Summary
Saudi Arabia introduced ZATCA E-Invoicing in Saudi Arabia in two major phases. Phase 1 forces businesses to create invoices digitally with specific fields and formats. Phase 2 connects business systems to ZATCA for real-time clearance and reporting. Understanding these phases is essential for compliance, audits, and error-free tax filing.
1. Why ZATCA Divided E-Invoicing Into Two Phases
ZATCA rolled out e-invoicing in stages for one reason: to control risk and make sure businesses transformed without breaking their operations.
Phase 1 set the foundation.
Phase 2 enforced full integration.
The approach ensures:
- Standardization of invoice formats
- Real-time validation of tax data
- Stronger fraud prevention
- Smooth transition for businesses
This phased structure affects how you implement your software, manage accounting, and handle daily invoicing.
2. Phase 1: Generation Phase
Effective Date: 4 December 2021
Phase 1 forces all VAT-registered businesses to switch from manual or PDF-based invoicing to structured electronic invoices. No clearance with ZATCA is required at this stage, but strict formatting rules apply.
2.1 Phase 1 Requirements
Your invoicing system must support the following:
1. Electronic Invoice Creation
Invoices must be generated through a compliant digital system.
No handwritten invoices, no Excel files, no PDFs produced manually.
2. Mandatory Invoice Fields
Every invoice must include:
- Seller and buyer details
- VAT number
- Description of goods or services
- VAT rate, VAT amount
- Total before and after VAT
- Invoice issue date and time
These fields ensure clarity and reduce disputes.
3. QR Code for Simplified Invoices
All B2C (simplified) invoices must include a QR code with encoded VAT and seller information. This prevents manipulation.
4. Anti-Edit and Anti-Tamper Controls
Your system must:
- Block invoice deletion
- Block invoice overwriting
- Maintain a full audit trail
If your system allows editing or deleting invoices, you fail compliance.
5. UBL / XML Structured Data
Each invoice must be generated in structured UBL or XML format in addition to the human-readable layout. ZATCA relies on UBL to validate fields in Phase 2.
3. Phase 2: Integration Phase
Effective: January 2023 onwards (Wave-Based Deployment)
In Phase 2, ZATCA forces businesses to integrate their invoicing systems with its central platform. This is where real compliance starts.
3.1 What Makes Phase 2 Different
Phase 2 introduces three major obligations:
1. Real-Time Clearance
For standard invoices (B2B), your system must:
- Generate the invoice in XML
- Seal it with a cryptographic stamp
- Send it to ZATCA for clearance
- Receive approval before sharing with the buyer
If clearance fails, the invoice is invalid.
2. Real-Time or Near Real-Time Reporting
Simplified invoices (B2C) do not require clearance but must be reported to ZATCA within 24 hours.
3. System Integration & Whitelisting
You must register your invoicing system with ZATCA to receive:
- Cryptographic stamp certificates
- OTP validation
- Public and private keys
- System whitelisting approval
Using a non-registered system leads to automatic rejection.
4. Detailed Breakdown of Phase 2 Technical Rules
Phase 2 includes strict architectural and cryptographic requirements. Your system must comply with all of them.
4.1 Cryptographic Stamp
Every B2B invoice must include a cryptographic stamp to confirm authenticity.
4.2 UUID
A unique identifier assigned to every invoice.
Once generated, it cannot change.
4.3 Previous Invoice Hash
A linking mechanism that ties the chain of invoices together.
This prevents invoice removal or manipulation.
4.4 Standardized XML (UBL 2.1)
Invoices must follow ZATCA’s approved XML schema.
4.5 APIs for Clearance and Reporting
Your system must communicate with:
- Clearance API
- Reporting API
These APIs validate the structure, tax fields, and cryptographic controls.
5. The Wave System in Phase 2
ZATCA does not enable Phase 2 for all businesses at once. Instead, it uses a wave system based on annual turnover.
Examples:
- Wave 1: Revenue ≥ 3 billion SAR
- Wave 2: Revenue ≥ 500 million SAR
- Wave 3, 4, 5: Lower thresholds over time
When your wave is announced, you receive a deadline to complete Phase 2 integration.
New waves continue to be released until every VAT-registered business is connected.
6. Key Differences Between Phase 1 and Phase 2
| Requirement | Phase 1 | Phase 2 |
|---|---|---|
| Digital invoice creation | Yes | Yes |
| QR code for B2C | Yes | Yes |
| XML/UBL support | Yes | Mandatory |
| API integration | No | Yes |
| Clearance | No | Yes (Standard invoices) |
| Reporting | No | Yes (Simplified invoices) |
| Cryptographic stamp | No | Yes |
| Whitelisting | No | Yes |
Phase 1 is digital transformation.
Phase 2 is full enforcement.
7. Common Reasons Businesses Fail Compliance
You fall out of compliance if your system:
- Allows editing or deleting invoices
- Cannot generate UBL XML
- Does not support cryptographic stamping
- Fails to clear invoices in real-time
- Lacks API integration
- Is not whitelisted by ZATCA
- Uses outdated POS or accounting tools
If any of the above applies, your business is exposed.
8. How Businesses Should Prepare for Each Phase
Preparing for Phase 1
- Adopt a digital invoicing system
- Configure templates correctly
- Enable QR code generation
- Train staff on issuing VAT-compliant invoices
Preparing for Phase 2
- Validate system with ZATCA
- Enable clearance and reporting APIs
- Run sandbox tests
- Fix errors in the XML structure
- Ensure all invoices pass validation rules
- Never issue an invoice outside the system
Businesses that prepare early avoid penalties, disruptions, and rejections.
Conclusion
The two zatca e-invoicing phases deliver a clear roadmap for compliance. Phase 1 standardizes invoice creation, while Phase 2 enforces strict integration and real-time validation. Understanding these phases is essential for avoiding penalties and ensuring your invoicing system meets Saudi Arabia’s digital tax requirements.
