Differences Between Phase One and Phase Two of E-Invoicing

Phase One - Generation and Storage (Started December 4, 2021)

Phase One requires taxpayers to generate and store invoices electronically through an e-invoicing system that complies with ZATCA requirements. This phase includes:

• Issuing tax invoices electronically
• Including QR codes on simplified invoices
• Storing invoices electronically
• Complying with basic invoice content requirements according to VAT regulations

Phase Two - Integration and Linkage (Started January 1, 2023)

Phase Two is known as the "Integration and Linkage Phase," and requires additional requirements including:

• Connecting business e-invoicing systems with ZATCA's Fatoora platform
• Issuing invoices in specific formats (XML or PDF/A-3 with embedded XML)
• Sharing invoices with ZATCA within 24 hours of issuance
• Implementing digital signatures on invoices to verify authenticity
• Adding additional fields in electronic invoices for Phase Two
• Ensuring the technical solution is connected to the internet

Differences Between Tax Invoice and Simplified Tax Invoice

Tax Invoice

• Typically issued between businesses (B2B)
• Contains more detailed information
• Includes additional supplier identifier (such as Commercial Registration number)
• Shows product prices before and after VAT
• Displays complete buyer details

Simplified Tax Invoice

• Typically issued between businesses and consumers (B2C)
• Contains simplified information
• Usually shows prices including VAT
• Mandatory inclusion of QR code

Phase Two Requirements for Small and Medium Enterprises (SMEs)

The implementation of Phase Two of e-invoicing began gradually starting January 1, 2023, with expansion to include businesses with lower revenues progressively:

• Beginning of 2024: Companies with annual revenues exceeding SAR 70 million during 2021 or 2022
• Group 18: Businesses with VAT-taxable revenues exceeding SAR 2 million during 2022 or 2023 (integration deadline before August 31, 2025)

Technical Requirements for Phase Two

1. Direct Integration with Fatoora Platform:

• E-invoicing systems must be integrated with ZATCA's Fatoora platform
• Invoices must be transmitted to ZATCA within 24 hours of issuance

2. Approved Invoice Formats:

• XML format
• PDF/A-3 format with embedded XML
• Ensuring format compliance with ZATCA's technical specifications

3. Digital Signature:

• Implementing digital signatures on invoices
• Ensuring integrity and authenticity of transmitted invoices
• Preventing tampering with invoices after issuance

4. Additional Invoice Elements:

• Adding the reason for issuing credit notes (returns from electronic invoices)
• Additional information based on invoice type

Penalties for Non-Compliance with E-Invoicing System

ZATCA has established strict penalties for businesses that fail to comply with e-invoicing requirements:

• A fine of SAR 5,000 for not issuing invoices electronically
• A fine of SAR 5,000 for not storing invoices electronically
• A fine for issuing simplified tax invoices without the required QR code
• A fine for not reporting to ZATCA any technical malfunction that prevents proper issuance of electronic invoices
• A fine of SAR 10,000 for deleting or modifying electronic invoices
• Penalties may reach up to SAR 50,000 according to Article 45 of the VAT Law

Implementation Groups and Integration Deadlines with Fatoora Platform

Businesses have been divided into groups based on their annual VAT-taxable revenues:

Group	Annual Revenue	Integration Deadline
1-9	Above SAR 30 million	Deadline has passed
10	Above SAR 25 million	December 31, 2024
11	Above SAR 15 million	January 31, 2025
12	Above SAR 10 million	February 28, 2025
13	Above SAR 7 million	March 31, 2025
14	Above SAR 5 million	April 30, 2025
15	Above SAR 4 million	May 31, 2025
16	Above SAR 3 million	June 30, 2025
17	Above SAR 2.5 million	July 31, 2025
18	Above SAR 2 million	August 31, 2025
19	Above SAR 1.75 million	September 30, 2025
20	Above SAR 1.5 million	October 31, 2025
21	Above SAR 1.25 million	November 30, 2025
22	Above SAR 1 million	December 31, 2025

Electronic Invoice Contents in Phase Two

Simplified Tax Invoice Contents:

• Invoice header (Simplified Tax Invoice)
• Time and date of invoice issuance
• Sequential number
• Seller information (store name, store address)
• Buyer information (if available)
• QR code
• VAT registration number
• Amount of each product including VAT
• Total taxable amount
• VAT rate and amount
• Total invoice amount (including VAT)

Standard Tax Invoice Contents:

• Invoice header (Tax Invoice)
• Date and time of invoice issuance
• Sequential number
• Seller information (name, address, VAT registration number)
• Buyer information (name, address, VAT registration number if applicable)
• QR code
• Supplier's Commercial Registration number (or other identifier)
• Details of products or services (quantity, unit price before tax, tax rate, tax amount)
• Total invoice price (excluding VAT)
• VAT amount
• Total invoice price (including VAT)
• Reason for issuing credit notes (in case of returns)

How to Choose the Right E-Invoicing System

When selecting an e-invoicing system to comply with Phase Two requirements, consider the following factors:

1. Compliance with ZATCA Requirements

• Support for direct integration with the Fatoora platform
• Ability to issue invoices in approved formats (XML or PDF/A-3)
• Support for digital signatures
• Keeping up with regulatory and legislative updates

2. Data Security and Privacy

• Protection of customer and supplier data
• Encryption of sensitive information
• Data backup capabilities
• Compliance with information security regulations

3. Ease of Use and Technical Support

• Simple and intuitive user interface
• Availability of 24/7 technical support
• Provision of user guides and tutorial videos
• User training on the system

4. Valuable Additional Features

• Ability to customize invoices according to business needs
• Automatic transmission of invoices to ZATCA
• Detailed sales and tax reports
• Easy preparation of tax returns
• Multi-currency support for companies with international operations
• Inventory and procurement management

5. System Integration with Other Applications

• Integration with other accounting systems
• Connection with Point of Sale (POS) systems
• Integration with Customer Relationship Management (CRM) applications

Mezan: The Ideal Cloud Accounting Solution for Saudi E-Invoicing

Mezan is a leading cloud accounting application designed specifically for small and micro businesses in Saudi Arabia. As businesses face the challenge of complying with ZATCA's e-invoicing requirements, Mezan offers a comprehensive solution that simplifies the entire process.

