Guide to Phase 2 E-Invoicing Integration in Saudi Arabia: Choosing the Right Method

E-invoicing in Saudi Arabia has entered a new phase, and it’s crucial for businesses to understand the intricacies of Phase 2. In this guide, we will learn about the various integration modes available for compliance with Phase 2 of e-invoicing in Saudi Arabia. This phase is especially significant as it mandates the integration of ERP/POS systems and billing software with the ZATCA’s Fatoora portal.

The Kingdom of Saudi Arabia (KSA) has introduced a two-phase implementation of e-invoicing through the Zakat, Tax, and Customs Authority (ZATCA), formerly known as GAZT. E-invoicing in KSA is applicable to all VAT-registered taxpayers, with the exception of those classified as non-residents for VAT purposes.

Phase 1 of e-invoicing in Saudi Arabia was launched by ZATCA on December 4, 2021. Additionally, ZATCA has announced the following waves for Phase 2:

Understanding ZATCA e-Invoicing and Nowara Infotech’s ERP with ZATCA e-invoicing Integrations:

ZATCA introduced e-invoicing as a top initiative to digitize the invoicing process for businesses operating within Saudi Arabia. This mandatory system seeks to replace traditional paper-based invoices with electronically generated invoices, aiming to enhance transparency, minimize errors, and expedite the taxation process.

Nowara Infotech’s ERP solution, built on Microsoft Dynamics 365 Business Central, stands as a comprehensive business management software that integrates various operations like sales, inventory, accounting, human resources, and more. Renowned for its modular approach, Nowara Infotech’s ERP allows businesses to tailor their ERP system to their specific needs, thereby enhancing efficiency, data accuracy, and overall productivity.

Phase 2 E-Invoicing Essentials

Phase 2 of Saudi Arabia’s e-invoicing initiative involves the integration of a business’s ERP/POS systems and billing software with the ZATCA’s Fatoora portal. This integration is essential for the seamless generation and transmission of e-invoices and e-notes to the ZATCA, ensuring tax compliance and transparency.

Several integration solutions are available in the market, and the choice of integration mode depends on your business requirements and the type of e-invoices to be generated.

Let’s explore the different integration methods and their implications.

Direct API Integration with ERP/POS

This is the preferred integration method for many. Direct API integration allows you to connect multiple ERP/POS units with ‘Restful’ APIs. This method is highly favoured because it enables smooth invoice generation with minimal changes to existing systems. Here’s how it works:

• Your ERP generates an invoice with required fields in JSON, CSV, or XML format and shares it with the chosen e-invoice solution.
• The e-invoice solution validates and generates crucial data such as UUID, Invoice Counter Value (ICV), Previous Invoice Hash (PIH), and Invoice Hash (IH).
• The validated invoice data is sent to ZATCA for clearance in a specified XML format.
• Once cleared by ZATCA, the e-invoice solution receives the cleared e-invoice with a QR code and cryptographic stamp.
• The e-invoice solution stores the ZATCA response and generates the e-invoice in PDF/A3 format with embedded XML.
• The ERP retrieves the e-invoice with a QR code and cryptographic stamp for issuance to the buyer.
• This process ensures ZATCA compliance and smooth e-invoice issuance.

SFTP-Based Integration

This integration is ideal for stringent data security policies. SFTP-based integration involves secure file sharing between your system and the e-invoice solution’s cloud servers. This method is chosen when direct integration is not feasible due to strict data sharing and IT security policies. Here’s how it works:

• You set up an SFTP server within your IT landscape and connect your ERP/POS systems to dump invoice data into this server.
• Invoice data flows from the SFTP server to the e-invoice solution via an ‘SFTP magnet’ managed by the solution provider.
• From there, the data is transmitted to ZATCA for clearance or reporting, depending on the type of invoice.
• ZATCA shares the invoice status with the e-invoice solution once approved or rejected.
• The ZATCA-compliant e-invoice is then routed back to your ERP/POS.
• This method ensures secure data transmission while meeting your organization’s security requirements.

Database Integration Mode

Integration for efficient data mapping. In the database-based integration mode, your systems are integrated with intermediate databases using customized data mapping. Here’s how it works:

• You create a ‘Staging Database’ and a ‘Local Agent’ within your IT landscape.
• Connect your ERP/POS systems to the ‘Staging Database’ to share invoice data.
• The Local Agent routes invoice data to the e-invoice solution via ‘Secure API’ for clearance or reporting.
• ZATCA’s approval triggers the flow of ZATCA-compliant e-invoices back to your ERP/POS.
• This mode allows for efficient data management and mapping, ensuring compliance with ZATCA requirements.

POS Integration

Ideal for simplified tax invoices. POS integration allows you to generate e-invoices offline with XML and QR codes. These invoices can be reported to ZATCA at regular intervals. Here’s how it works:

• In your POS system, you generate invoices offline with UUID, ICV, PIH, IH, QR code, and cryptographic stamp.
• You immediately issue simplified tax invoices to buyers in physical or soft copy.
• At defined intervals, the POS connects with the e-invoice solution to send the e-invoice data in XML format for reporting.
• The e-invoice solution handles the data transmission to ZATCA, and once validated, it stores the reporting status.
• The POS retrieves the reported status of the simplified e-invoices.
• This mode is suitable for generating simplified tax invoices that do not require real-time clearance from ZATCA.

