 2

ZATCA released the electronic invoicing regulation on December 4, 2021, bringing e-invoicing to South Africa. Additionally, it intended to introduce electronic invoicing in two stages, namely phases 1 and 2.   
Phase 1 will begin on December 4, 2021. During this phase, taxpayers are required to use compliant e-Invoicing generation solutions to generate and retain tax invoices, simplified tax invoices, and corresponding CDNs (EGS).

When ZATCA Phase 2 Launch?

Phase 2 will be put into action on January 1st, 2023. During this phase, the taxpayer's system must be integrated with ZATCA, and e-invoices and associated CDNs must be shared with ZATCA. The ZATCA will implement Phase 2, notifying the requirements for the resident taxpayers and their implementation date, which will be no later than January 1, 2023.

How to Prepare for ZATCA e-Invoicing Phase 2

On May 28, 2021, ZATCA published the phase 2 regulations, which included both phase 1 and phase 2 requirements. The conditions outlined in phase 2 of e-invoicing will, however, be evaluated and changed if necessary, according to ZATCA. As a result, on June 24, 2022, ZATCA modified and published the final phase 2 regulations.

The following factors need to be taken into account in order to prepare the company for phase two:   

• The system of the taxpayers should be able to link with external systems, provide a Universally Unique Identifier and digital signature, and be able to comply with all ZATCA criteria because this phase will have greater technological requirements. The system needs to have anti-tampering features most of all.
• Make sure everyone is properly trained to use the software in accordance with the instructions because most firms have more than one person managing the accounting department.
• When new requirements are released, developers and subject matter experts can keep up with them by periodically visiting the ZATCA website.

Following are some functionalities that are forbidden for deployment in phase 2:

While revising the Phase 2 regulations, ZATCA took into account the taxpayers comments who took part in the phase 2 e-invoicing pilot testing program. Additionally, it showed a few adjustments to ZATCA's IT model.

The ZATCA made the following few significant adjustments to the data dictionary and XML implementation standards:   

• The data fields were changed to include obligatory, conditional, and optional fields.
• Modified the business guidelines for XML invoice validation
• Revisions were made to the ZATCA's procedure for authenticating the taxpayer's EGS.
• A Value Added Tax (VAT) identification number's division into a Group VAT number and an Individual VAT number was removed.
• Phase 2 must include all of the phase 1 features that were disallowed.
• Stamping key export.
• Time progresses.

Under the first wave of the phase 2 e-invoicing regime, the authority began alerting taxpayers of the phase 2 regulations. Additionally, it is anticipated that ZATCA would inform the subsequent waves based on the taxpayer's turnover as well as the dates for phase 2 implementation.

Business Effects of e-Invoicing Phase 2 in KSA

Businesses in Saudi Arabia that are registered for VAT and had taxable supplies worth more than SAR 3 billion in 2021 must begin using Phase 2 of e-invoicing on January 1st, 2023. Additionally, non-compliant companies will face penalties under the VAT regulations.

Businesses that are relevant should follow the ZATCA's announcement regarding their obligations under the phase 2 regulations. Additionally, they must take the necessary actions to alter their business and information technology landscapes.

Solution for ZATCA E-Invoicing Phase 2 in Saudi Arabia

For Magento stores, AALogics offers a ZATCA-compliant e-invoicing extension. This Adobe Commerce plugin allows you to generate QR codes, create invoices in a certain format, store E-invoices, and has anti-tampering capabilities. You don't need to be concerned about any modifications to the rules or specifications because AALogics extension has been thoroughly updated to comply with ZATCA e-invoicing standards and is made with user-friendliness in mind.