ZATCA E-Invoicing in Odoo: Phase 1 & Phase 2 Guide

What is ZATCA E-Invoicing?

The e-invoicing process aims to generate invoices in an electronic or digital format.

The Zakat, Tax and Customs Authority (ZATCA) in the Kingdom of Saudi Arabia (KSA) has announced that e-invoicing is mandatory for all VAT-registered businesses in the Kingdom of Saudi Arabia starting on 4 December 2021. This means every business has to generate invoices digitally; they cannot generate or store invoices on paper or in PDF format only. In this way, ZATCA will ensure that taxes are correctly identified, deducted, and reported from every electronic invoice transaction.

This regulation requires businesses based in KSA to adopt an e-invoicing process in two phases. Phase 1 started on 4 December 2021, and Phase 2 (Integration) started on 1 January 2023 and is being rolled out to businesses in waves.

How Does E-Invoicing Work in the Kingdom of Saudi Arabia?

The e-invoicing process is similar to the standard invoicing process. The only difference is that in KSA the invoicing process is conducted in a more secure and efficient way.

Let's have a look at what a business has to do for each transaction:

It is mandatory to use a ZATCA compliant e-invoicing solution for generating the professional e-invoice with all the necessary fields.
You need to issue an invoice copy to the customer. Once you enter Phase 2, customer invoices must be pushed to ZATCA's FATOORA platform. The invoices are validated before you send them to your customers.
It is mandatory to keep all your e-invoices in your system. When you start using a cloud-based solution, it becomes easier to store e-invoices and support your compliance work.
With intelligent e-invoicing solutions like O2b, managing your invoices will be simpler and more effective. Generate paperless e-invoices and stay on top of all the policies or guidelines issued by ZATCA.

What Is Not an E-Invoice, According to ZATCA Rules?

ZATCA is completely transparent about what is not an electronic invoice and what is an electronic invoice. Basically, e-invoicing is a legally accepted practice that allows B2B entities to exchange and process invoices, debit notes, and credit notes in a systematized electronic format using an integrated electronic system.

An E-Invoice

To meet ZATCA e-invoicing guidelines, an e-invoice must be electronically created by using a robust e-invoice solution.
An electronic invoice is an invoice that is issued in a standardized EDI Electronic Data Interchange (EDI) or XML format.
The invoice data should be issued using standard internet or web-based software solutions.
All the e-invoices must be tamper-resistant and they should be stored in a secure electronic environment that averts tampering.
Moreover, it is necessary that an e-invoice must be electronically created by an e-invoice software solution.

Not an E-Invoice

Scanning a copy of an invoice or any handwritten electronic invoice is not a ZATCA-compliant electronic invoice. Invoices are reported to ZATCA's FATOORA platform.
Unstructured and unorganized invoices published in Word or PDF format.
Handwritten paper invoices that are printed or scanned. Also, invoices that are sent via Fax machines are not e-invoices.

The Zakat, Tax and Customs Authority (ZATCA) also provides the businesses with a list of service providers that offer electronic invoicing solutions that meet their regulatory necessities. However, it is not obligatory to pick only providers mentioned in the list, enterprises can select other e-invoicing solution providers as long as their system meets the necessary requirements.

Who Should Comply with ZATCA E-Invoicing Guidelines?

Every business registered for VAT in Saudi Arabia must comply with ZATCA's obligatory e-invoicing rules and regulations, whether it is B2C, B2B, or B2G business.

As per ZATCA's guidelines, “e-invoicing implementation will be compulsory for all taxpayers subject to VAT, excluding non-residents of the KSA who are subject to VAT." Simply put, a non-resident supplier does not come under the ZATCA compliance category and will not generate an e-invoice for the goods or services provided to the resident who is subject to VAT. However, proper records should be kept as proof of the transaction.

