Zakat, Tax and Customs Authority in KSA has recently launched ZATCA Phase 2, which is considered as the next step in the process of digitalisation of tax compliance in the country. This phase expands on the first e-invoicing by incorporating other standards to control the invoices’ technicalities as well as the regulations to encourage effectiveness in the financial transactions. By the implementation of this phase, the companies that are conducting their operations in Saudi Arabia need to ensure that their invoices meet new standards of the tax law.
Achieving compliance with ZATCA Phase 2 is important since failure to do so will cost the business in terms of penalties and the proper functioning of the business in the Kingdom’s digital economy. In this phase, the invoicing solutions of the companies should be connected to ZATCA’s core system for the reporting and validation of electronic invoices in real-time. As the Kingdom of Saudi Arabia advances its Vision 2030 development plan, the implementation of advanced e-invoicing systems not only improve the productivity of business organisations but also help in eradication of tax evasion and elimination of other discrepancies in the financial field.
Here are the Key Requirements for Compliance with ZATCA Phase 2
1. Mandatory Integration with ZATCA Systems
The most important precondition of ZATCA Phase 2 is the connection with ZATCA’s Fatoora system to provide e-invoicing solutions. For their part, the businesses must have their invoicing systems in a way that enables them to send real time data to ZATCA’s platform. This makes it possible to establish APIs that enable the interoperation and validation of e-invoices.
2. Compliance with E-Invoicing Formats
The e-invoice must be structured in XML format or PDF/A-3 format with XML data embedded, especially in line with the ZATCA Phase 2. It is so formatted to avoid duplication, secure and complies with the tax laws of the country.
3. The usage of cryptographic stamp and the unique invoice identifier
To verify and authenticate each of the invoices, there must be a cryptographic stamp as well as a Unique Invoice Identifier (UUID). This makes the invoices to be genuine and also avoids cases of alteration to the invoices by fraudsters.
4. QR Code Implementation
All the invoices generated should be equipped with a QR code that should contain all the information concerning the transaction once scanned. This brings forth the fact that the QR code helps in the verification of the invoices by ZATCA and other interested parties.
5. Storage and Archiving Compliance
ZATCA Phase 2 require that invoices should be retained electronically for a particular period of time by the businesses. These records should also be easily accessible and easily retrievable as it relates to the provisions of the tax audit. It was concluded that proper measures have to be taken towards proper storage of data in digital platforms.
6. Adherence to Data Integrity and Security Standards
Thus, they have to incorporate excellent security features so that no one can temper with the invoices data. The system should be protected from any form of alterations and provide the state of integrity of all the transactions as required by ZATCA.
7. Real-Time Reporting to ZATCA
According to the requirements of ZATCA Phase 2, invoices need to be reported to ZATCA in real time or near real-time. To achieve this, it is possible to incorporate a continuous transaction control (CTC) model through which tax authorities receive and validate invoices within a short span.
8. Compliance Deadline and Penalties for Non-Compliance
Firms have to meet the compliance standards that has been put in place by ZATCA so that to avoid penalties. Failure to adhere to the set ZATCA Phase 2 regulations attracts very heavy penalties that include fines and restrictions in operation. It is suggested that firms should keep on improving their invoicing systems comprehensive sufficiently in advance of the deadline.
Conclusion
The Saudi Arabian businesses must now be prepared to switch to the new version of ZATCA Phase 2, which requires changes in the system of invoice management and compliance with new e-invoicing rules. The Tax Information Communication System allows companies to achieve greater tax transparency, efficient transactions and increased accuracy of their financials when they interface with the ZATCA platform. These new requirements may not be met due to which penalties, operational problems and legal repercussions can also be faced by the businesses thus it becomes imperative to act in this regard.
With the continuous advancement of digitalization, compliance to ZATCA Phase 2 is not just about abiding with the regulation but it also makes good business sense for businesses to apply improvements in accurate financial reports. The implementation of such changes will help companies adapt to the current Saudi Arabia’s economy as they enhance their operations in the anticipated economic environment within the region in order to achieve sustainability in the long-run.
