Core Phases of E-Invoicing
Billing systems in Saudi Arabia were quite outmoded nearly a decade ago, with a manual pile of paper invoices and traditional systems or record-keeping that were highly prone to manual errors and mistakes. However, procedures started to evolve when VAT was introduced. To keep up with VAT record management, it needed the latest tools and automated systems, and that is how the transformation towards a digitized invoicing system began. Electronic invoicing is also an advanced form of a robust compliance system, which started in December 2021. It completely changed the way companies were billing their customers.
The Saudi Government rolled out electronic invoicing in two phases, where each came with its own set of legislation, technical requirements, and implementation deadlines. The first phase mainly emphasized the generation and storage of invoices, while the second one was primarily about the integration with ZATCA. Many businesses are still confused about what belongs to which phase. This blog clears that up by explaining integration waves, their requirements, and deadlines.
What Is E-Invoicing in Saudi Arabia and Who Must Follow It?
An electronic Invoice is a replacement for a paper invoice; it is issued, shared, and archived digitally using compliant e-invoicing solutions. The e-invoicing in Saudi Arabia is managed by the ZATCA through their FATOORA platform which not just validate every invoice in real time, but also keep a track of a company’s invoice data for tax administration. The aim behind electronic invoicing was also to reduce tax fraud and tax evasion across the Kingdom.
Now the question is: who needs to adopt electronic invoicing in Saudi Arabia? It is necessary for all the VAT-Registered companies in the KSA and the third-party issuers of tax invoices on behalf of VAT-registered persons to issue their invoices electronically. The non-resident tax-registered businesses are out of the electronic invoicing scope.
According to the ZATCA stats, more than 8.2 billion invoices were generated by the platform in 2025, which was 64% more than in 2024. Hence, one can consider e-invoicing in Saudi Arabia a normal business obligation today. Under this framework, documents like these no longer count as valid tax invoices:
- Handwritten invoices, or ones typed up in Word or Excel
- Scanned copies of paper invoices
- A PDF made from a printed invoice
- Invoices from software that can’t meet ZATCA’s security and data needs
What Are the Core Phases of E-Invoicing in Saudi Arabia?
ZATCA implemented E-invoicing in Saudi Arabia in 2 phases. The first phase generally focused on making it easier for businesses to adopt E-invoicing by understanding it, training their teams, and moving toward a fully digitized system. The second phase then connected these systems directly with the authority.
Phase 1: What Did the Generation Phase Change?
The Generation Phase was started 5 years ago in December 2021, targeting every VAT-registered company, without any threshold limits. The goal was to make e-invoicing simpler and more comfortable for businesses to embrace. In this phase, the companies did not connect with ZATCA’s systems; they only had to upgrade their accounting systems and POS to start testing their electronic invoicing.
ü Phase 1 Requirements
For Phase 1, the only requirements were to issue the tax invoices, credit notes, and debit notes using the approved software. Standard tax invoices must also include the buyer’s VAT number, while simplified tax invoices require a QR code with the seller’s name, VAT number, timestamp, and invoice total. All the mandatory fields in the invoice were to be in Arabic format, and all the records are required to be archived for at least six years for record-keeping purposes.
ü Phase 1 Prohibitions
ZATCA had made it clear that there was no permission to tamper with the invoices, and that is why compliant systems prohibited anonymous logins, deleting, or editing of invoices once they are issued. Likewise, changing the date and time of invoices and running more than one invoice counter on a single device were also not allowed.
Phase 2: How Does the Integration Phase Work?
After the complete adoption of the generation phase, the integration phase began in 2023. This phase required much more technical implementation than Phase 1. The invoicing system has to be connected to the FATOORA platform using the APIs, so that ZATCA approves the invoice before it is further moved to the recipient. This phase was further divided into waves, based on the annual revenues of the company.
ü Clearance Model for Standard Tax Invoices
The clearance model is implemented for the standard tax invoices, which are used by the B2B and B2G companies. This means that a business has to get the invoices cleared from ZATCA before sending them to their recipient buyers; the ZATCA platform checks all the details, like cryptographic stamps, XML formats, and all the necessary information, to validate the invoice before proceeding further.