Transactions subject to e-invoicing:

Any transaction of goods or services of more than SAR 1,000 is subject to the standard VAT rate.
Any export transaction of any goods or services regardless of the transaction value.
You need to generate e-invoices (simplified e-invoices) for zero-rated supplies, if the usual criteria for generating a simplified e-invoice are satisfied. For example, household supplies of goods and services.
An e-invoice must be issued in case of advance payment against the supply of goods or services received by the taxpayer. Moreover, in the case of partial payment, the e-invoice must be issued for the partial payment.
Any transaction of Intra-GCC supplies. Transactions between the member states of GCC are considered intra-GCC transactions.
Note:- Saudi Arabia, UAE, Bahrain, Kuwait, Oman, and Qatar have signed the GCC VAT Agreement.

Features of a ZATCA E-Invoicing Tool

Cloud-based
The e-invoice software must be cloud-based and can be used anywhere when connected to the internet. Further, the system must be able to share the invoices with the Authority portal.
ZATCA Portal Integration
The solution must be connected with the API of the ZATCA e-invoicing integration portal.
Tamper-proof
The platform must have a tamper-proof mechanism in order to eliminate any illegal activity, meddling with invoices or system, or modification of invoices.
Keep All Records
The system must permit taxpayers to save records of all their transactional invoices.
Security Feature
The security feature of the system must be strong. The solution should be capable of detecting and documenting manual modifications, tampering, or any other malicious movement. Also, the system must ensure that there is no data leak or loss of information while generating e-invoices.

ZATCA Implementation Phase 1

This phase is known as the Generation Phase. This phase requires taxpayers to generate and store invoices, and debit/credit notes via electronic systems which must be compliant with Phase 1 requirements. This phase has been enforceable since 4 December 2021 for all taxpayers (this phase excludes non-resident taxpayers), and any other parties who are issuing tax invoices on behalf of suppliers subject to VAT.

What must be accomplished in ZATCA E-Invoicing Phase 1:

Update your current invoicing system or install the new ones;
Adding QR codes to invoices is mandatory;
Also, you need to add the customer’s VAT registration number, if they are registered for VAT.

QR Code Generation

Under ZATCA's e-invoicing rules, all businesses must generate a QR code for every invoice, providing basic information about the purchase and the seller. The QR code can be scanned with the government's E-Invoice QR Reader KSA app, which checks whether the invoice is in the correct format or not.
Government QR Code Mobile App

Government QR Code Scanning app (E-Invoice QR Reader KSA) helps to provide quick information about a particular invoice. Also, it has other critical purposes:

Helps the government to validate the electronic invoices and electronic credit/debit notes.

Further, it helps customers to verify the authenticity of the invoices.

Also, one can evaluate if the invoices comply with the ZATCA requirements.

ZATCA Implementation Phase 2

The second phase is known as the Integration Phase. It is being rolled out in waves by targeted taxpayer groups. This phase involves the technical and business requirements for electronic invoices and electronic systems, including integrating these systems with ZATCA's systems. Simply put, taxpayers need to integrate their e-invoicing tools with ZATCA's system so they can send generated e-invoices to the FATOORA platform for validation and verification.

ZATCA published the revamped e-invoicing Implementation Resolution in Arabic on 24 June 2022, after finalizing the public consultation on 10 June 2022. This Resolution is part of the e-invoicing Regulations that were released earlier and published on 4 December 2020. This latest Implementation Resolution, technical specifications, and annexes apply to the Second Phase (Integration Phase). Phase 2 (Integration) started on 1 January 2023 and is being rolled out to businesses in waves.

The latest announced wave (Wave 25) covers businesses with taxable turnover above SAR 187,500 in any year from 2022 to 2025. They must integrate from 1 February 2027. Check ZATCA's site for your wave.

Under Phase 2, taxpayers need to issue e-invoices in particular formats (i.e., XML or PDF/A-3 format with embedded XML).

This phase adds more technical and specialized requirements. Your electronic invoicing system must be able to connect to external systems through APIs, generate a Universally Unique Identifier (UUID), support e-signature or digital signature, assign a sequential number to each e-invoice, and generate a cryptographic stamp. The solution must also include anti-tampering features.

