Steps to Fix Failed Invoices in Phase II of KSA e-Invoicing

Saudi Arabia has also been among the countries that have adopted the change to e-invoicing as a way of advancing tax systems and operations. The Zakat, Tax and Customs Authority (ZATCA) officially started phase 2 of e-invoicing program from 1st January 2023. This phase is a significant move towards the complete digitalization of the invoicing process for the taxpayers in the Kingdom. The government is implementing this program in phases as it seeks to target different groups of taxpayers and they have given enough time to businesses to adhere to this program since they were able to inform the business houses six months prior. For the companies in e-invoicing in Riyadh, Failed Invoices in Phase II and rest of Saudi Arabia it is mandatory to implement e-invoicing not only for compliance but for the proper functioning of their business.

As organisations commence planning for Phase II of e-invoicing in Saudi Arabia, some taxpayers may experience difficulties in generating and submitting their e-invoices. Albeit clear guidelines are provided by ZATCA, there are several technical challenges that organizations face including invoice rejection, errors, and submission failures. These problems could be even more irritating if they interfere with the invoicing and thus compliance.

The potential causes of these failures and provides detailed procedures that can be followed in order to get through them successfully by organizations. Whether you are facing problems with technical issues, missing data, validation errors or the like, it is important to understand how to solve these failures in order to have a positive experience in phase II of e-invoicing. If you follow these steps then you will make sure that your invoices are correct and have been sent at the right time and not causing you any penalties and time wastage.

Reasons for Failures While Generating the e-Invoices

First of all, it is possible to encounter some issues of failure when creating the e-Invoices. Below are a few possible reasons for failures while generating the e-Invoices:

1. Selecting the wrong invoice type, such as B2C instead of B2B

Choosing the wrong invoice type is a common mistake when generating e-invoices. For instance, selecting B2C (Business to Consumer) instead of B2B (Business to Business) can lead to discrepancies in tax calculations and validation errors.

2. Not mentioning all mandatory fields such as invoice date, UUID, etc.

Omitting mandatory fields, like the invoice date or the unique Universal Identifier (UUID), is another reason for failed e-invoices. ZATCA requires specific data fields to be included for the proper validation of the e-invoice. Missing any of these critical fields can cause the submission to be rejected, leading to delays in processing and potential compliance issues.

3. Inputs given are not as per ZATCA validations

ZATCA has set strict validation criteria for e-invoices. If the input data does not match the required format or structure, such as incorrect VAT rates or invalid tax IDs, the invoice will fail to be processed. Ensuring that all fields align with ZATCA’s validation rules is key to avoiding errors and ensuring that the invoice is accepted by the platform.

4. Mentioning the wrong type of supply, such as exempted instead of taxable

Incorrectly categorizing the type of supply can result in VAT miscalculations and e-invoice rejection. For example, marking a taxable supply as exempted will trigger errors during the validation process. It’s crucial to correctly classify the transaction as taxable, exempt, or zero-rated, based on the nature of the goods or services provided, to ensure accurate VAT reporting.

5. Incorrect calculation of the total VAT amount

Another common mistake is the incorrect calculation of the VAT amount on the invoice. If the VAT is not calculated correctly based on the applicable VAT rate or the total value of the goods and services, the e-invoice will fail to pass validation.

6. Incorrect calculation of the total invoice amount

The total invoice amount includes both the taxable value and the VAT amount. If either value is calculated incorrectly, it can lead to invoice failure. Businesses should double-check the calculation of both the total taxable value and VAT to ensure the sum is accurate. Discrepancies in these values can result in ZATCA rejecting the invoice.

7. Not quoting or mentioning a wrong taxable value under VAT breakdown

Providing incorrect taxable values in the VAT breakdown can result in failure to validate the e-invoice. For example, leaving out taxable amounts or entering incorrect values can create inconsistencies in the reported VAT. To avoid this, make sure that the taxable values are accurately reflected in the VAT breakdown, ensuring compliance with ZATCA regulations.

8. Mentioning the wrong tax amount under the VAT breakdown, such as zero-rated instead of taxable

Mistakes in the VAT breakdown, such as listing a taxable supply as zero-rated, can lead to submission failures. It’s essential to correctly reflect the applicable VAT rate for each item, as ZATCA’s system checks for proper categorization of supplies. Always ensure that the tax amount is correctly mentioned based on the VAT rate applicable to the transaction type.

