Which Entities Benefit from Wazen’s Integration and Connectivity System for Phase Two of E-Invoicing?

The Integration and Connectivity System for Phase Two of E-Invoicing is an extension of Phase One, which was implemented in the Kingdom of Saudi Arabia and achieved significant success. It is worth noting that joining Phase Two requires compliance with the requirements set by the Zakat, Tax and Customs Authority (ZATCA). Therefore, through this article, we will explore these requirements in detail, in addition to discussing the entities that will benefit from this phase, as they are divided into four different groups based on their criteria and requirements.

What Is an E-Invoice?🔗

An e-invoice is an official document that records completed sales and purchase transactions. It can be easily submitted to the relevant authority through the platform once the invoicing system is connected to it. It is worth noting that invoices must be generated through accounting software approved by the Authority for the invoice to be recognized and approved by the Authority.

Which Entities Benefit from Wazen’s Integration and Connectivity System for Phase Two of E-Invoicing?🔗

All entities that were subject to Phase One of the e-invoicing system are eligible to join Phase Two. Therefore, the Authority will send notifications to the relevant companies six months before the new system implementation date. It is worth noting that the targeted entities and companies are those with revenues exceeding SAR 3 billion and are subject to Value Added Tax (VAT). Therefore, the beneficiary entities have been divided into four groups, as explained below:

Group One🔗

All companies whose VAT-subject revenues exceeded SAR 5 billion in 2021 will be subject to the new system from June 1 to June 30, 2023.

Group Two🔗

Companies with revenues exceeding SAR 500 million in 2021 fall under this group. The system will be implemented from July 1 to December 31.

Group Three🔗

Companies with revenues exceeding SAR 250 million in 2021 or 2022 will be subject to the e-invoicing system, which will be implemented starting October 1, 2023.

Group Four🔗

This group applies to companies whose revenues exceeded SAR 150 million in 2021 or 2022. The system will be implemented starting November 1, 2023.

Phase Two E-Invoicing Requirements🔗

To benefit from Phase Two of e-invoicing, the following requirements must be met:

• The entity must be connected to the Internet and have the technical capabilities required to join Phase Two.
• The entity’s e-invoicing system must be connected to the Zakat, Tax and Customs Authority.
• The ability to issue e-invoices in either XML or PDF/A-3 format with embedded XML.
• Entities must be technically and technologically prepared to comply with Phase Two e-invoicing requirements.
• Cybersecurity and data security requirements approved in the Kingdom of Saudi Arabia must be implemented.
• The company’s system used to connect with the Authority must be tamper-resistant and must not allow manipulation of issued invoices.
• You can use Wazen to meet the requirements of Phase Two and issue e-invoices.
• Electronic signatures must be applied to invoices to verify their authenticity and the identity of the sender.
• International standards related to e-invoicing must be applied.
• Invoices must comply with Saudi tax regulations, in addition to complying with financial reporting requirements.

Electronic Systems Required for Phase Two of E-Invoicing🔗

Through Wazen, we can identify the electronic systems that each company must have from a technical perspective as follows:

Having an application through which invoices can be issued and stored on smartphones and tablets.
Having a dedicated device for recording all cash payments.
Having a cloud-based software system through which e-invoices can be issued and stored.
You can contact us to learn more about the requirements that will help you connect your system with the Authority.

Phases of Implementing Phase Two of E-Invoicing🔗

Implementing e-invoicing requires going through several steps, as outlined below:

Analyzing and Evaluating Local Laws and Regulations: Saudi laws and regulations governing the e-invoicing system must be understood and analyzed to ensure that invoices are issued in accordance with them.
Identifying Technical Requirements: This includes establishing a system for storing invoices, electronic signatures, security, invoice formatting, and other technical specifications related to the new invoicing system.
System Development: This involves designing and developing the user interface, in addition to building an integrated database system that works with the other systems within the entity.
System Testing: One of the most important stages that every company should undertake to ensure that the system is functioning properly and safely.
Training and Education: All employees authorized to directly handle the e-invoicing system must be properly trained.
Implementation and Monitoring: Continuous monitoring of the system’s performance and ensuring its compliance with local Saudi regulations.

How the Phase Two E-Invoicing System Works🔗

After learning which entities benefit from Wazen’s Integration and Connectivity System for Phase Two of E-Invoicing, we find that implementing Phase Two requires companies to follow a specific workflow, as explained below:

Issuing the Invoice🔗

The e-invoicing system is set up to issue invoices that comply with the requirements and regulations of the Zakat, Tax and Customs Authority, after which they are submitted to the Authority’s electronic platform.

