e-Invoicing in Saudi Arabia: A Step-by-Step Guide for Your Business

The Zakat, Tax, and Customs Authority (ZATCA), formerly the General Authority of Zakat and Tax (GAZT), launched e-invoicing in Saudi Arabia as their digital economy initiative in 2020. This first phase which began on December 4, 2021, required VAT-registered businesses to generate and store tax invoices using approved electronic systems.

Phase 2 began on January 1, 2023, and is being rolled out in stages based on business turnover. Under this phase, businesses must fully integrate their systems with ZATCA’s platform and meet all requirements.

Recently, ZATCA announced Wave 13 for Phase 2, which mandates that businesses with a turnover exceeding SAR 7 million must comply by January 1, 2025.

This article explains all about e-invoicing in Saudi Arabia including applicability, types of e-invoices, phases, waves, guidelines, process flow, penalties, case studies and benefits of Saudi e-invoicing.

What is e-Invoicing in Saudi Arabia?

e-Invoicing, also known as FATOORA in Saudi Arabia, refers to the process of issuing and handling invoices in a digital format. This system replaces traditional paper invoices with electronic versions, including Credit & Debit Notes (CDNs)., exchanged between buyers and sellers through an online integrated solution.

An electronic invoice is a tax invoice created in a structured digital format using electronic means. Unlike a scanned or converted paper invoice, a true electronic invoice is generated directly through an electronic system.

Here are the key differences between traditional invoicing and digital e-invoicing:

1. Structured Format: E-invoices are created in a machine-readable format, such as XML along with human readable version  in pdf/ A-3 format.
2. Integration with ZATCA: E-invoices are generated through ZATCA’s online integrated system (FATOORAH System) or e-invoicing software, which validates and stores the invoice details.
3. Reporting: E-invoices are reported to ZATCA’s FATOORAH system in the specified time.
4. Direct Transmission: E-invoices are sent directly to the buyer’s enterprise system through an integrated network, provided it is connected to ZATCA's system.

Additional Fields: E-invoices include mandatory fields such as IRN (Invoice Reference Number) and QR Code, in addition to the standard details in a KSA VAT invoice.

Scope of e-Invoicing in Saudi Arabia

e-Invoicing in Saudi Arabia applies to all taxable persons who conduct economic activities independently for generating income and are either registered for VAT in the Kingdom or required to register under the VAT Law and its implementing regulations. The scope includes:

Taxable Persons

• All taxable individuals residing in Saudi Arabia.
• Entities registered for VAT in Saudi Arabia or required to be registered for VAT.
• Those who trade within or outside of Saudi Arabia.
• Customers or any third party issuing a tax invoice on behalf of a taxable person residing in the Kingdom must comply with the e-invoicing regulations.

Obligations

• Taxable persons must generate e-invoices for all transactions requiring tax invoices, including the necessary electronic notes as stipulated by the VAT Law and its implementing regulations.
• E-invoicing processes apply to all VAT-taxable goods and services, whether at a standard rate or zero rate.

Exemption

Taxable persons who are not residents in Saudi Arabia are exempt from issuing electronic invoices or electronic notes for supplies or amounts received that are subject to tax in Saudi Arabia.

ZATCA e-Invoicing Compliance Guidelines

To ensure your company is fully prepared for e-invoicing in Saudi Arabia, please follow these guidelines:

• E-invoicing provisions must be applied to all taxable goods and services subject to VAT, whether at standard or zero rates. (Phase 1 and Phase 2)
• All VAT-registered businesses in Saudi Arabia (excluding non-resident taxable persons) must adopt e-invoicing for sales made within and outside the Kingdom. Third parties issuing tax invoices on behalf of taxable persons in Saudi Arabia must also comply. (Phase 1 and Phase 2)
• Invoices must be issued in Arabic. Additional translations or languages may be included, but Arabic is mandatory. (Phase1 and Phase 2)
• Invoices must be shared or presented in XML or PDF/A-3 (with embedded XML) format. ((Phase1 and Phase 2)
• E-invoicing must be implemented for all B2B, B2G, and B2C transactions. Also be implemented for other documents like – debit note and credit not in addition to invoices.
• Your e-invoicing system must be integrated with the ZATCA portal. (Notification of this requirement will be provided 6 months in advance before it becomes mandatory -Phase 2) 
• Systems must securely connect via Application Programming Interface (API) and generate a Universally Unique Identifier (UUID) and a digital signature. (Phase 2)
• e-Invoicing system must be able to distinguish between electronic invoices, hashes, and cryptographic stamps, including sequential numbers and anti-tampering features. (Phase 2)

