Zakat, Tax, and Customs Authority of Saudi Arabia has duly made it compulsory for its all traders to introduce e-invoicing for better tax administration and prevention of tax fraud. And this new doctrine is not complete yet: now businesses will have to integrate their e-invoicing solutions with those of ZATCA through Electronic Government Services (EGS), which is a part of the so-called zatca phase 2 e-invoicing solution of this mandate – the Integration Phase. The ability to successfully navigate through the EGS onboarding process is very important for any business who is willing to overcome the fines that accompany non adherence to the laws.
In this detailed guide, you will learn the major activities, risks, and recommendations for onboarding to EGS and being ready for the ZATCA Phase 2 e-invoicing.
1. E-Invoicing of ZATCA Phase 2
What is ZATCA Phase 2?
ZATCA Phase 2 is the second phase of the Saudi Arabia’s e-invoicing compliance regime. While Phase 1 called for the generation and storage of e-invoices by the business, Phase 2 entails connection to ZATCA systems. This integration makes it possible to submit the invoices for verification and validation through the authority in real time.
Key Features of Phase 2:
• Integration with ZATCA:
The connection to ZATCA’s e-invoicing platform requires that companies integrate their systems with solutions that have received permission.
• Invoice Clearance and Reporting:
E-invoices have to be cleared in real-time, and enable ZATCA to verify any e-invoice is authentic.
• Cryptographic Stamp:
There is also a requirement for a cryptographic stamp, generated by ZATCA, to be placed on every e-invoice.
• Anti-Tampering Measures:
To reduce the risk of invoice fraud ZATCA has implemented the use of hash keys and implements the use of tamper proof signatures.
2. That brings us to the question: What is EGS (Electronic Government Services)?
EGS is in fact the interface used by these businesses to connect the invoice systems of their companies with ZATCA. ZATCA erp in saudi offers the business entities means through which they can provide their invoices securely for payment. The future onboarding implementation for EGS is critical to facilitate customization while adhering to the Phase 2 mandate.
Key Functions of EGS:
• Submission of E-Invoices:
Under this link, EGS allows businesses to deliver their e-invoices directly to ZATCA for validation in real-time.
• Validation of Invoices:
This is because before sending invoices to the customer’s system for payment, ZATCA’s systems scan the invoices to ensure that they meet the standards of e-invoicing.
• Invoice Tracking:
EGS enables business organizations to determine status of the invoices submitted to it, whether accepted or rejected.
3. Preparing for EGS Onboarding
First and foremost, before employers engage with the onboarding process, they ought to audit their systems for integration with ZATCA. This comprises internal control assessment, acquisition of an authorized e-invoicing system, and adherence to all existing ZATCA rules.
a) Understand What They Have At The Moment
Some Small businesses might already be using some form of invoicing solution but what remains key is to see if it meets the ZATCA Phase 2 standard.
b) Choosing an Approved E-Invoicing Solution
In Phase 2, due to changes in the electronic fiscal device, not all invoicing systems are suitable for ZATCA. Legal entities are now forced to work with a provider that is compliant with the ZATCA system. These solutions conform to technical requirements that are needed for interoperability with other systems.
Key factors to consider when selecting a solution:
• API Integration Capabilities:
Make sure that the software will be able to connect with ZATCA’s API.
• Data Security Features:
Identify compliance with the data encryption standards and anti-tampering measures.
• User-Friendly Interface:
To avoid spending a lot of time in training users how to use the new interface, a simple interface will be preferred.
c) Train Your Team:
Since ZATCA Phase 2 entails a range of modifications, some are technical, whereas others relate to processes. Your finance and IT employees need to be taught about the new e-invoicing process, the rules of the game, how you use EGS to submit invoices, and how disputes regarding invoices are handled during the onboarding phase.
Step 4: Monitor Invoice Status:
EGS enables an organization to know the progress of each submitted invoice. You can see if an invoice has been approved or not and if there are problems, you can work on it. You should also frequently check your invoices so as to know whether they are being accepted and where they are being stored.
Step 5: Maintain Invoice Records:
As prescribed under the ZATCA Phase 2 compliance, all e-invoices must be stored securely. Invoices submitted or already approved must then be created in electronic form for review by ZATCA in case of future audits. In addition, your e-invoicing solution should come with strong features of storage and retrieval of data.
Common Challenges during EGS Onboarding:
However, businesses encounter some challenges during onboarding here are some of them; Understanding these challenges and preparing for them can help smooth the process:
a) API Integration Issues:
A key concern businesses have when they attempt to implement their invoicing solutions is when they connect with ZATCA’s API. Some of these issues could be arising from system compatibility issues, wrong API settings or even technical issues.
b) Data Validation Errors:
ZATCA has set rules that all submitted invoices have some information such as the VAT number, the time and date stamp, and the QR code. Such inaccuracies in these details can result in rejection of invoices.
c) Cryptographic Stamp Implementation:
The usage of the cryptographic stamp is a relatively recent addition to any organization, and its application is obligatory. This feature may not be available in some of the invoicing solutions, which would lay down the pace to onboard.
Best Practices for a Smooth EGS Onboarding Process:
To avoid delays and ensure compliance with ZATCA Phase 2 requirements, businesses can follow these best practices during the EGS onboarding process:
a) Conduct System Testing:
However, first, it is recommended to test your invoices at least several times independently from ZATCA integration. Before employees are hired and commence their work, screening will reveal any problems to rectify them before the employees are hired and start working.
b) Partner with Certified Vendors:
It is also possible to express that when choosing the appropriate e-invoicing vendor to cooperate with, it is desirable to select the vendor who has a ZATCA certification. Please note that certified vendors already know ZATCA’s API and technical requirements, which speeds up integration.
c) Stay Updated on ZATCA Regulations:
The current e-invoicing regulation Night might be changed or new requirements may be introduced by ZATCA. Ensure your teams are updated on any changes happening or occurring and the processes should be changed where necessary.
7. Conclusion:
Learning the many aspects that need to be considered by the companies in Saudi Arabia in their attempt to be compliant with the new e-invoicing regulations set by the ZATCA in the Phase 2, calls for mastering the aspects of EGS onboarding. Therefore, when preparing the systems, the requirements must be met and when observing best practices, the move to this new phase of e-invoicing will not be a problem. On this note, it goes without saying that taking your time to get the onboarding right will not only make you compliant but also will put your invoicing house in order and relieve you unnecessary administrative burdens in future.
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