Features that are Mandatory for Phase 2

Types of E-Invoices

Standard E-Invoice (Tax E-Invoice)

Standard e-invoices or tax e-invoices are issued for B2B and B2G transactions. These invoices are generally used for claiming input VAT deduction by customers. Standard e-invoices have a defined format that the seller shares with its buyers. Under Phase 2, these invoices are issued to customers after being stamped cryptographically and “cleared” by ZATCA.

Standard electronic invoices have fields including the vendor and customer information, transaction, and details of goods/services as well as some other technical fields as per VAT legislation, that need to be generated by the e-invoicing solution.

Simplified E-Invoices

Simplified electronic invoices are issued for B2C transactions, these are generated instantly at the point of sale. Buyers do not use these invoices for input VAT deduction. For generating the simplified e-invoices, the solution must generate a QR code with the invoice. QR code generation is essential for validating the e-invoices.

Phase 1 only requires the system to generate simplified e-invoices. Under Phase 2, simplified e-invoices must be reported to ZATCA within 24 hours of issuance.

Transaction type	Type of e-invoice to be issued
Taxable goods & services valued at more than SAR 1,000 (issued to a taxable or non-taxable legal person)	Standard e-invoice
Export of goods	Standard e-invoice
Intra-GCC supplies	Standard e-invoice
Nominal supplies (not given to a buyer, but held for audit intents)	Standard e-invoice
Taxable services & goods, except exports, that are valued at less than SAR 1,000 (issued to a taxable person or non-taxable legal individual)	Both (Simplified e-invoice or Standard e-invoice)
Taxable goods and services (except exports) issued to a non-taxable individual	Simplified e-invoice
Zero-rated goods and services valued at more than SAR 1,000 (issued to a taxable individual or non-taxable legal individual)	Standard e-invoice

Get Your O2b ZATCA E-Invoicing Solution

Meet ZATCA's e-invoicing software regulations by connecting your business to O2b Technologies' robust open-source and cloud solution. We set up Odoo to support ZATCA's e-invoicing requirements in Saudi Arabia for e-signature, content, reporting, and format. Our ZATCA e-invoicing software is built to meet ZATCA's e-invoicing rules, and it is designed so e-documents and e-invoices are exchanged securely.

Furthermore, you can generate simplified invoices in Arabic with the required invoice information. The solution also generates QR codes and is built to meet ZATCA's e-invoicing document guidelines. Moreover, our robust e-invoicing solution is closely integrated with other solutions such as sales, purchase, accounting, inventory, and more. O2b offers a complete ERP solution built to meet ZATCA's regulations. With ZATCA e-invoicing API integration, we configure Odoo to meet ZATCA's technical rules. All things considered, choose O2b for a ZATCA e-invoicing solution that lets you invoice your customers seamlessly.

Your tax adviser should confirm your obligations and wave.

Let's Have a Look into the Advanced O2b ERP Applications

CRM

CRM applications help capture the leads and convert them to the opportunity. Further, you can assign the salesperson who will be working on the lead and try their best to close the deal. It helps track the customer interaction history and take further actions accordingly.

Sales

Our Sales module helps create quotations, convert them into sale orders in a click, and generate delivery orders immediately. Further, you can send the quotations and sales orders to your customers quickly. Our sales app facilitates online payment, this means the customer can draw their signature on the e-invoices and make payment.

Purchase

Easily create RFQs and convert them into a purchase order after getting confirmation from your suppliers. Send the POs to your vendors via email or by post. Moreover, you can keep track of the status of your RFQs and purchase orders, see the details of the POs and expected delivery date.

Inventory

Our inventory application helps you manage the entire inventory operations from receiving goods to delivering them to the customers. It has advanced features like double-entry inventory, multiple location management, barcode scanners, automatic replenishments. Also, it supports advanced routing like drop-shipping, cross-docking, pick-pack-ship, etc.

Accounting

We provide a complete accounting solution along with e-invoicing features. It comprises robust accounting features, such as easy reconciliation, online payments, multi-currency support, profit & loss statement, cash flow statement, advanced taxes management, general ledger, accounts payable, accounts receivables, and more.

Meet the Experts

ZATCA E-Invoicing for Odoo

ZATCA E-Invoicing Solution for Saudi Arabia Taxpayers