Click here to know more about ZATCA e-invoicing guidelines

Types of e-invoices in Saudi Arabia

ZATCA clarified that e-invoices should be issued for all types of tax invoices under VAT. There are different types of e-invoices, and below are the frequently used tax invoices:

Standard tax invoice

It is the invoice issued by a Business to another Business (B2B) or business to a government (B2G), containing all the elements of a tax invoice, especially the VAT registration number of the buyer and seller.

Key Attributes of Standard Tax Invoice

• Allows consumers to claim input VAT deductions.
• Contains detailed information about the seller, buyer, transaction, and products/services.
• Must be cryptographically stamped and cleared by ZATCA.
• Integrated with the ZATCA portal and must be sent for verification in real time

Below is the sample format of a standard e-invoice:

Simplified tax invoice

It is often issued by a Business to consumer (B2C) containing the main prescribed elements of a simplified tax invoice. 

Key attributes of Simplified tax invoice

• No VAT deduction capability for the buyer.
• In Phase 1: Simply share with customers.
• In Phase 2: Must be reported to ZATCA within 24 hours of issuance.

Below is the sample  format of a simplified tax invoice:

Click here to know other types of e-invoices.

Further, ZATCA explained in the guidelines that the e-invoice to be issued varies based on the type of supply. Here’s the table explaining the type of e-invoice to be issued:

*When selling taxable or zero-rated supplies to a taxable or non-taxable legal person of less than SAR 1000, the seller might issue simplified tax invoices. However, if the buyer wants to claim input VAT, they can request the seller to issue a standard tax invoice.

^Non-taxable legal person means a business in Saudi Arabia but not registered under VAT due to the registration threshold.

Phases of e-invoicing in Saudi Arabia

The ZATCA is implementing e-invoicing in two phases:

Phase 1: Generation

Implemented on December 4, 2021, the Generation phase is the initial step towards e-invoicing. This phase requires taxpayers to:

1. Generate invoices electronically.
2. Include specific details.

Taxpayers must generate e-invoices, credit notes, and debit notes through a ZATCA-compliant e-invoicing solution. This applies to all taxpayers (excluding non-resident taxpayers) and any other parties issuing tax invoices on behalf of VAT-registered suppliers.

The process for issuing e-invoices will be similar to current invoice practices but through a compatible electronic billing system, which could be an online cash register or e-invoicing software (either on-premises or cloud-based).

The Generation phase does not require any integrations or communications to send or receive e-invoices through the ZATCA e-invoice system (FATOORAH)..

Phase 2: Integration

Since January 1, 2023, Phase 2 has been implemented in waves for specific taxpayer groups based on turnover. This phase involves integrating e-invoicing solutions with ZATCA’s e-invoicing systems (FATOORAH) and sending e-invoices for validation before issuance.

This phase includes technical and procedural requirements for generating, submitting, validating, and sharing e-invoices:

• Connect to FATOORAH using Application Programming Interfaces (APIs)
• Generate a Universally Unique Identifier (UUID)
• Create and add a digital signature
• Produce a sequential number for each e-invoice
• Include a cryptographic stamp
• Sellers must 'clear' the Tax Invoice from ZATCA in real-time and then share it with buyers as a legally valid e-invoice (simplified invoices must be sent to ZATCA within 24 hours from generation).

Phase 2 is being rolled out in waves for targeted taxpayer groups. It began on January 1, 2023, for businesses with a turnover exceeding SAR 3 billion. 

ZATCA has announced 13 waves to date. Here are the waves notified by ZATCA till now

Who implements e-invoicing in Saudi Arabia?

The Zakat, Tax and Customs Authority (ZATCA) is the authority for e-invoicing in Saudi Arabia. GAZT, now known as ZATCA, issued the draft e-Invoicing Regulations in KSA in March 2021. The authority allowed the public and stakeholders to provide feedback on the e-Invoicing Regulations on or before 17th April 2021. The e-invoicing Regulations were finally published on 28th May 2021.

