What is Electronic Invoicing?

Electronic invoicing is defined as the process of exchanging financial documents between commercial parties in a structured digital format, without the need for paper or manual intervention. This system allows companies to produce, process, and archive invoices using advanced technologies that ensure data integrity and facilitate financial auditing and oversight processes.

Electronic invoicing is considered part of the comprehensive digital transformation in the financial and commercial sector, contributing to improving supply chain efficiency and reducing operational costs for establishments. It also plays an important role in combating tax evasion by providing real-time monitoring mechanisms for financial transactions, thereby enhancing economic transparency and helping governments improve their tax revenues and develop data-driven financial policies.

Phase 2 of Electronic Invoicing

Phase 2 of electronic invoicing represents an advanced step toward direct integration with the tax system, having been effectively launched in January 2023 to cover a broader scope of commercial establishments in the Kingdom. This phase is characterized by introducing the concept of "connected invoicing" which requires establishments not only to issue electronic invoices but also to connect them directly with the government Fatoorah platform to ensure real-time monitoring of commercial transactions.

This phase covers a wide spectrum of economic sectors including trade sectors in both retail and wholesale, the diverse services sector comprising professional and consulting services, in addition to the contracting and construction sector. It also includes all company sizes from large to medium and small, confirming the Kingdom's desire to implement a tax system that includes everyone and increases commitment to paying taxes and reduces tax evasion in all sectors.

Importance of Electronic Invoicing

Electronic invoicing carries great importance in modernizing the commercial and economic environment, contributing to achieving a comprehensive qualitative leap that includes all aspects of commercial work. The benefits of this system go beyond just moving from paper to digitization, reaching operational efficiency improvement, transparency enhancement, and providing accurate data that supports strategic decision-making. The following are the most prominent aspects highlighting the importance of electronic invoicing:

• Monitoring and Transparency: Real-time monitoring and tracking of commercial transactions and reducing tax evasion through a strict monitoring system
• Procedural Efficiency: Simplifying the invoice issuance process and reducing human errors that may occur in traditional systems
• Compliance and Benefits: Ensuring compliance with legal requirements and benefiting from incentives provided to compliant establishments
• Data and Analytics: Providing accurate and reliable data that supports decision-making processes and improves commercial performance
• Competition and Innovation: Enhancing the competitive capability of establishments and encouraging the development of innovative technical solutions in the market

Specific Dates for Implementing Phase 2 of Electronic Invoicing

The implementation of Phase 2 of electronic invoicing has been divided into graduated groups based on the annual revenue size of establishments, starting with larger establishments and gradually moving down to smaller ones. This graduation aims to ensure smooth and effective system implementation while giving establishments sufficient time to prepare and comply. The following is the updated timeline for connection dates with the Fatoorah platform:

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

Phase 2 Electronic Invoice Compliance Requirements

Phase 2 of electronic invoicing requires several basic requirements including registration on the Fatoorah platform, obtaining digital signature certificates, updating invoicing systems to support direct connection with government entities, in addition to training employees on the new system. To facilitate this process and ensure full compliance, it is highly recommended to use accounting software approved by the Zakat, Tax and Customs Authority, as these programs provide all necessary technical and security requirements and handle connection and integration operations automatically, saving establishments time and effort and ensuring proper compliance with regulations without technical complications.

Frequently Asked Questions

1. What are the penalties for non-compliance with Phase 2?

Penalties range from financial fines starting from 1,000 SAR and reaching up to 50,000 SAR depending on the violation size and repetition, in addition to the possibility of suspending government services for the establishment in cases of continued non-compliance.

2. Can the Phase 2 compliance deadline be postponed?

The specified deadlines for each group cannot be postponed, but establishments can contact the Zakat, Tax and Customs Authority in case of documented exceptional circumstances that prevent compliance by the specified deadline.

3. How do I know which group my establishment belongs to?

The group is determined based on the establishment's total annual revenue as recorded in tax returns, and this can be verified through the Fatoorah platform or by contacting the Authority directly.

4. What is the difference between Phase 1 and Phase 2 of electronic invoicing?

Phase 1 only requires issuing and storing invoices electronically, while Phase 2 requires direct connection with the Fatoorah platform and sending invoices immediately upon issuance to government entities.

5. Does Phase 2 apply to all types of invoices?

Yes, it applies to all tax invoices and simplified invoices, but there are specific exceptions for some special transactions that can be reviewed in the technical guide issued by the Authority.

Conclusion

Phase 2 of electronic invoicing represents an important step in Saudi Arabia's digital transformation journey, aiming to improve financial transparency, combat tax evasion, and develop the business environment. With the gradual implementation of the system across different categories of establishments based on their revenue size, companies get adequate opportunity to prepare and comply with new requirements.

Success in implementing Phase 2 requires a clear understanding of requirements and specified deadlines, in addition to choosing appropriate technical solutions. Using accounting software approved by the Zakat, Tax and Customs Authority is considered the optimal choice for ensuring full compliance and avoiding technical complications, enabling establishments to focus on their core business without worrying about the technical aspects of electronic invoicing.

Ultimately, electronic invoicing is considered an investment in the future of business rather than just a legal obligation, as it contributes to improving operational efficiency, reducing costs, and enhancing trust with customers and business partners.