ZATCA E-Invoicing Case Study

The first phase of ZATCA's e-invoicing implementation, which began in December 2021, focused on the generation of electronic invoices. During this phase, businesses were required to transition from traditional paper-based or semi-digital invoicing systems to fully digital formats. This transition aimed to ensure that all invoices were compliant with the basic standards set by ZATCA.

Generation of Electronic Invoices phase, where Persons subject to the E-Invoicing Regulations must generate Electronic Invoices and associated Electronic Notes in accordance with the clauses set forth under the Resolution on the Controls, Requirements, Technical Specifications and Procedural Rules and any subsequent resolutions. However, the first phase did not yet require direct integration with the ZATCA platform. Businesses were expected to ensure the correct storage and generation of invoices that included all the necessary details, such as the VAT amount and business information, in a digital format. The key goal of this phase was to get businesses accustomed to the new invoicing standards.

• Digital generation of invoices with all essential fields.
• Mandatory electronic storage of invoices for easy retrieval and audit purposes.
• Preparation for future integration with ZATCA systems.

Key Features:

The Generation Phase marked the foundational step in Saudi Arabia’s e-invoicing journey. Businesses were required to transition to generating electronic invoices and credit/debit notes that adhered to ZATCA standards.

• Structured Format:

  - E-invoices had to be generated in a structured electronic format (XML or PDF/A-3 with embedded XML). This excluded scanned paper invoices from compliance.
  - Inclusion of mandatory fields such as VAT amount, seller information, and invoice reference number.

• Secure Archiving:

  - Businesses were required to electronically store invoices in a manner that ensured authenticity, integrity, and readability for ZATCA audits.
  - Data hashing was introduced to prevent tampering.

• Simplified E-Invoices for B2C:

  - Simplified invoices were required for point-of-sale transactions. These included a QR code to enable easy verification by consumers.

Implementation:

• Transition to Digital Solutions:

  - Businesses adopted electronic invoicing solutions compliant with ZATCA guidelines.
  - These solutions were required to generate invoices in formats such as XML or PDF/A-3, ensuring compatibility with future integration phases.
  - Vendor-provided tools and certified systems were key to enabling smooth transitions.

• Adherence to Compliance Standards:

  - Each invoice was required to include mandatory fields like VAT amount, seller details, and invoice reference number.
  - Proper storage protocols ensured data could be retrieved for audits or disputes.

• Focus on Education and Training:

  - ZATCA provided educational materials and webinars to help businesses understand the requirements.
  - Businesses conducted internal training to familiarize staff with new systems and processes.

• Testing and System Optimization:

  - Pilot testing of systems ensured invoice generation aligned with ZATCA’s standards before full implementation.
  - Businesses worked with solution providers to troubleshoot any issues during the early adoption phase.

• Compliance without Integration:

  - Although there was no real-time connection to ZATCA, businesses were required to maintain system readiness for the integration phase.
  - Continuous monitoring and manual reporting practices were adopted for maintaining accuracy in operations.

Illustrative diagrams for Generation Phase

The second phase, which was implemented in January 2023, marked a significant leap in the digital transformation of Saudi Arabia's tax system, where Persons subject to the E-Invoicing Regulations must integrate their systems with the Authority׳s system in accordance with the clauses set forth under the Resolution on the Controls, Requirements, Technical Specifications and Procedural Rules and any subsequent resolutions. The integration phase will be implemented in phases and will be mandated to Persons subject to the E-Invoicing Regulations based on a certain set of criteria determined by the Authority The target groups will be informed of the integration procedures with the authority׳s systems at least six months before the date set for integration with the target group or groups. This phase made it mandatory for businesses to integrate their invoicing systems with ZATCA’s Fatoora platform. This real-time integration was a crucial step to ensure seamless tax reporting and compliance.

The ZATCA Phase 2 Integration is divided into two main components: B2B (Business-to-Business) and B2C (Business-to-Consumer). Each component focuses on different aspects of the e-invoicing system to address the varying needs of businesses and consumers.

• Real-time reporting for both B2B (Business-to-Business) and B2C (Business-to-Consumer) transactions.
• UUID (Universally Unique Identifier): Ensures invoice traceability.
• Enhanced requirements for restaurants and other sectors.