Invoice Validation🔗

The Authority reviews the invoices submitted to verify the accuracy of their data before approving them and sending them back to the issuing party. If any data is missing or there are discrepancies in the information, the sender is notified so that the required amendments can be made and the invoice can be resubmitted to the Authority.

Sharing the Invoice with the Buyer🔗

The seller must send a copy of the e-invoice to the buyer, either by email or through any other agreed-upon method.

Storing the Invoice🔗

Both parties, whether the seller or the buyer, must retain these e-invoices for a minimum of five years.

Electronic Invoice Elements According to the Additional Fields in Phase One and Phase Two

An e-invoice that complies with Phase Two requirements includes essential elements, which we explain in detail below:

Tax Invoice🔗

A tax invoice is an invoice used to complete commercial transactions between individuals or companies. It should include information that complies with the instructions of the Zakat, Tax and Customs Authority, as outlined below:

The invoice title, which is “Tax Invoice.”
Invoice number.
Issue date.
Seller’s name, Tax Registration Number, and Commercial Registration Number.
Buyer’s name, Tax Registration Number, address, and Commercial Registration Number.
A detailed description of the goods or services provided, including quantity, type, unit price, tax amount for each item, and the total value of the goods excluding tax.
The total unit price after adding tax.
Total invoice amount.
Value Added Tax (VAT).
Discounts or additional charges.
QR Code.

Simplified Tax Invoice🔗

A simplified version of tax invoices for commercial transactions whose value does not exceed SAR 3,000. Therefore, some information may be omitted, as explained below:

The invoice title, “Simplified Tax Invoice.”
Simplified tax invoice number.
Issue date.
Seller’s or company’s name.
VAT Registration Number.
Company address.
Buyer’s name (optional).
A detailed description of the goods or services provided to the buyer.
Total invoice value before adding VAT.
VAT amount added to the total invoice.
QR Code.

Importance of Implementing Phase Two of E-Invoicing:🔗

Implementing the new e-invoicing system has a positive impact on the Saudi economy, as explained below:

• Saving the time and effort required to complete procedures and transactions.
• Making it easier to detect manipulated invoices through the use of specific systems.
• Ensuring transparency when dealing with all customers and citizens in the Kingdom of Saudi Arabia.
• Establishing a unified system for recording and auditing invoices for all targeted companies, thereby improving operational efficiency.
• Protecting the environment by using electronic systems to issue e-invoices instead of using paper invoices and subsequently destroying and disposing of them.
• Reducing administrative expenses.
• Building a diversified Saudi economy that does not rely solely on petroleum products.

Penalty for Failure to Comply with Phase Two of E-Invoicing🔗

Entities that fail to implement Phase Two will be subject to financial penalties, with the penalty amount determined according to the type of violation, as explained below:

Failure to issue an e-invoice will result in a penalty of SAR 5,000.
Failure to store the invoice electronically will result in a penalty of SAR 5,000.
A warning and penalty will be issued when an invoice is issued without a QR Code.
If a system failure prevents the electronic issuance of an invoice and the Authority is not notified, the targeted entity will be fined after receiving an initial warning.
Making amendments to or deleting data from an e-invoice will result in a penalty of SAR 10,000.

Frequently Asked Questions About the E-Invoicing System in the Kingdom🔗

The implementation of the e-invoicing system has raised many questions, particularly after learning which entities benefit from Wazen’s Integration and Connectivity System for Phase Two of E-Invoicing. Below, we highlight some of these questions:

How Can Companies Benefit from the E-Invoicing System in the Kingdom?🔗

Implementing the new system provides companies with the following benefits:

Simplifying accounting processes and financial reporting.
Reducing the cost of printing and storing paper invoices.
Obtaining accurate financial data.
Improving the company’s workflow and enabling faster invoice payments.
Complying with the Value Added Tax regulations applicable in the Kingdom of Saudi Arabia.

How Do I Know When Phase Two E-Invoicing Integration Will Apply to My Business?🔗

You will receive a notification from the Zakat, Tax and Customs Authority six months before the implementation date, according to the applicable group.

How Do Wazen’s Systems Comply with Phase Two Invoice Requirements?🔗

Wazen has worked to provide systems that comply with the requirements of the Authority in Saudi Arabia, while also meeting merchants’ needs, enabling them to manage their business activities in accordance with the e-invoicing system.

How Can I Confirm That My Cloud System Has Been Successfully Connected to the Authority?🔗

The Zakat, Tax and Customs Authority has provided a list through which users can identify the software and solutions that help connect their systems to the Authority’s system. In addition, specialized technical support for the e-invoicing system is available to inspect the system and verify that it has been successfully connected to the Authority.

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