Electronic Invoice in its Second Phase: A Comprehensive Guide for Small and Medium Enterprises
        Since the launch of the second phase of the electronic invoice on January 1, 2021, the main goal has been to facilitate the process of issuing invoices and credit and debit notes between the seller and the buyer electronically, which helps improve tax compliance and enhance financial transparency. If you are a business owner or work in the field of accounting, this guide will help you understand the requirements of the electronic invoice in its second phase and prepare for it.
 
What is the second phase of the electronic invoice?
        The second phase is known as the "Linking and Integration Phase", where the electronic invoicing systems of the establishments are linked to the "Fatora" platform of the Zakat, Tax and Customs Authority. This phase applies to taxpayers whose annual revenues subject to VAT exceed 70 million Saudi riyals during 2021 or 2022, and its implementation began gradually since January 2023, reaching small and medium-sized enterprises in January 2024.
 
Electronic invoice issuance requirements
        To ensure that companies comply with the second phase, the following requirements must be adhered to:
 
  • Use an electronic invoicing system connected to the "Fatora" platform.
  • Prepare invoices in approved formats such as XML or PDF/A-3.
  • Ensure that the invoicing system is connected to the Internet to ensure periodic updates and synchronization with the Authority.
  • Include all additional required fields to ensure full compliance with the regulations.

Implementing the electronic invoice to small and medium-sized enterprises
        Since January 2024, the application of the electronic invoice has become mandatory for companies whose revenues exceeded 70 million riyals in 2021 or 2022. It will gradually expand to include all establishments according to the plan of the Zakat, Tax and Customs Authority, where the establishments covered are identified through groups that are notified six months before the implementation date.
 
The eighteenth group of the "Linking and Integration" phase
        The Authority announced that the eighteenth group includes establishments whose revenues exceeded 2 million riyals during 2022 or 2023. These establishments will be notified in preparation for the linking process before August 31, 2025.
 
Digital signature requirements and the importance of direct linking
        The digital signature has become an essential element in the second phase, as it ensures the credibility and integrity of invoices, and prevents tampering with them after they are issued. It is also required that invoices be sent to the Authority's platform within 24 hours of the time of issuance, to be verified and approved.
 
Penalties on non-compliant companies
The Authority imposes penalties on companies that do not comply with the second phase, including:
 
  • A fine of 5,000 riyals for not issuing invoices electronically.
  • A fine of 5,000 riyals for not saving invoices electronically.
  • Fines for not including the QR Code in invoices.
  • A fine of 10,000 riyals for deleting or modifying electronic invoices after they are issued.
  • Fines of up to 50,000 riyals for repeated violations.
 

Electronic Invoice Components
Simplified Tax Invoice
Includes:
 
  • Invoice Title (Simplified Tax Invoice)
  • Issuance Date and Time
  • Serial Number
  • Seller and Buyer Information
  • QR Code
  • Store Address
  • VAT Registration Number
  • Total Amount Including Tax
 
Comprehensive Tax Invoice
Includes:
 
  • Invoice Title (Tax Invoice)
  • Issuance Date and Time
  • Serial Number
  • Seller and Buyer Information
  • QR Code
  • Supplier's Commercial Registration Number
  • Total Amount Before and After Tax
  • Reason for Issuing Credit Notes (For Return)

Criteria for Selecting an Electronic Invoicing System
To ensure compliance with the second phase, the electronic invoicing system must have the following features:
 
  • Compliance with Zakat Authority regulations to ensure data storage and security protection.
  • The ability to customize invoices in terms of form and design.
  • Keeping up with updates issued by the Authority periodically.
  • The ability to send tax returns automatically.
  • Ease of use and immediate technical support.
  • Support for multiple payment options to suit customers.
  • Automatically send invoices to the Zakat Authority.
  • Provide detailed reports on sales, inventory and taxes.

Steps to comply with the second phase of the electronic invoice
To ensure compliance with the requirements, companies should:
 
  • Update or install a compatible billing system.
  • Link the electronic system to the Fatoura platform.
  • Ensure that employees are ready to deal with electronic invoices.
  • Conduct trials to issue electronic invoices and verify their accuracy before the mandatory date.

Mechanism of the electronic invoice for simplified tax invoices
The seller issues the electronic invoice including all the required elements.
 
  • The invoice is delivered to the buyer electronically or on paper. 
  • The seller saves the invoice electronically in his system.
  • The invoice is shared with the Authority within 24 hours automatically via the technical system integrated with "Fatoura".


Full readiness for the second phase
To ensure compliance and readiness:
 
  • Visit the electronic billing page on the Zakat, Tax and Customs Authority website.
  • Install or update the billing system to comply with the second phase.
  • Train employees to deal with electronic invoices.
  • Ensure that all elements of the electronic invoice are available before the mandatory date.
 
The second phase of the electronic invoice represents a qualitative shift in the digital transformation in the Kingdom, and aims to enhance tax compliance, transparency, and improve business operations. It is essential that all companies prepare to comply with these requirements to ensure that fines are avoided and the benefits of electronic transformation are benefited from. If you need help, as we at Digital Business Company for Software and Smart Solutions offer you the "Digital Pro" accounting program that provides you with all the necessary tools to link and integrate with the Zakat, Tax and Customs Authority easily.