ü Reporting Model for Simplified Tax Invoices
The reporting model is used for simplified tax invoices that are issued by retail stores, restaurants, and cafes, mostly B2C companies that require invoices to be instantly presented to the customers. Businesses then report these invoices to ZATCA within the 24-hour period after issuing them. So the counter keeps working without any delay, and ZATCA still gets a complete picture of all the transactional data.
ü Technical Requirements of Phase 2
This is the part where most businesses hit stumbling blocks, as FATOORA rejects every invoice that even misses a single technical element mandated by ZATCA. Phase 2 is to be generated in the UBL 2.1 XML format to make it verifiable and readable by the machines in real time; it must cover the following details:
- A Universally Unique Identifier (UUID)
- An invoice hash that is linked with the previous invoice’s hash, so every invoice links to the one before it like a chain
- A cryptographic stamp, generated using the Cryptographic Stamp Identifier (CSID) that you gain by signing up with the FATOORA portal with a one-time password
- A QR code that now also holds the invoice hash and the stamp details
ü Integration Waves: From SAR 3 Billion to SAR 187,500
As Phase Two is further moved in waves, it is also important to understand these waves, such as in January 2023, taxpayers with annual revenue above SAR 3 billion in 2021 were targeted in Wave 1. Since then, gradually, different waves for businesses with lower thresholds were introduced. The most recent Wave 25 targets businesses with revenues above SAR 187,500 in the years between 2022 and 2025, and their integration is due by 1 February 2027. Every business is informed directly six months prior to the deadline.
Due by 1 February 2027. ZATCA informs each selected business directly, giving it at least six months’ notice.
How Is Phase 2 Different from Phase 1?
While Phase 1 mainly emphasized the understanding and making of electronic invoices, Phase 2 is about validating these invoices with the ZATCA. In the first phase, invoices were not connected to any compliant systems, so they stayed in a company’s system, whereas in Phase 2 these invoices were processed to ZATCA for verification in real time or near real time, depending on the type of invoice. Businesses that overlooked the phase 1 may find it hard to implement Phase 2 directly, which came with stricter technical requirements and also needed close scrutiny. Missing Phase 2 is out of the question for any business that falls under the scope of e-invoicing to avoid legal obstacles.
What Happens If You Miss Your Integration Deadline?
Despite the fact that ZATCA made it clear that no business must miss their integration deadlines, many outdated companies running on traditional systems still struggle to implement the integration phase. This exposes them to severe fines of up to SAR 50,000 per violation. In even severe cases, or continuous non-compliance, it leads to adverse legal damages.
That being said, the B2B buyers may also hold the payments, which may hurt your cash flow and damage your reputation in the market. Hence, it’s not just essential to implement the integration phase on time for legal compliance, but also to keep your company guarded against reputational losses and cash damages. E-invoices also help you build a better relationship with customers, aid in mapping Categories, running sandbox tests, and training your teams.
Why Choose SS&CO for E-Invoicing in Saudi Arabia?
Being one of the best chartered accountants in Saudi Arabia, SS&Co has gained prominence across KSA businesses in offering premium electronic invoicing services in KSA. From understanding your requirements, where you need modifications, and checking which wave you fall into, our qualified accountants help you deploy advanced ERP systems and POS solutions to integrate your accounting, finance, tax, and HR departments, making electronic invoicing seamless. All your electronic invoicing requirements are managed under a single umbrella, so you won’t have to worry about anything. Not just that, our professionals also offer ongoing support services, so even after the e-invoicing implementation to troubleshoot any unexpected error. We keep you updated with the most recent ZATCA rules, train your teams, and work alongside them to even support you in ZATCA audits. Get in touch with our electronic invoicing experts today for a free consultation.
About the Author
Yumna Muddasir is a digital content specialist known for her writing in taxation, accounting, and information technology services in the GCC. She emphasizes demystifying difficult financial topics to facilitate businesses staying compliant and making well-thought-out decisions.