ZATCA E-Invoicing: Phase 1 vs Phase 2
Saudi Arabia's e-invoicing mandate, known as Fatoora, was introduced in two phases. Phase 1 (December 2021) required businesses to generate and store electronic invoices with specific technical fields. Phase 2 (rolling out by business size from January 2023) requires real-time integration between business systems and ZATCA's platform — invoices must be cleared or reported before they are issued to customers.
Who Is Affected
Phase 2 applies to VAT-registered businesses in Saudi Arabia. ZATCA is rolling it out in waves by business size, starting with the largest taxpayers. As of 2025, businesses with annual revenues above SAR 5 million have been notified. The rollout will eventually cover all VAT-registered businesses.
Two Invoice Types Under Phase 2
Standard (B2B) invoices: Must be cleared by ZATCA in real-time before being issued to the buyer. You submit the invoice to ZATCA's API, receive a clearance stamp, and only then issue the invoice. The process must complete within one minute.
Simplified (B2C) invoices: Issued directly to the consumer but must be reported to ZATCA within 24 hours. Your POS system generates the invoice, the customer receives it, and the data is uploaded to ZATCA's platform in the next batch.
Technical Requirements
Phase 2-compliant systems must:
- Generate invoices in UBL 2.1 XML format
- Include a cryptographic stamp (using ECDSA algorithm) for each invoice
- Include a QR code with specific encoded fields
- Maintain a secure hash chain linking consecutive invoices
- Integrate with ZATCA's Fatoora API using TLS 1.2 or higher
The Onboarding Process
Before going live, your system must complete ZATCA onboarding: generate a CSID (Cryptographic Stamp Identifier) by submitting a Certificate Signing Request to ZATCA's portal, and complete compliance testing in ZATCA's sandbox environment. Only after receiving a Production CSID can you begin live integration.
VAT Rates
Saudi Arabia VAT is 15% (increased from 5% in July 2020). Zero-rated supplies include exports, international transport, and certain financial services. Exempt supplies include residential rental.
Penalties for Non-Compliance
Issuing a Phase 2 invoice without clearance carries a fine of SAR 5,000–50,000. Failure to report simplified invoices within 24 hours carries fines up to SAR 10,000. ZATCA has been actively enforcing these penalties since 2023.
