Electronic Invoicing in Saudi Arabia: Everything You Need to Know About Phase Two

Electronic invoicing in Saudi Arabia is one of the key pillars of the digital transformation initiative embraced by Saudi Vision 2030. Since the launch of Phase One in 2021, the Kingdom has begun implementing Phase Two, known as the Integration Phase, which aims to connect businesses’ invoicing systems directly to the Fatoora platform operated by the Zakat, Tax and Customs Authority (ZATCA).

In this article, we will cover everything you need to know about Phase Two, including its technical and administrative requirements, targeted businesses, activation steps, and frequently asked questions.

What Is Electronic Invoicing?

An electronic invoice is an invoice that is issued, stored, and processed entirely electronically, without manual intervention or printed paperwork. It contains all the information found on a traditional invoice but is issued in specific digital formats, such as XML or PDF/A-3, and sent to the Zakat, Tax and Customs Authority in real time or near real time for clearance or reporting.

Phases of Electronic Invoicing Implementation in Saudi Arabia

Phase One (Generation and Storage Phase)

This phase began on December 4, 2021, requiring all taxpayers registered for Value Added Tax (VAT) to issue and store invoices electronically.

Phase Two (Integration Phase)

This phase began gradually on January 1, 2023, based on annual revenue.

During this phase, businesses must connect their invoicing systems to the Fatoora platform to submit all invoices directly for clearance or reporting.

Targeted Businesses and Implementation Dates

When the Zakat, Tax and Customs Authority began implementing Phase Two of electronic invoicing, it did not roll it out to all businesses at once. Instead, the Authority adopted a gradual approach known as the Waves system, grouping businesses according to their annual revenue and notifying each business six months before its implementation deadline.

The first wave began in January 2023 and included large businesses with annual revenues exceeding SAR 3 billion. These major companies were among the most technologically prepared, making them the starting point for implementation.

The rollout then moved to the second wave in July 2023, covering businesses with annual revenues exceeding SAR 500 million.

As implementation progressed, the third wave followed in October 2023, covering businesses with annual revenues of SAR 250 million or more.

Through this gradual approach, the Authority continued adding new waves every few months, giving businesses sufficient time to prepare technically and administratively and integrate their systems with the Fatoora platform.

By April 2025, Phase Two had reached the final wave described in this rollout, covering businesses with annual revenues exceeding SAR 3 million. This made electronic invoicing mandatory for the vast majority of medium-sized and small businesses in the Saudi market.

Through this phased approach, the Authority was able to help businesses prepare, reduce technical challenges, and achieve a smooth digital transformation without disrupting business operations.

What Are the Requirements for Phase Two?

1. Technical Requirements

• An electronic invoicing system capable of generating invoices in XML or PDF/A-3 formats.
• Support for digital signatures and a QR code on each invoice.
• The ability to integrate directly with the Fatoora platform through an API.
• Electronic archiving of invoices for a minimum of six years.

2. Administrative Requirements

• Registering the business for Value Added Tax (VAT).
• Including all mandatory information on invoices, such as the tax registration number, supplier and buyer details, and tax amount.
• Training finance teams to use the new system and understand the integration requirements.

What Does Integration Mean?

Integration means that a business’s invoicing system connects directly to the Fatoora platform, enabling the following:

• Generating invoices electronically.
• Sending invoices to the Authority in real time or near real time.
• Receiving digitally signed, cleared invoices.

This process enhances transparency, reduces tax manipulation, and simplifies the preparation of tax returns using up-to-date data.

Types of Electronic Invoices

Tax Invoice

• Used for business-to-business (B2B) transactions.
• Submitted to the Authority for clearance before being issued to the customer.

Simplified Tax Invoice

• Used for business-to-consumer (B2C) transactions.
• Can be issued immediately but must be reported to the Authority within 24 hours.

Credit Notes and Debit Notes

These are used when adjusting an invoice amount, whether decreasing it through a credit note or increasing it through a debit note.

Steps to Activate Electronic Invoicing

1. Choose an Approved Invoicing System

It is important to choose an invoicing solution approved by the Zakat, Tax and Customs Authority, such as a cloud-based system that supports direct integration. Wazen is one example.

2. Prepare the Technical System

Enable invoice generation in compliant formats, implement digital signatures, and configure QR codes.

3. Integrate with the Fatoora Platform

Integration is carried out through a secure API that enables invoices to be sent and received in real time.

4. Testing and Live Implementation

Conduct test runs to ensure that invoices are transmitted correctly, then begin issuing approved invoices as part of actual business operations.

Benefits of Electronic Invoicing for Saudi Businesses

• Enhances transparency and reduces tax manipulation.
• Simplifies tax return preparation through access to up-to-date data.
• Improves financial reporting and reduces the time required to prepare reports.
• Supports digital transformation and reduces operating costs.

Penalties and Fines for Non-Compliance

Penalties may include:

• Financial fines amounting to thousands of Saudi riyals for each violation.
• Suspension of certain electronic services provided by the Authority.
• Field inspections and strict corrective measures.

How Do You Choose the Right Invoicing System?

When choosing an invoicing solution, make sure it:

• Is officially approved by the Zakat, Tax and Customs Authority.
• Can generate all types of electronic invoices.
• Provides dashboards and real-time reports.
• Offers easy integration with the Fatoora platform.

Among the invoicing systems available in Saudi Arabia, some cloud-based solutions, such as Wazen, provide a comprehensive experience with straightforward integration. This makes them an ideal choice for businesses seeking seamless compliance and greater efficiency.

Frequently Asked Questions (FAQ)

What Is the Difference Between a Tax Invoice and a Simplified Tax Invoice?

A tax invoice is used for business-to-business (B2B) transactions and must be cleared before being issued to the customer.

A simplified tax invoice is used for business-to-consumer (B2C) transactions and must be reported to the Authority within 24 hours.

Does the Implementation Apply to Small Businesses?

Yes. Starting in April 2025, the rollout described in this article includes businesses with annual revenues exceeding SAR 3 million.

How Long Does System Activation Take?

Activation may take anywhere from a few days to several weeks, depending on the business’s level of readiness and the invoicing system selected.

Conclusion

Phase Two of electronic invoicing represents a major transformation in Saudi Arabia’s business environment and is an essential step toward greater transparency and accounting efficiency.

Choosing an approved invoicing system that offers easy integration, such as a cloud-based solution like Wazen, helps businesses achieve compliance more easily and avoid penalties while benefiting from the advantages of digital transformation.

Start your 14-day free trial of Wazen today and explore its services and features, designed to help your business meet compliance requirements and advance its digital transformation and electronic invoicing capabilities.

Read also: Issuing Electronic Invoices via WhatsApp to Streamline Financial Operations and Reduce Errors

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