Introduction

The Zakat, Tax, and Customs Authority (ZATCA) in Saudi Arabia has taken another significant step in its e-invoicing journey with the announcement of Wave 12 under Phase 2. This wave targets VAT-registered businesses with an annual turnover exceeding SAR 10 million in 2022 or 2023, requiring them to integrate their e-invoicing systems with the Fatoora portal by 1st December 2024.

This move is part of ZATCA’s broader strategy to digitize the economy, enhance tax compliance, and streamline business operations. For businesses, understanding the new requirements and preparing for compliance is critical to avoid penalties and ensure seamless operations. This blog provides a comprehensive overview of Wave 12, its implications, and actionable steps for businesses to stay ahead.

Understanding Saudi Arabia’s e-Invoicing Initiative

Saudi Arabia’s e-invoicing initiative, launched in December 2021, is a cornerstone of the Kingdom’s Vision 2030 to foster digital transformation and economic growth. The initiative is divided into two phases:

1. Phase 1 (Generation Phase): Mandated businesses to issue e-invoices using ZATCA-compliant solutions, include QR codes, and store invoices digitally.
2. Phase 2 (Integration Phase): Requires businesses to integrate their e-invoicing systems with ZATCA’s Fatoora portal for real-time reporting and validation.

With the announcement of Wave 12, ZATCA continues to roll out Phase 2, targeting businesses with varying turnover thresholds. This phased approach ensures a smooth transition while allowing businesses ample time to adapt.

Key Details of Wave 12

Wave 12 applies to VAT-registered businesses with an annual turnover exceeding SAR 10 million in 2022 or 2023. These businesses must integrate their e-invoicing solutions with the Fatoora portal by 1st December 2024.

ZATCA has also clarified that businesses will receive a minimum six-month notice before their integration deadline, ensuring sufficient preparation time. This announcement aligns with ZATCA’s commitment to transparency and support for businesses navigating the e-invoicing landscape.

Requirements Under Phase 2 of e-Invoicing

Phase 2 introduces several advanced requirements compared to Phase 1. Businesses must ensure their e-invoicing systems comply with the following:

• Integration with Fatoora Portal:
  • Businesses must connect their e-invoicing solutions to ZATCA’s Fatoora portal for real-time reporting and validation.
  • This integration ensures that all invoices are transmitted to ZATCA in the required format.
• Additional Invoice Fields:
  • Invoices must include additional mandatory fields as specified by ZATCA, such as invoice serial numbers, taxpayer details, and tax amounts.
• ZATCA-Approved Invoice Format:
  • E-invoices must be issued in the ZATCA-prescribed format, ensuring uniformity and compliance across all businesses.
• Real-Time Reporting:
  • Businesses must report e-invoices to ZATCA in real-time or near real-time, enabling the authority to monitor transactions and ensure tax compliance.
• QR Code Inclusion:
  • Each invoice must include a QR code containing essential details such as the seller’s information, invoice number, and tax amount.
• Digital Storage:
  • Businesses must store e-invoices and related documents (e.g., credit and debit notes) digitally for a minimum of five years.

Timeline of ZATCA’s e-Invoicing Waves

ZATCA has adopted a phased approach to implement Phase 2, targeting businesses based on their annual turnover. Here’s a summary of the waves announced so far:

1. Wave 1 (1st January 2023): Businesses with turnover exceeding SAR 3 billion in 2021.
2. Wave 2 (1st July 2023): Businesses with turnover between SAR 500 million and SAR 3 billion in 2021.
3. Wave 3 (1st October 2023): Businesses with turnover between SAR 250 million and SAR 500 million in 2021 or 2022.
4. Wave 4 (1st November 2023): Businesses with turnover between SAR 150 million and SAR 250 million in 2021 or 2022.
5. Wave 5 (1st December 2023): Businesses with turnover between SAR 100 million and SAR 150 million in 2021 or 2022.
6. Wave 6 (1st January 2024): Businesses with turnover between SAR 70 million and SAR 100 million in 2021 or 2022.
7. Wave 7 (1st February 2024): Businesses with turnover between SAR 50 million and SAR 70 million in 2021 or 2022.
8. Wave 8 (1st March 2024): Businesses with turnover between SAR 40 million and SAR 50 million in 2021 or 2022.
9. Wave 9 (1st June 2024): Businesses with turnover between SAR 30 million and SAR 40 million in 2021 or 2022.
10. Wave 10 (1st June 2024): Businesses with turnover between SAR 25 million and SAR 30 million in 2022 or 2023.
11. Wave 11 (1st June 2024): Businesses with turnover between SAR 15 million and SAR 25 million in 2022 or 2023.
12. Wave 12 (1st December 2024): Businesses with turnover exceeding SAR 10 million in 2022 or 2023.

Benefits of ZATCA’s e-Invoicing Initiative

ZATCA’s e-invoicing initiative offers several benefits for businesses and the economy:

1. Enhanced Tax Compliance: Real-time reporting reduces the risk of tax evasion and ensures accurate tax collection.
2. Improved Efficiency: Automation of invoicing processes minimizes manual errors and streamlines operations.
3. Cost Savings: Digital invoicing reduces paperwork, printing, and storage costs.
4. Economic Growth: By fostering transparency and efficiency, e-invoicing contributes to Saudi Arabia’s Vision 2030 goals.
5. Consumer Protection: QR codes and digital records enhance transparency, protecting consumers from fraudulent practices.

Preparing for Wave 12 Compliance

Businesses falling under Wave 12 must take proactive steps to ensure compliance by the December 2024 deadline. Here’s a checklist to guide your preparation:

1. Assess Your Turnover: Confirm whether your business meets the SAR 10 million turnover threshold for Wave 12.
2. Choose a ZATCA-Compliant Solution: Select an e-invoicing software that meets ZATCA’s technical and functional requirements.
3. Integrate with Fatoora Portal: Work with your software provider to integrate your system with ZATCA’s Fatoora portal.
4. Train Your Team: Educate your accounting and IT teams on the new requirements and processes.
5. Test Your System: Conduct thorough testing to ensure seamless integration and compliance.
6. Monitor Updates: Stay informed about ZATCA’s announcements and guidelines to avoid last-minute surprises.

Challenges and Solutions

While the e-invoicing initiative offers numerous benefits, businesses may face challenges during implementation:

1. Technical Complexity: Integrating with the Fatoora portal requires technical expertise. Solution: Partner with experienced e-invoicing providers.
2. Cost of Compliance: Upgrading systems and training staff can be costly. Solution: Plan your budget in advance and explore cost-effective solutions.
3. Data Security: Storing and transmitting sensitive financial data digitally raises security concerns. Solution: Implement robust cybersecurity measures.

Conclusion

ZATCA’s announcement of Wave 12 under Phase 2 marks another milestone in Saudi Arabia’s e-invoicing journey. For businesses with turnover exceeding SAR 10 million, compliance by 1st December 2024 is mandatory. By understanding the requirements, preparing in advance, and leveraging the right tools, businesses can ensure a smooth transition and avoid penalties.

As Saudi Arabia continues to lead the way in digital transformation, embracing e-invoicing is not just a regulatory requirement but a strategic move toward efficiency, transparency, and growth. Stay informed, stay compliant, and position your business for success in the digital economy.