The Process to Solve the Failed Invoices in Phase II

In case of a negative result by ZATCA, it often comes with a failure reason to enable the business to make necessary adjustments. It could be as simple as missed mandatory fields or as complicated as wrong VAT computation. The first measure in responding to a Failed Invoices in Phase II is to read the message that ZATCA has given, to identify the specific reason for failure. When the mistake is realized, the business has the opportunity to make the corrections that may include the invoice details, the correct VAT rate, or even confirming that all the required fields are filled. Once the corrections are made, then the invoice can be generated and re-submitted for processing.

The process to solve the Failed Invoices in Phase II may slightly vary depending on the type of transaction B2B or B2C invoice. As for B2B invoices, you would need to check the kind of invoice you have chosen and completed all the company’s details, such as tax identification number. In case of B2C invoices the requirements can be less but still it is obligatory to indicate correct VAT codes and total sum. Knowing what specificities apply to each type of invoice is crucial for a successful re-submission and thus, to make sure that the invoice is compliant with the ZATCA legislation.

Resolving a Failed B2B Invoice

You will have below two options based on ERP functionality to solve a failed B2B invoice:

Option 1: When your ERP doesn’t allow to edit the failed invoice

If the ERP system being used does not enable a change on a poorly issued invoice, the following steps are undertaken. First, one will have to determine specifically why the failure occurred to match the error message received from ZATCA. After identifying the problem, you should give your customer a credit notes to cancel out the original invoice in your books. This way you are sure that your financial statements will be correct and they should not include the wrong invoice. After that, Failed Invoices in Phase II you can create another fresh invoice with the right credentials and repost it through the ZATCA portal for authorization and payment.

Option 2: When your ERP allows you to edit the failed invoice

However, where your ERP system permits alteration of the Failed Invoices in Phase II, the process becomes easier. All the errors can be corrected within the same invoice, it may be the correction of the wrong VAT rate, change of the type of invoice, or even filling in missing fields. After all the corrections have been made, you can then upload the corrected invoice on the ZATCA portal. This method also saves time and the invoice is resubmitted with the right information thus helping to eliminate the likelihood of further rejection or delay in processing the invoice.

Resolving a Failed B2C Invoice

In case of failed B2C invoice, there must be some errors pointed out by ZATCA after creating the invoice, and those should be corrected first. Some of the errors are easily identifiable within a day of creating the invoice number for instance. In such circumstances, the only appropriate option is to rectify the mistakes and resubmit the invoice to the ZATCA portal.

As for the third and fourth requirements, although you have the option to decide on whether you want to share the corrected invoice to the customer or not, on the practical aspect, it can be quite hard to issue a physical copy of the corrected B2C invoice. Hence, it is suggested to send the revised invoice through an email, WhatsApp message or through any other online media.

In B2B and B2C interactions, several problems may arise including the need to correct previous issued invoices or issue new invoices with the PIH and the ICV being kept intact. These specific identifiers are used to ensure the validity of your invoicing system and for making sure that Failed Invoices in Phase II ZATCA’s platform will be able to detect the alterations made. These values need to be updated every time you are resubmitting a corrected invoice or when you are generating a new invoice and they should be in the right state to ensure compliance to the ideal status of the transaction.

Conclusion:

In Phase II, the failed invoices of KSA’s e-Invoicing system require correction by businesses which must follow the updated technical specifications and regulation to stand by the ZATCA (Zakat, Tax, and Customs Authority). Some of the typical causes of failure consist of improper formatting, lack of data, or conflict in the digital signature. Companies have to check if the data provided in the invoice is compliant with the e-Invoising platform and to correct it if necessary before re-submitting. It is crucial to avoid problems that may arise due to failure to complete certain fields such as VAT amounts, items, and customers’ details.

In addition, the businesses should use the means that ZATCA offers them like the error logs or technical support to identify the exact cause of the failure. There are probably recurrent problems that can be avoided through upgrading invoicing software every time there is a change in the regulations and guidelines. Adequate internal controls to check and validate invoices before they are submitted is essential to KSA’s efficient functioning in Phase II of its e-Invoicing system. By fulfilling the above mentioned steps, companies can guarantee positive results of their invoices submission and, thus, maintain legal compliance and avoid penalties.