Excel-Based Data Upload

For smaller businesses and simplified invoices. If your business needs to generate only simplified tax invoices and has a lower volume of invoices, the Excel-based data upload method may be suitable. Here’s how it works:

• You create e-invoices in bulk by manually filling up invoice data in customized Excel templates prepared by your order management systems.
• You upload this data to your e-invoice solution, which transforms it as per ZATCA’s requirements.
• The e-invoice solution sends the transformed data to ZATCA’s Fatoora portal to generate e-invoices.
• This method is ideal for businesses with specific needs and a smaller volume of invoices.

Phase-2 Integration Advancements with Nowara Infotech:

The Phase-2 integration of ZATCA e-Invoicing with Nowara Infotech’s ERP represents a significant move towards achieving higher levels of operational optimization and compliance.

The key advancements that this integration brings:

• Automated e-Invoice Generation: With the integration, Nowara Infotech’s ERP enables businesses to generate e-Invoices automatically, reducing manual efforts and eliminating the chances of errors in data entry. This feature ensures seamless compliance with ZATCA’s requirements and accelerates the invoicing process.
• Real-time Data Sync: Data synchronization between ZATCA’s e-Invoicing system and Nowara Infotech’s ERP is conducted in real time. This synchronization minimizes discrepancies and maintains consistency across different business functions, from sales to inventory management to taxation.
• Enhanced Accuracy and Audit Trail: The integration guarantees precise and accurate data transfer, reducing the likelihood of discrepancies during audits. The inherent traceability of Nowara Infotech’s ERP creates an audit trail that aids in maintaining compliance and resolving discrepancies swiftly.
• Seamless Reporting: Businesses benefit from the seamless generation of e-invoice reports, which can be readily presented to ZATCA. Nowara Infotech’s ERP reporting capabilities ensure that the required information is readily available in a standardized format, streamlining the reporting process.
• Efficient Document Management: The integration enables businesses to manage electronic invoices and related documentation efficiently within Nowara Infotech’s ERP environment. This centralization simplifies document retrieval and enhances collaboration among departments.
• Compliance Assurance: Staying compliant with ZATCA’s regulations is crucial for businesses in Saudi Arabia. The Phase-2 integration offers a robust framework that aids in ensuring compliance with e-invoicing mandates, reducing the risk of penalties or legal issues.

Business Benefits of the Integration of Zatca

The Phase-2 integration of ZATCA e-Invoicing with Business Central ERP brings forth a multitude of benefits that significantly impact business operations:

• Time Savings: Automated e-invoice generation and real-time data sync result in significant time savings. Employees can focus on value-added tasks instead of manual data entry and reconciliation.
• Reduced Errors: Manual data entry often leads to errors. The integration minimizes such errors, promoting accurate invoicing and financial reporting.
• Enhanced Productivity: With streamlined processes and reduced manual intervention, overall business productivity improves. Employees can allocate their time to strategic tasks that drive growth.
• Improved Decision-making: Access to accurate and up-to-date data empowers businesses to make informed decisions swiftly. This real-time insight can influence strategies and improve resource allocation.
• Cost Efficiency: By eliminating manual processes and reducing errors, businesses can achieve cost savings in terms of operational inefficiencies and potential penalty avoidance.
• Long-term Sustainability: Adopting technology-driven solutions like Nowara Infotech’s ERP integration ensures that businesses are well-prepared for the future. The modular nature of Nowara Infotech’s ERP allows for scalability and adaptability as business needs evolve.

ZATCA’s Phase 1 and Phase 2 initiatives mark a monumental shift in how invoicing is conducted in Saudi Arabia. Phase 1’s Generation phase introduced electronic tax invoicing, setting the stage for modernization. In contrast, Phase 2’s Integration phase focuses on higher standards, integration with ZATCA’s systems, and a staged rollout for a smoother transition. These progressive phases not only streamline business operations but also bolster compliance, efficiency, and transparency in Saudi Arabia’s invoicing landscape.

How can Nowara Infotech help generate phase 2 compliant e-invoices in Saudi?

Nowara Infotech is one such e-invoicing solution provider in Saudi Arabia that offers multiple benefits to help you achieve 100% ZATCA compliance:

Restful APIs for minimal ERP/POS system changes

Automatic registration of ERP/POS systems with ZATCA

Middleware for seamless integration with ZATCA

Archive e-invoice data for up to 6 years on cloud servers

By understanding the various integration modes and leveraging solutions like Nowara Infotech, businesses can ensure a smooth transition to Phase 2 of e-invoicing in Saudi Arabia. This compliance not only meets regulatory requirements but also enhances efficiency and transparency in tax operations. Contact us today!