Online VAT Calculation in KSA: Quick & Easy Guide

Saudi Arabia has taken significant steps to digitalize business transactions with the introduction of e-invoicing. The Zatca approved e-invoicing in Riyadh ensures smooth compliance with tax regulations, making invoicing more secure and efficient. The e-invoicing mandate, introduced by the Zakat, Tax and Customs Authority (ZATCA), has two phases: Phase I and Phase II. These phases are designed to streamline tax reporting, prevent fraud, and enhance transparency in business transactions.

A key differentiating point between the phases is the QR codes. In Phase I, QR codes carried basic invoice information that allowed buyers to verify these transactions' authenticity. However, Phase II QR codes will carry cryptographic stamps and other data, creating robust security levels and compliance with ZATCA regulations. It is, therefore, mandatory that businesses understand the differences in order to ensure a seamless transition, avoiding any penalties.

Here are some of the KSA e-invoicing: Phase I QR Code vs. Phase II QR Code

The Kingdom of Saudi Arabia (KSA) has enacted e-invoicing regulations to transform taxation and compliance with respect to the Zakat, Tax, and Customs Authority (ZATCA). E-invoicing is a two-phased process: Phase I (Generation Phase) and Phase II (Integration Phase). The two-phased structure is QR Code which is one of the very important components for both phases when it comes to the verification and validation of invoices. The difference in the structure as well as in the requirements of QR Codes between both phases has been a topic of discussion for some time. The following article will discuss the Phase I QR Code and Phase II QR Code under the e-invoicing regime of KSA in detail.

A Brief Introduction to KSA e-Invoicing Phases

Phase I (Generation Phase)

This phase was launched on December 4, 2021, when any business was to generate and maintain invoices electronically in a structured format. Below are some key highlights of Phase

• Generation of electronic tax invoices and simplified tax invoices.
• Essential fields such as seller name, VAT number, invoice date, and total amount should be available on an invoice.
• Includes a QR Code on simplified tax invoices so ZATCA can perform a verification.
• Comply with the format and standards approved for submission by ZATCA-followed such as XML or PDF/A-3 with embedded XML.

Phase II (Integration Phase)

This phase is the second phase of the e-invoicing implementation. It started on January 1, 2023. It currently mandates entities to conduct their operations in a way that will enable real-time reporting and system integration. Furthermore, such entities must meet the following requirements:

• The provision for the real-time integration of e-invoicing systems with ZATCA's platform Enforced cryptographic stamping and a new QR Code format characterized by additional data.
• Clearing of invoices for standard tax invoices and reporting for simplified tax invoices.
• All measures of safety and protocols for data transmission must be complied with stringent stipulations.

QR Codes in Phase I and Phase II

QR Code in Phase I

The introduction of QR Code in Phase I primarily involved simple tax invoices, which contained the basic details of invoices and their verifications via scanning with mobile devices for authenticity. The QR Code in Phase I contained five mandatory fields:

• Name of the seller - Registered business name of seller.
• Value Added Tax (VAT) Registration Number - VAT number of the supplier.
• Date and Time of the Invoice - The time stamp when the invoice is generated.
• Total of the invoice (with VAT) - Total amount considering VAT.
• Value Added Tax Amount - Total value-added tax amount.

The QR Code in Phase I used Base64 encoding to store data in a compact manner. This QR Code is used purely for instant validation by customers and auditors of ZATCA.

QR Code in Phase II

The QR Code, in Phase II, has been developed greatly, with the embedding of cryptographic controls and other added invoice data. The new QR Code, in Phase II, consists of the following six fields:

• Seller's Name - Same as Phase I.
• VAT Registration Number - Same as Phase I.
• Invoice Date and Time - Same as Phase I.
• Invoice Total (with VAT) - Same as Phase I.
• VAT Amount - Same as Phase I.
• Cryptographic Stamp - A unique stamp generated using a secure encryption algorithm.
• Invoice Hash - Digital signature to ensure the integrity of invoice data.

Unlike Phase I, the QR Code in Phase II is now crimped and signed cryptographically, making it tamper-proof. Any modification in invoice data would make this QR Code invalid.

How Businesses Should Prepare for the Phase II QR Code

In order to comply with Phase II e-invoicing, businesses should:

• Upgrade The E-Invoicing Systems – This is to ensure that the invoicing software supports cryptographic stamping and real-time integration with ZATCA.
• Use A ZATCA-Approved Solution – For selecting an e-invoicing system with specifications on invoice generation and QR Code encryption laid down by ZATCA.
• Secure The Handling of Data- Establish strict security in order to safeguard invoice data.
• Train Staff for Compliance-In-house training should be conducted to create awareness on the QR Code requirements that are relatively new and the importance of real-time invoice reporting.
• Test Integration with ZATCA - Perform tests to ensure that invoices are sent correctly, and QR Codes are generated according to Phase II requirements.

Conclusion

The implementation of ZATCA-approved e-invoicing in Riyadh marks a milestone toward modernizing the Kingdom's financial ecosystem. The knowledge of differences between Phase I QR codes and Phase II QR codes is essential knowledge for businesses to adhere to tax regulations and run smoothly. Phase I QR codes only possess basic security features to validate the invoice, while Phase II QR codes are encrypted with cryptographic privacy to protect the data against malicious tampering.

With ongoing digital transformation initiatives in Saudi Arabia, businesses will have to take the necessary steps to comply with ZATCA's e-invoicing regimen. Companies should embrace these changes by upgrading their invoicing to be compatible with Phase II, thus positioning themselves for enhanced tax compliance, greater security, and improved operational efficiency in the changing economic landscape of the Kingdom.

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