List of ERP Changes to Be Ready for e-Invoicing in KSA

The Kingdom of Saudi Arabia (KSA) has introduced a mandatory e-invoicing system through the Zakat, Tax, and Customs Authority (ZATCA) to modernize tax compliance and improve transparency. This system has been rolled out in two phases:

• Phase 1: Generation Phase – Focuses on generating electronic invoices.
• Phase 2: Integration Phase – Requires businesses to integrate their ERP systems with ZATCA’s FATOORA platform for real-time invoice submission and clearance.

Integrating ERP systems with the FATOORA platform is not a straightforward process. Businesses must ensure their systems are equipped to handle the technical and regulatory requirements of e-invoicing. Below is a list of essential ERP changes to ensure compliance with ZATCA’s e-invoicing mandates.

Update to E-Invoice Generation Capabilities

At the core of the e-invoicing mandate is the need to generate invoices in a structured electronic format. To comply, businesses must ensure that their ERP systems are equipped with the following capabilities:

• Structured Invoice Format: The ERP must be able to generate tax invoices in an XML format or in PDF/A-3 format with embedded XML, as required for Phase 2.
• Mandatory Fields: The ERP should include all ZATCA-mandatory fields on the invoice. These include buyer and seller information, transaction details, VAT breakdowns, UUID (Universally Unique Identifier), and technical fields like hash values for data integrity.
• Cryptographic Stamp and QR Code: The system should support the generation of a cryptographic stamp to authenticate invoices and must include a QR code in the FATCA-specified format.

E-Invoice Submission and Clearance

As part of Phase 2, invoices must be submitted to ZATCA in real time. ERP systems must facilitate seamless connectivity with the FATOORA platform for invoice submission, clearance, and validation:

• Integration with FATOORA: ERPs need to be integrated with ZATCA’s API to submit tax invoices for clearance before sharing them with customers. This is especially important for B2B transactions.
• Clearance Acknowledgment: Once an invoice is cleared, ZATCA returns a cryptographically stamped version, which is legally valid. The ERP system should store these cleared invoices and make them available for buyer access.
• Simplified Invoice Reporting: For B2C (business-to-consumer) transactions, where invoice clearance isn't required upfront, the ERP must ensure that simplified invoices are reported to ZATCA within 24 hours of issuance.

ERP Compliance with Security Requirements

Given the sensitive nature of tax and financial data, ZATCA enforces strict security measures for ERP systems to ensure data integrity and prevent fraud:

• Tamper-Proof Mechanisms: ERP systems should incorporate features that prevent tampering with generated invoices. This includes preventing changes to invoice counters, blocking system date changes, and ensuring that all invoices are securely stored.
• Audit Trail: A detailed log of all invoice-related activities must be maintained in the ERP. The audit trail should be immutable, sequential, and should not allow for any modification or deletion.
• Cryptographic Key Management: The cryptographic keys used for stamping invoices must be securely managed to prevent unauthorized access or misuse.

Connectivity and Integration Features

To comply with ZATCA's e-invoicing requirements, ERP systems must function in real-time and integrate with external systems such as FATOORA:

• API Integration: The ERP system must integrate with ZATCA’s API to facilitate real-time invoice submission and clearance.
• Internet Connectivity: ERP systems must ensure internet connectivity for real-time data submission. In case of connectivity issues, the system should have processes in place to retry submission and keep a record of failed attempts.
• Handling Failures: If submission to ZATCA fails due to server or network issues, the ERP should have built-in retry mechanisms and maintain evidence of the attempts made to comply.

Additional ERP Features for Compliance

Beyond basic invoice generation and submission, ERP systems should offer additional features to handle more complex invoicing scenarios:

• Credit and Debit Notes: ERPs must be able to generate credit and debit notes linked to the original invoice and follow the same structure as the invoices.
• Advance Payment Adjustments: ERPs should support adjustments for VAT paid on advance payments and manage related data fields such as the prepayment amount and applicable VAT rates.
• Multi-Currency and Rounding Adjustments: For businesses involved in multi-currency transactions, ERP systems should handle currency conversions and rounding adjustments as per ZATCA guidelines.

Record Keeping and Data Storage

ERP systems must comply with ZATCA’s rules for record-keeping and data storage:

• Archiving Invoices: The ERP system must store invoices electronically in XML or PDF/A-3 formats, ensuring compliance with VAT law for data retention.
• On-Premises or Cloud Storage: Businesses can choose between on-premise and cloud storage for storing invoice data, but must ensure that the data is secure, accessible for audits, and compliant with ZATCA’s data retention policies.

ERP Testing and Validation

Before businesses begin e-invoicing, their ERP systems must undergo testing to ensure compliance with ZATCA’s requirements:

• Sandbox Testing: ZATCA provides a sandbox environment for businesses to validate their ERP’s ability to generate compliant invoices and pass validation checks in the FATOORA system.
• SDK Integration: ERP systems must integrate smoothly with ZATCA’s Software Development Kit (SDK) to ensure compliance with all e-invoicing processes.

Ensuring Compliance with Prohibited Functions

Certain functionalities are strictly prohibited by ZATCA, and ERP systems must ensure they do not allow them:

• No Anonymous Access: All users of the ERP system must be authenticated with unique logins or biometrics.
• No Default Passwords: ERPs must enforce password resets on first use to avoid the risk of default credentials.
• No Invoice Deletion: The deletion of invoices is not permitted under ZATCA regulations. In case of errors, businesses must issue a credit note instead of deleting the invoice.

Conclusion

As KSA continues its push toward digital transformation, businesses must ensure that their ERP systems are fully prepared for e-invoicing compliance. Implementing the necessary changes—ranging from invoice generation to security controls—will not only help businesses meet regulatory requirements but also optimize their invoicing processes, improve data accuracy, and increase operational efficiency.

To ensure full compliance, businesses should stay updated on ZATCA’s guidelines and work closely with their ERP providers to implement these changes effectively.