Key Features of Mezan for E-Invoicing Compliance

1. Full Compliance with ZATCA Requirements:

• Complete integration with the Fatoora platform
• Automatic generation of compliant XML and PDF/A-3 formats
• Built-in digital signature capabilities
• Real-time updates to maintain compliance with changing regulations

2. User-Friendly E-Invoicing Interface:

• Intuitive dashboard for managing all invoicing needs
• One-click invoice generation and submission to ZATCA
• Customizable invoice templates for your business brand
• Mobile compatibility for invoicing on the go

3. Comprehensive Tax Management:

• Automated VAT calculations
• Simplified tax return preparation
• Real-time tax liability monitoring
• Complete history of all tax-related transactions

4. Advanced Security and Data Protection:

• End-to-end encryption for all financial data
• Regular automated backups
• Role-based access control
• Compliance with international security standards

5. Seamless Integration Capabilities:

• Integration with point-of-sale systems
• Connection with banking services
• API availability for custom integrations
• Import/export functionality with other business systems

Why Choose Mezan for Your E-Invoicing Needs

• Specifically Designed for Saudi Businesses: Mezan was built from the ground up with Saudi tax regulations and business practices in mind.
• Affordable Plans for Small Businesses: Flexible pricing options that grow with your business, making enterprise-grade compliance accessible to even the smallest companies.
• Exceptional Local Support: Get assistance in Arabic or English from our Riyadh-based support team who understand the local business environment.
• Regular Updates: Mezan continuously updates its platform to accommodate new ZATCA requirements and business features.
• Proven Track Record: Thousands of Saudi businesses already trust Mezan for their accounting and e-invoicing needs.
• Comprehensive Business Solution: Beyond e-invoicing, Mezan offers complete financial management tools including expense tracking, inventory management, and financial reporting.

Mezan Implementation Process

Getting started with Mezan for e-invoicing compliance is simple:

1. Sign Up: Create your account and select the appropriate plan for your business size
2. Setup: Enter your business details and configure your invoicing preferences
3. Training: Access our comprehensive training resources or schedule a personalized session
4. Integration: Connect with the Fatoora platform before your deadline
5. Go Live: Start issuing fully compliant electronic invoices

Our cloud accounting solution can help your business achieve seamless compliance with Saudi Arabia's e-invoicing requirements while streamlining your overall financial management.

Preparation Steps for E-Invoicing - Phase Two

1. Assess Current Situation:

• Determine the business's annual revenue to know the required integration deadline
• Review currently used systems and their ability to comply with Phase Two requirements

2. Choose the Appropriate Solution:

• Evaluate available solutions in the market
• Select an e-invoicing system compatible with Phase Two requirements

3. Training and Qualification:

• Train employees on using the new system
• Fully understand Phase Two requirements

4. Test the System:

• Conduct comprehensive system tests before the integration deadline
• Ensure the integrity of the invoice transmission process to ZATCA

5. Continuous Monitoring:

• Monitor invoicing operations and ensure compliance
• Keep up with ZATCA updates and requirements

Frequently Asked Questions About E-Invoicing Phase Two

1. What is the difference between Phase One and Phase Two of e-invoicing?

Phase One focuses on generating and storing invoices electronically, while Phase Two requires connecting invoicing systems with ZATCA's platform and sharing invoices with the authority.

2. How do I know when my business needs to integrate with the Fatoora platform?

The integration deadline depends on your business's annual VAT-taxable revenue. You can review the implementation groups table above to determine your final integration deadline.

3. What are the approved invoice formats in Phase Two?

The approved formats are XML or PDF/A-3 with embedded XML.

4. Can I use my current accounting system in Phase Two?

You can use your current system if it supports Phase Two requirements and can be integrated with the Fatoora platform. If not, you may need to upgrade or replace your system.

5. What are the penalties for non-compliance with Phase Two requirements?

Penalties range from SAR 5,000 to SAR 50,000 depending on the type of violation and its recurrence.

6. Can I modify an electronic invoice after it's issued?

No, you cannot modify an invoice after issuance. Instead, you must issue a credit or debit note as appropriate.

7. What is a digital signature and how can I obtain it?

A digital signature is a mechanism to ensure the integrity and source of the invoice. It is integrated into the approved e-invoicing system.

Additional Resources and Important References

• Simplified Guide to E-Invoicing Requirements - Zakat, Tax and Customs Authority
• Detailed E-Invoicing Guidelines - Zakat, Tax and Customs Authority
• Fatoora Platform User Guide - Zakat, Tax and Customs Authority
• ZATCA Website - E-Invoicing Section
• Application stages for the second phase of electronic invoicing - Zakat, Tax and Customs Authority website
• Simplified guidance manual - for classification of general violations of Value Added Tax (VAT)