Saudi Arabia has made significant efforts to digitize corporate transactions, including the deployment of e-invoicing. Zatca approved e-invoicing in Riyadh increases tax compliance, security, and efficiency. The Zakat, Tax, and Customs Authority (ZATCA) rolled out an e-invoicing mandate in two stages: Phase I and Phase 2. These phases are designed to simplify tax reporting, decrease fraud, and increase commercial transparency.
Here are examples of Saudi e-invoicing: Phase I QR code against Phase 2 QR code.
The Kingdom of Saudi Arabia (KSA) has implemented electronic invoicing systems to improve taxation and compliance with the Zakat, Tax, and Customs Authority (ZATCA). E-invoicing has two phases: Phase I (Generation) and Phase 2 (Integration). The two-phase structure incorporates QR codes, which are essential components for invoice verification and validation in both phases. The structure and needs of QR Codes varies between the two phases, which has long been contested. The following essay will go into detail about the Phase I and Phase II QR Codes under Saudi Arabia’s e-invoicing strategy.
A Brief Overview of KSA’s E-Invoicing Phases
Phase I (Generation Phase)
This phase began on December 4, 2021, when all businesses were expected to generate and maintain invoices electronically in a standardized manner. The following are some key highlights of Phase.
- Generate electronic and optimized tax invoices.
- An invoice should contain the seller’s name, VAT number, invoice date, and total amount.
- Add a QR code to simplified tax invoices so that ZATCA may check them.
- Conform to ZATCA-approved submission formats and standards, such as XML or PDF/A-3 with integrated XML.
Phase Two (Integration Phase)
This is the second stage of e-invoicing implementation. It started on January 1, 2023. Entities must now conduct their business in a way that enables real-time reporting and system integration. Furthermore, such entities have to meet the following criteria:
- The ability to combine real-time e-invoicing systems with the ZATCA platform. Enforced cryptographic stamping, as well as a new QR Code style with more data.
- Standard tax invoices are cleared; simplified tax invoices are reported.
- All safety precautions and data transfer procedures must fulfill rigorous standards.
- QR codes appear in both Phases I and II.
QR Code in Phase I.
The introduction of QR Code in Phase I was primarily focused on modest tax invoices, which provided basic invoice details and were validated for legality by mobile scanning. The QR code in Phase I contains five required fields:
- The seller’s name is his or her registered business name.
- The Value Added Tax (VAT) Registration Number is the supplier’s VAT number.
- Invoice Date and Time – The time stamp when the invoice was generated.
- The total of the invoice (with VAT) is the total amount after accounting for VAT.
- Value Added Tax Amount – The total value added tax amount.
QR codes in Phase II.
Phase 2 saw major development of the QR Code, which now includes cryptographic controls and additional invoicing data. The new QR code in Phase 2 consists of the following six fields:
- The seller’s name is the same as Phase I.
- VAT Registration Number: Same as Phase I.
- Invoice Date and Time: Same as Phase I.
- Invoice Total (including VAT): Same as Phase I.
- VAT Amount – Same as Phase I.
- A cryptographic stamp is one-of-a-kind and made using a secure encryption algorithm.
- Invoice Hash – A digital signature that ensures the integrity of invoice data.
- Unlike Phase I, Phase II’s QR Code is now crimped and cryptographically signed, making it tamper-proof.
Key Differences Between Phase I and Phase 2 QR Codes
Purpose
- Phase 1 QR Code: Basic Verification.
- Phase 2 QR Code: Secure authentication and integrity.
Applicable To
- Phase 1 QR Code-Simplified Tax Invoices
- Phase 2 QR Code-All Invoices (Simplified and Standard)
Encoding Method
- Phase 1 QR Code-Base64 Encoding.
- Phase 2 QR Code—Cryptographically signed
Invoice Hash
- Phase 1 QR Code – not included.
- Phase 2 QR Code: Included for data integrity.
Cryptographic Stamp
- Phase 1 QR Code – not included.
- Phase 2 QR Code: Included for security.
Real-time reporting.
- Phase 1 QR Code: Not necessary.
- Phase 2 QR Code is required for compliance.
Integrate with ZATCA
- Phase 2 QR Code: Not necessary.
- Phase 2 QR Code: Required for invoice clearance.
How Should Businesses Prepare for Phase II QR Codes?
To meet the Phase 2 e-invoicing criteria, firms should:
- Upgrade the E-Invoicing Systems: This will ensure that the invoicing software allows for cryptographic stamping and real-time connectivity with ZATCA.
- Use a ZATCA-Approved Solution – When selecting an e-invoicing solution, adhere to the ZATCA’s invoice production and QR Code encryption guidelines.
- Secure Data Handling- Implement robust security procedures to safeguard invoice data.
- Train Staff for Compliance: In-house training should be provided to increase awareness of the relatively new QR Code requirements and the importance of real-time invoice reporting.
Conclusion
The implementation of ZATCA approved e-invoicing in Riyadh is an important step in modernizing the Kingdom’s financial environment. Understanding the differences between Phase I and Phase 2 QR codes is crucial for organizations seeking to comply with tax regulations and operate efficiently. Phase I QR codes only incorporate basic security measures for invoice verification. With ongoing digital transformation operations in Saudi Arabia, businesses must take the necessary steps to meet ZATCA’s e-invoicing criteria. Companies can embrace these changes by upgrading their invoicing to Phase 2 compliance, so positioning themselves for improved tax compliance, security, and operational efficiency in the Kingdom’s changing economic landscape.
