ERP Changes Required to Be Ready for e-Invoicing in KSA

The Kingdom of Saudi Arabia (KSA) is at the forefront of transforming its tax system with the help of a mandatory e-invoicing project spearheaded by the Zakat, Tax, and Customs Authority (ZATCA). The two-phase implementation is expected to bring innovations in the tax compliance process and improve the quality of financial reporting among enterprises. Phase 1 is centered around creating structured electronic invoices, while Phase 2 is centered around connecting ERP systems to ZATCA’s FATOORA platform for real-time submission and validation. To the businesses, it highlights the importance of synchronizing the ERP systems with the ERP changes in the regulation and technique.

The primary elements of compliance with e-invoicing mandates in Saudi Arabia are ERP systems. These are the necessity of having standard formats of invoices and data security and the need to integrate with the ZATCA API flawlessly. These ERP changes are designed to provide features such as the cryptographic stamping, QR code generation, and real-time invoice clearance. For companies in Riyadh and other regions, the enhancement of ERP effectiveness in terms of these criteria has become mandatory instead of desirable for efficient operation and compliance with regulations.

E-invoicing in Saudi Arabia is a step forward in the digital transformation of financial reporting. It also guarantees transparency while enhancing the performance of invoicing through the use of the initiative. Since many organizations are preparing for full compliance, it is crucial to comprehend the ERP changes. These updates include security enhancements, ensuring a proper connection between the new technologies and the old way of invoicing, and many others that are quite crucial in helping Saudi Arabia close the gap between the old traditional way of invoicing and the new technology.

The rollout occurs in two key phases:

Phase 1: Generation Phase – Companies need to produce electronic invoices containing prescribed fields.

Phase 2: Integration Phase – ERP systems used must be capable of submitting and clearing through ZATCA’s FATOORA platform in real-time.

Forcing compliance with Saudi Arabia’s e-invoicing means that businesses need to make crucial changes to their ERP systems to meet the ZATCA standards. The following outlines all the necessary ERP changes that will make it possible to be ready for e-invoicing in Riyadh and the entire KSA.

Controlling or Basic ERP Alterations for E-Invoice Creation

Generating e-invoices in compliance with ZATCA guidelines involves equipping ERP systems with advanced capabilities, including:

• Structured Invoice Format: ERP systems have to produce tax invoices in XML or PDF/A-3 format with XML inside as in Phase 2.
• Mandatory Fields: The ERP should also record the buyer and the seller data, transaction data, breakdown of VAT and other technical data such as UUID and hash values.
• Cryptographic Stamp and QR Code: The ERP can also need to have a cryptographic stamp to validate invoices and include ZATCA standard QR codes.

These ERP changes help businesses to be able to generate legal e-invoices and address the requirement of the authorities as well.

Real-Time E-Invoice Submission and Clearance

In Phase 2, invoices should be lodged in real time with ZATCA. To comply, businesses must enhance their ERP systems with the following features:

• Integration with FATOORA: ERP systems must integrate with ZATCA’s API for clearance of such invoices before they are issued to the customers.
• Clearance Acknowledgment: After clearance, ZATCA delivers a legally valid invoice, which is cryptographically sealed, to the seller; the ERP should retain this invoice for buyer access.
• Simplified Invoice Reporting: For B2C transactions, a simplified invoice has to be issued to ZATCA through the ERP within 24 hours after issuance.

When ERP systems are connected to ZATCA’s infrastructure, they can help companies simplify compliance and avoid fines.

ERP and Security and Data Integrity Compliance

ZATCA requires that strong security measures be in place in order to safeguard such financial information. Key security-related ERP changes include:

• Tamper-Proof Mechanisms: Avoid invoice forgery by locking counter and system date to discourage any ERP changes on the invoices.
• Audit Trail: The ERP should contain a complete and unaltered log of all invoice-related activities.
• Cryptographic Key Management: Cryptography is used to protect the data and to achieve this it is important to safeguard the cryptographic keys from unauthorized use.

These security features enhance the security of ERP systems against fraud and unauthorized modification of data.

Connectivity and Integration Requirement

For smooth implementation of e-invoicing in Riyadh and other regions of KSA, ERP systems need:

• API Integration: Get connected with ZATCA’s API for an easy and instant invoice submission.
• Internet Connectivity: This means that there is need to have a continuous internet connection for instant transfer of data. There should be the inclusion of retry mechanisms in case of submission failure.
• Error Handling: Keep a record of the failed submissions and then schedule an automatic resubmission to make sure that it conforms with the required standard.

Through these features, organisations are able to keep compliance with ZATCA’s regulations on an ongoing basis.

Extra ERP Characteristics for Enhanced Compliance

To address complex invoicing scenarios, consider these ERP changes:

• Credit and Debit Notes: Allow linking of credit and debit notes to the original invoices in accordance with the structure of ZATCA.
• Advance Payments: Review the existing settings for VAT calculation with regard to prepayments within the ERP system.
• Multi-Currency Transactions: Support the conversion of currencies and rounding that is in compliance with the ZATCA standards.

All these functionalities help in increasing the flexibility of ERP systems in dealing with various invoicing needs.

Document Management and Data Storage in ERP Systems

Compliance with ZATCA’s e-invoicing mandates also extends to data storage:

• Invoice Archiving: The store invoices must be kept in XML or PDF/A-3 format for auditing purposes.
• Data Retention Policies: Compliance with VAT rules for storing invoice data, regardless of their location in an on-premises or cloud environment.

These measures assist the business to keep records for purposes of auditing as well as for tax purposes.

ERP Testing and Forbidden Characteristics

Before going live with e-invoicing in KSA, businesses should test their ERP systems:

• Sandbox Testing: Utilize ZATCA’s sandbox environment for testing on whether or not the company meets the legal specifications on the generation and submission of invoices.
• Prohibited Functions: ERP systems should prevent the following features; unauthorized access, default passwords, and deletion of invoices. However, they should issue credit notes for correction of errors.

Conclusion

To be ready for e-invoicing in Saudi Arabia, companies need to implement broad ERP modifications to meet the requirements of ZATCA. Some of these ERP changes include: format of invoices and structured invoices, real-time API integration, and enhanced security features among others.

Subscribe to the ZATCA updates and work with your ERP vendor to ensure that you have the right ERP changes to accommodate the E-invoicing in Riyadh system. In this way, companies operating in KSA can gain compliance when it comes to invoicing as well as automate the latter.