How Phase-1 of e-Invoicing System Work?

Yarab A | Updated on: December 17, 2024

The Zakat, Taxation and Customs Authority (ZATCA) plays a key role in the introduction of e-invoicing in Saudi Arabia. Established to spruce up tax compliance and streamline budgeting, ZATCA has mandated a shift from traditional to electronic taxation (e-invoicing) as a comprehensive approach to the country’s tax system is part of the modernization Widespread e-invoicing is huge for companies , as it forces a shift towards efficiency, transparency and regulation additional controls on financial token transactions The website will allow people to understand the first phase of the e-invoicing process, known as the generation phase, which began on December 4, 2021.

Best e-Invoicing (Fatoora) Software in Saudi

Date and Implementation Phases of e-invoicing (Fatoora) in Saudi

Understanding Phase 1: Generation of E-Invoices

In the first or generation phase, businesses are required to electronically prepare and store tax returns. This section is designed to help businesses transition from manual to digital invoicing, ensuring all payments comply with ZATCA regulations This section requires businesses to implement an e-invoicing system capable of compliant structured electronic payments meet the specific requirements set by ZATCA.

Key Requirements

To ensure phase one compliance, companies must meet several mandatory requirements:

Format Compliance: Invoices must be generated in a structured electronic format, typically XML or PDF/A-3 with XML.

Mandatory fields: Each invoice must include the required information, e.g.
Details of seller and buyer (name, address, VAT number).
Invoice Date
Description of products/services offered
All amounts due including VAT
Unique Invoice Identifier (UUID).

QR code inclusion: While optional for B2B transactions, QR codes are mandatory for Business-to-Consumer (B2C) transactions to facilitate quick authentication.

Digital Signature: Invoices should have a digital signature to ensure authenticity and authenticity.

Timeline for implementation

The first phase officially kicked off on December 4, 2021, and required businesses to comply with this rule by creating and storing electronic invoices. It is not necessary to include ZATCA in plans at this time; However, the groundwork for the next phase of integration, which began on January 1, 2023, was laid.

How phase-1 of e-invoicing system work

In the first phase, called the generation phase, the critical requirement is that the business uses e-invoicing software or a solution that complies with the e-invoicing requirements and specifications issued by the authority.

In this phase, you need to generate an e-invoice using business software or other electronic means and issue it to the seller. The only thing that businesses need to ensure is that invoice consists of all mandatory components like TRN number, QR code in case of simplified invoice etc. Adding of QR code is compulsory for Simplified invoices and tax invoices. It is optional. Let’s understand this with an illustrative workflow

The above illustrative diagram on e-invoice system is explained below:

The seller generates e-invoice through a complaint e-invoice system which can be ERP software or any other electronic system

The e-invoice generated should include all the mandatory details of the invoice. The mandatory details e-invoice will have the same requirements as the current invoice specified in VAT law and regulations

The additions in the e-invoice are buyers VAT registration number for tax invoices and QR code on simplified invoices

Once an e-invoice is generated, the seller stores the invoices in the same e-invoicing system.

The buyer receives a copy of the e-invoice

In case if it is a simplified invoice, the QR code printed on the e-invoice should be scannable

Compliance Checklist for Phase 1

To help businesses ensure they meet all requirements for Phase 1 compliance, here’s a handy checklist:

 Generate invoices in XML format.

 Include mandatory fields such as:

VAT numbers

Timestamps

Seller and buyer information

 Ensure QR code inclusion where applicable (mandatory for B2C).

 Implement digital signatures for authenticity.

 Store and archive all electronic invoices securely.

Businesses can download this checklist in PDF or Excel format for easy reference.

Challenges and Solutions

Challenges

As companies transition to Phase I e-invoicing, they may face several challenges:

Integration with existing systems: Many companies are struggling to adapt their current payment systems to the new e-invoicing rules.
Data Security: Ensuring the proper handling of sensitive financial information can be difficult.
Paper-to-digital transition: The transition from traditional invoices to digital formats can create operational challenges.

Solution

To meet these challenges, companies can consider the following practical solutions.

Check with certified solution providers: Working with experienced e-invoicing solution providers can facilitate a smooth transition.
Ask ZATCA for help: Companies should not hesitate to contact ZATCA for compliance and best practice guidance.
Invest in training: Training employees on new policies can improve overall performance to support the change process.

Choosing E-Invoicing Solution Providers or How TallyPrime Helps/Supports

Though defining e-invoicing solutions for employers there are several criteria, key companies should follow:
• Security Features: Ensure that the company offers solid security features to movie sensitive information.
• Compliance Capabilities: The solution should be fulfilled by all ZATCA requirements for e-invoicing.
• Ease of Integration: Search for solutions that may integrate well with the existing accounting or ERP systems.

How TallyPrime Supports E-Invoicing

TallyPrime is a great e-invoicing solution which helps organizations comply with ZATCA guidelines effectively. This includes features such as:
• Instantly generate compliant e-invoice.
• Secure storage and archiving all invoices.
• Automatic entry fields and QR codes.
• User-friendly interface in which invoice management is simplified.

The 1st stage of e-invoicing in Saudi Arabia is a considerable advancement in developing financial transactions in the Kingdom. Compliance with this phase will serve as a prerequisite for more complex requirements in phase two. All businesses should stay in tune with ZATCA updates and prepare for other regulatory changes. The businesses that will adopt e-invoicing will now easily improve their operating efficiencies and future-proof themselves with the dynamic changes in tax.