What is the process flow of e-invoicing in Saudi Arabia?

The process flow for generating an e-invoice in Saudi Arabia differs based on the type of invoice. With the phase 2 implementation date approaching, it is important to understand the process of generating electronic invoices.

Let’s go through them one by one.

Here’s the step-by-step process flow of standard tax invoices in phase II:

Here’s the step-by-step process flow of simplified tax invoices in phase II:

e-Invoicing Penalties for Non-Compliance

Penalties for non-compliance of e-invoicing rules in KSA vary based on the nature and frequency of the offence. Initial violations are usually met with warnings, while repeated offenses result in harsher penalties. 

• Non-issuance or non-archiving of e-invoices: SAR 5,000 to SAR 50,000
• Incorrect amendments or cancellations of e-invoices: SAR 10,000 to SAR 50,000
• Missing QR code on simplified invoices: Warning 
• Failure to report system issues affecting e-invoicing: Warning
• Absence of buyer VAT registration number on e-invoices (B2B): Warning 

During initial inspections, ZATCA issues warnings rather than penalties, allowing three months for compliance. Persistent non-compliance after this period results in a SAR 1,000 fine, which increases if required changes are not made within the given timeframe.

Repeated Violations

• SAR 1,000 for the second violation
• SAR 5,000 for the third
• SAR 10,000 for the fourth
• SAR 40,000 for the fifth

Violations discovered after 12 months are treated as new offences, starting with a warning.

Benefits of e-invoicing in Saudi Arabia

The Saudi government is introducing e-invoicing to phase out hand-written invoices and transition to a paperless, digital environment. This move aims to enhance efficiency and security in business operations. Here's how e-invoicing benefits Saudi Arabia:

• Increased Transparency: E-invoicing ensures transparency in commercial transactions, aiding the government in improving tax compliance.
• Improved Accuracy: Electronic invoices facilitate accurate and efficient transactions, reducing errors and streamlining customer interactions.
• Enhanced Efficiency: Data standardization and seamless integration enhance transaction efficiency, speed up communication, expedite payments, and lower costs for both businesses and the government.
• Environmental Benefits: Shifting to electronic invoices reduces paper use, making the process more environmentally friendly.
• Fraud Detection: E-invoicing helps tax authorities identify fraudulent activities and monitor the shadow economy by maintaining a common database for real-time transaction tracking.

ClearTax provides ZATCA-compliant e-invoicing software that easily integrates any ERP/POS and generates PDF/A3 e-invoices. ClearTax is trusted by over 4,000 enterprises across the globe; our prowess lies in ensuring 100% compliance, end-to-end integration and process optimisation.

Case studies

Case study 1: How is a leading retail giant in Saudi Arabia easily generating millions of ZATCA Phase II-compliant e-invoices with us?

Challenges: Seamlessly generating millions of invoices, real-time ZATCA integration, and connecting diverse ERP/POS systems.

Solution: Enabled instant e-invoice generation, unified system connectivity, and 99.9% uptime during peak periods.

Click here to know more about this case study.

Case study 2: How have we enabled a large Saudi Arabian conglomerate to generate over 200 million e-invoices annually?

Challenges: Adapting business processes, connecting diverse and remote stores to ZATCA, and consolidating reports.

Solution: Provided seamless integration with ZATCA, scalable infrastructure for high transaction volumes, offline e-invoicing capabilities, and centralized reporting.

Click here to get more details on this case study.

How can ClearTax help you generate ZATCA-compliant e-invoices?

ClearTax APIs will act as middleware connecting the ERP/POS and ZATCA system, ensuring 100% e-invoicing compliance. It automatically registers hundreds of ERP/POS in a single click with ZATCA and receives a cryptographic stamp for each device.

It comes with below features:

• 150+ smart data validations to ensure invoice data is as per ZATCA regulations, therefore, generating error-free invoices.
• ClearTax generates UUID, invoice hash, invoice counter value, QR code & converts invoices into UBL 2.1 XML format.
• Our API automatically sends invoice data to the ClearTax cloud platform for conversion to ZATCA e-invoice.
• ClearTax adds Phase II QR code & certified XML into the existing invoice to generate the final PDF A/3 invoice.
• We provide e-invoice data archival for up to six years on SLA-based cloud servers.

Explore ClearTax e-invoicing software today!