ZATCA E-Invoicing Phases in Saudi Arabia
ZATCA non compliance penalty and the shift to E-Invoicing in recent years has marked an important topic for various sectors in the Kingdom. Under the E-Invoicing law, invoicing has been exclusively regulated to be electronic, adhering to the instructions via its dedicated Fatoora platform.
The E-Invoicing system launched by ZATCA has been implemented in two fundamental phases. While the first phase, known as the ” The Generation Phase”, served as the starting point by mandating businesses to issue invoices electronically, the second phase, known as the “The Integration Phase”, was introduced to be more comprehensive in terms of technical requirements and technological obligations.
ZATCA Integration – E-invoicing Phase 2
In the same context, the non compliance penalty with ZATCA has become one of the major concerns for required taxpayers in the Kingdom. This is due to the significant financial and operational impact it may cause, along with the obstacles that can disrupt business continuity for companies that have not yet complied with ZTACA’s e-invoicing requirements in Saudi Arabia.
E-Invoicing Phase Two: Key Features
Phase Two is officially known as the “Integration Phase”. This phase mandates obligated businesses to directly integrate their internal systems with ZATCA’s Fatoora platform. Unlike Phase One, which focused primarily on the electronic generation of invoices, Phase Two; the Integration Phase involved the announcement of specific technical requirements for businesses and the organized implementation of E-Invoicing in Saudi Arabia into waves based on the businesses’ annual revenue subject to Value Added Tax (VAT).
Key Requirements of Phase Two:
- Integration of the accounting system, financial system, or Point-of-Sale (POS) system with ZATCA.
- Submitting invoices in the format of XML or PDF/A-3.
- Ensuring that all invoices comply with ZATCA’s E-Invoicing standards.
- Including the QR Code and essential invoice identifiers.
- Including the Cryptographic Stamp to ensure the authenticity of the invoice source.
- Retaining the invoices and their data in the approved technical format, according to the invoice type (Tax Invoice or Simplified Tax Invoice).
These requirements have made compliance with Phase 2 harder, as it necessitates a well-equipped technical infrastructure and a specialized team capable of understanding the integration standards, or implementing a ZATCA compliant E-Invoicing system with Phase One and Phase Two.
Why is Phase Two Mandatory for Businesses in KSA?
ZATCA did not implement Phase Two all at once. Instead, it categorized obligated taxpayers into waves based on criteria such as:
- Revenue size.
- Volume of issued invoices.
- Sectors in which the business operates.
- Data available to the Authority regarding the business’s activity.
Consequently, ZATCA sends an official notice to each required business, specifying the final deadline for their integration date. This notice is the essential reference that determines a business is “included” in Phase Two. This step is crucial as it allows business owners and taxpayers to prepare for system integration gradually before the designated deadline. Businesses that are included in any announced (or future) waves are obligated to integrate with ZATCA to avoid incurring the non compliance penalty.
Penalties for ZATCA Non Compliance
The financial penalties and fines for non-compliance with ZATCA E-Invoicing requirements for Phase Two cover several types of violations, the most notable of which are:
- Violation of Non-Issuance and Non-Retention of E-Invoices
This may start with a financial fine of SAR 5,000 and increases with repeat offenses. - Violation of Not Including QR Code in the Simplified Tax Invoice:
This may start with a warning and increases upon repetition (this violation is considered a requirement for integration). - Violation of Deleting or Amending E-Invoices After Issuance
The fine starts at SAR 10,000 and increases with repeat offenses. - Violation of Not Integrating on Time
In some cases, it is indicated that full non-compliance with Phase Two integration requirements may subject the business to a fine that could reach SAR 50,000, especially in cases of failure to submit or retain data in the required format. - Progressive Penalties
ZATCA generally applies a progressive mechanism for penalties, starting with a warning and then escalating the fines (SAR 1,000, SAR 5,000, SAR 10,000) for repeat offenses (within a 12-month period), and may reach SAR 40,000 after the fourth violation.
Important Note:
Taxpayers must review the VAT Implementation Regulation and the Controls, Requirements, Technical Specifications, and Procedural Rules Necessary for the Implementation of the E-Invoicing Regulation published on the ZATCA website to determine the exact amount of the fine related specifically to the non-integration violation, as the fine amount changes based on the type of violation and the number of repetitions.
What May Subject A Business To ZATCA Non Compliance Penalty?
1. Using an E-Invoicing System Not Approved By ZATCA
Some businesses use E-Invoicing systems by solution providers who are not listed in the directory of qualified solution providers for Phase Two integration. To verify this, the taxpayer can check the list of qualified service providers. For instance, InvoiceQ is a qualified provider and is listed in this directory.
2. Insufficient Technical Qualifications
Insufficient technical qualifications mean that the business lacks the necessary systems, tools, or expertise to prepare a suitable environment for electronic ZATCA integration. This can lead to setup errors, delays in compliance, or an inability to properly handle the technical requirements of integration and E-Invoicing. At InvoiceQ, we assist businesses with ZATCA integration by identifying the appropriate integration solution through a free consultation, regardless of whether the business owner has technical expertise or not.
3. Lack of Staff Training
Insufficient training may lead to the issuance of non-compliant E-Invoices. This increases the likelihood of operational errors and compliance violations.
4. Errors in Technical System Configuration
Setup errors, such as failing to include the QR Code in the required format, can lead to invoice rejection. These issues frequently arise when using systems that are not fully prepared for E-Invoicing according to the standards of ZATCA’s “Fatoora” platform.
5. Ignoring the Integration Notification or Delaying Implementation
Some businesses receive their integration deadline from the Authority but delay implementation or fail to take practical steps. This exposes them to direct penalties if the deadline passes without completing the integration process. To avoid this, it is recommended to initiate early integration with a qualified service provider, such as InvoiceQ, to ensure the business achieves compliance in a timely manner.
The Importance of ZATCA Early Integration
Early integration allows businesses to discover any technical or operational issues before the final deadline is reached, ensuring that errors are addressed without facing penalties or time pressure. It also grants financial and technical teams sufficient time to conduct integration tests and issue trial invoices to ensure full compliance with the requirements.
This early preparation helps avoid congestion during peak periods when integration requests increase and response times from service providers are extended. Ultimately, early integration achieves a seamless transition, minimizes costs and risks, and ensures the business’s readiness for Phase Two without any complications.
How Does InvoiceQ Ensure Your Avoid ZATCA Non Compliance Penalty?
InvoiceQ provides a comprehensive compliant solution to integrate with ZATCA, starting from system setup and integration with your internal systems, all the way to issuing and receiving E-Invoices that are fully compliant with the Authority’s requirements.
Our team works to assess your business’s technical readiness, establish suitable solutions for any potential obstacles, and ensure your issued invoices are prepared to meet ZATCA’s requirements through advanced verification standards and tools. This process guarantees that your business is ready for compliance before the final deadline and without any complications.
Conclusion
Integration is not just a legal obligation; it is an opportunity to enhance operational efficiency, increase transparency, and improve the management of invoices within the organization. This contributes to reducing errors, increasing speed, and saving time and effort for operational and accounting teams.
Therefore, the sooner a business initiates integration, the greater its ability to avoid ZATCA non compliance risks. Ensure your business’s compliance today with InvoiceQ and get a free demo to find the best E-Invoicing and integration solution for you.
