E-invoicing Phase 2 (Integration phase)

Work is currently underway to implement the second phase of the E- invoicing (E-invoicing- Integration phase) in the Kingdom of Saudi Arabia. This phase’s details were shared by Zakat, Tax and Customs Authority (ZATCA) ever since the E-invoicing project, mandatory , was released in 2021. Since Integration phase came into effect and to this date, the Authority published many documents, messages and shared infos through other means of communication to clarify all the regulations and instructions related to the implementation mechanism, to all concerned taxpayers within a previously planned timetable.

Up to this date, ZATCA announced four groups of taxpayers who will be required to integrate their e-invoicing systems with the Fatoora platform, namely:

  • The first group: taxpayers with revenues amounted to/or exceeding SR3 billion for the year 2021, starting from 1/1/2023 until 6/30/2023.
  • The second group: taxpayers with revenues amounted to/or exceeding SR500 million for the year 2021, starting from 7/1/2023 until 12/31/2023.
  • The third group: taxpayers with revenues amounted to/or exceeding SR250 million for the years 2021 and 2022, starting from 10/1/2023 until  1/2/2024
  • The fourth group: taxpayers with revenues amounted to/or exceeding 150 million Saudi riyals for the years 2021 and 2022, starting from 1/11/2023 until  29/2/2024

Compliance and implementation of this phase requires taxpayers to make sure their e-invoicing systems are integrated with ZATCA’s platform, and  they should  apply the configurations  to create electronic invoice in XML files format. and to follow the “Approval Procedure” required by the Authority.  Also,  a daily report for the simplified invoices and related notes should be generated from the software and sent to the Authority.

The second phase may also require amending the procedures used to issue invoices and downtime cases and training employees on how to deal and apply  the new procedures.

Some taxpayers may resort to purchasing special software to address the requirements of the E-invoicing and its amendments for the second phase in case it is impossible to develop their current software due to technical or administrative reasons. Therefore, the time required for the process of selection, contracting, implementation, testing and training, estimated at six months, and this is the period of time corresponds to the timeframe taxpayers have before implementing the second phase.

We estimate that the project contains a lot of technical details, that may vary from one environment to another, and from a software provider to another. These technical details may not be fully clear to the management of the entity, because the exact details have not been previously tested for the same technical and procedural point of view for this project. So, we advise you not to delay the project’s implementation since the deadlines are considered as final and no delays are tolerated. In fact, any delay will confront taxpayers to 2 difficult possibilities: The first option is issuing invoices in violation of e-invoicing requirements, which exposes the taxpayer to non-compliance fines the second option is failure to issue invoices till the technical problems are solved. This option is not acceptable at all, not to mention the delay in revenue recognition and collection, and other wrong accounting and administrative practices. This is simply the worst scenario any entity’s management and its IT department can face. This scenario will lead to a negative impact and pressure that no employee or manager can handle, especially since there are no intermediate solutions: either you apply the procedure correctly, either you do not! Besides, we think that it is not possible to hold the entity’s technical team or the software’s vendor responsible, if you do not give them enough time for the project with the addition of spare time for any circumstances or cases beyond their control, such as technical, administrative, and logistical matters.

The environment of the entity must also be considered, as there are several factors affecting its complexity, including, but not limited to, the multiplicity of the software’s issuing invoices and related notes, these software’s life span, software vendors, and the internal administrative procedures affecting decision-making. The more these factors increase in the entity, the more time becomes necessary, the bigger work team becomes required. This also increases the budget needed, and urges to assign of a special project manager for the project and an owner (sponsor) for the project to ensure its success and its implementation on time.

At Andersen in Saudi Arabia, we insist on calling every taxpayer to launch the implementation of the second phase of E-invoicing (integration phase ) through its IT department’s employees or through an external consultant; in cooperation with the internal team. We also stress the need to follow the standard practices used in the implementation of such projects due to their importance and impact on the entity’s financial position and its relationship with Zakat, Tax and Customs Authority.