ZATCA E-Invoicing in Saudi Arabia: Phase 1 vs Phase 2 Explained

Saudi Arabia's e-invoicing mandate has been fully implemented since January 1, 2023. VAT-registered taxpayers are required to integrate with the ZATCA (FATOORA) platform and issue e-invoices in the specified structured format. Suppliers can no longer create or store invoices in paper or PDF format.

ZATCA introduced e-invoicing on December 4, 2021, by issuing the electronic invoicing regulation, and planned the rollout in two phases. Here is what each one asks of your business.

Phase 1: Generation

In the Generation phase, businesses generate and store tax invoices with QR codes. In practice that means your invoicing software needs to:

• Display QR codes on e-invoices and e-notes
• Generate a UUID for each document
• Implement the mandated fields of e-invoices and their associated notes
• Produce invoices in Arabic and English with a QR code
• Generate e-invoices for every transaction type: sales, refunds and returns, voids and so on

Phase 2: Integration with the ZATCA system

Phase 2 goes further. All businesses subject to the regulations must integrate their ERP, POS or accounting software with ZATCA's system, and all e-invoices must be reported and cleared with ZATCA. Standard tax invoices must be cleared in real time, while simplified tax invoices can be reported within 24 hours of their generation.

A Phase 2 ready solution has to handle:

• A QR code carrying 9 elements
• Data validations so invoices are generated error-free
• A UUID and an invoice hash
• XML transmission and PDF/A-3 generation
• A cryptographic stamp
• Emailing the final PDF/A-3 invoice to your customer automatically
• Archiving e-invoice data for up to six years on cloud servers

What happens if you don't comply

Non-compliance results in penalties ranging from SAR 1,000 to SAR 40,000. Phase 2 is being rolled out in waves by annual revenue, so it is worth checking which wave your business falls into and planning the integration ahead of your date.

Do you have to replace your existing software?

No. ZATCA e-invoicing software can typically be integrated with popular accounting systems. Bytize integrates with existing ERP, POS, billing and accounting software, including Microsoft Dynamics, Salesforce and SAP, and offers an API with endpoints for invoice generation, validation, submission and real-time tracking.

How Bytize helps

Bytize is a ZATCA-approved Phase 2 e-invoicing solution provider, covering both the Generation and Integration phases. You can verify our approval status on ZATCA's official Solution Providers Directory. Read more about our ZATCA e-invoicing software, or contact us to talk through your setup.