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e-Invoicing in Saudi Arabia comprises two phases; phase 1 which is the generation phase and phase 2 which is the integration phase. According to all applicable resolutions set forth by the Authority for the phase 2 implementation , taxpayers who are subject to e-invoicing regulations must perform integration between the Zakat, Tax, and Customs Authority, with their system. These include the requirements, technical specifications, controls resolutions, and procedural rules.
The 2nd phase of e-invoicing will be implemented in a phase-wise manner from 1st January 2023. The first wave is applicable to businesses with revenue exceeding 3 billion from 1st January,2023. The second phase will apply to businesses with revenue exceeding 500 million in FY 2021 from 1st July,2023.
The key requirements for B2B invoices and the key requirements for B2C invoices are as below.
A B2B invoice must be generated when transactions between business entities occur whereby one business is supplying goods or services to another business. It is the buyer’s responsibility to request a tax invoice from the seller for input VAT deduction purposes. The tax invoice will help the business that is buying to get a refund or accurately pay the VAT incurred on the supply. The invoice must contain mandatory fields such as the buyer and seller information among others.
The software solution used by the taxpayer must be able to connect to the internet without any issues. This is required because the invoice must be cleared by the e-invoicing portal in the 2nd phase of e-invoicing. Additionally, the software solution must have the ability to share invoices in real time with the e-invoicing integration portal for clearance purposes. Clearance applies to every e-invoice and the credit and debit notes associated with them. In the clearance process, the invoice is validated, and once approved it is stamped and then returned to the taxpayer.
The software system must be capable of generating a QR code for every invoice generated. When the invoice is sent to the e-invoicing integration portal, the QR code is updated as part of the clearance process. This is the QR code that is printed on the invoice that the buyer receives The QR code contains information such as the seller’s name, his VAT registration number, the timestamp of the invoice, invoice total, VAT total, and cryptographic stamp. The cryptographic stamp is applied by the e-invoicing integration portal for security and integrity.
A B2C invoice is also known as the simplified invoice because oftentimes the information of the customer is not included in the invoice. In certain cases, such as medical services and educational services, the customer’s data must be mandatorily included in the invoice because these services are subject to tax. The tax is paid by the authority as some of these fall under the zero-rate VAT supplies.
The key requirements for B2C invoices are as follows:
The software system must be compliant and should be registered on the e-invoicing integration portal with the help of the unique device ID. This is part of the security and integrity requirements for the 2nd phase of e-invoicing. It is recommended that you ensure the solution is registered before using it to generate B2C invoices.
For the B2C transactions, the QR code generated must have additional information for the second phase of e-invoicing as specified by the Authority. The cryptographic stamp must be generated by the software system as mandated per the 2nd phase of e-invoicing regulation. This is not visible on the invoice printed but it is embedded in the QR code.
The software solution must be able to connect to the internet for simplified e-invoice reporting purposes. The solution should allow every invoice to be uploaded to the e-invoicing integration portal via the API whenever the internet connection is available. As clearance is not required, real-time reporting is not mandatory although it must be done within a specified period as specified by the ZATCA.
The e-invoices can be shared with the customer instantly as there is no clearance required like in the case of B2B invoices. However, the invoice generated must be shared with the e-invoicing integration portal within 24 hours of issuance. In reporting, the simplified electronic invoices are ensured to be valid and an acknowledgment via the API is sent back to the taxpayer.
The key system requirements that must be available for generating both B2B and B2C invoices in the 2nd phase of e-invoicing are as follows.
B2B and B2C invoices must be generated electronically using a software system. Paper invoices that have been scanned through electronic devices are not considered electronic invoices as they were originally written on paper. Only electronic invoices that were generated using a software system and then printed for the buyer are considered e-invoices with the mandatory fields as specified by the authority.
The invoices must be generated in XML format and if they are generated in PDF format PDF/A3 then they must be generated with embedded XML. The invoices must contain all the mandatory fields as per the integration phase regulations. For B2B invoices, the additional mandatory fields are QR code, invoice taxable amount, additional seller ID, and subtotal exclusive and inclusive of VAT at the line-item level. For B2C invoices, the additional mandatory field is the subtotal which is inclusive of VAT at the line-item level.
The standard e-invoices and simplified e-invoices must contain Universally Unique Identifiers (UUIDs) and these need to be generated by the software system used by the taxpayer. These set every invoice apart from the rest and they are also called Global Unique Identifiers or GUIDs for this reason. The UUID can be tracked and it is not visible on the invoice. Similarly, the invoice hashes must be generated by the software even though they are not visible on the invoice. A hash is similar to a digital footprint.
Every invoice generated must be archived as per the VAT rules and regulations. The Authority must be able to access the archived invoice at any point. For example, if the data is stored on a cloud, then a link must be provided so that the Authority can get direct access when required. Every invoice stored must have the following: the VAT registration or the tax registration number, the timestamp, and the invoice reference number.
The ZATCA has mentioned the prohibited functions that a system must not have when generating invoices in the second phase. The software must not allow timestamp changes during the issuance of e-invoice or credit note or debit note. The stamping keys should be prohibited from being exported. Another prohibited function is the non-sequential invoice generation whereby the sequence is random. Even in the case of invalid e-invoice generation, the sequence must be retained to ensure continuity as per the e-invoicing regulations.
A taxpayer needs to follow the phase 1 or generation phase requirements until it is time to implement the second phase of e-invoicing.
TallyPrime has been ZATCA qualified which means it is a compliant e-invoicing software that can be used to generate B2B (or standard invoices) and B2C (or simplified invoices) in the 1st phase of e-invoicing. Taxpayers can use separate software for generating invoices in B2B and B2C but with TallyPrime you can perform simple invoicing with one software as it is compliant for generating both types of invoices. It supports e-invoices, credit notes, debit notes, and POS invoices as well. You can generate the e-invoicing report to view all e-invoicing tasks. It comes with high-security features too. Soon, TallyPrime will be enhanced to support the 2nd phase of e-invoicing. Switch to TallyPrime and be ready for 2nd phase of e-invoicing in Saudi.