E-Invoicing Requirements for Companies in KSA

The Kingdom of Saudi Arabia (KSA) has taken a major leap toward digital transformation with the introduction of mandatory e-invoicing. Spearheaded by the Zakat, Tax and Customs Authority (ZATCA), this reform aims to enhance transparency, increase tax compliance, and modernize how businesses operate.

This article provides a detailed overview of the e-invoicing requirements for companies in Saudi Arabia, including who needs to comply, what is required, and how to ensure readiness at every stage.

What Is E-Invoicing?

E-invoicing, or electronic invoicing, refers to the process of generating, issuing, and storing invoices in a structured digital format. Unlike traditional paper or PDF invoices, E-invoices in KSA must meet specific technical and regulatory criteria set by ZATCA.

These invoices are not just digital copies—they are system-generated documents that are validated, cleared, or reported through ZATCA’s platform.

Who Must Comply with E-Invoicing in Saudi Arabia?

E-invoicing is mandatory for:

• All VAT-registered businesses in Saudi Arabia.

• Any third party issuing tax invoices on behalf of VAT-registered businesses.

• Foreign businesses operating within Saudi Arabia under a VAT license.

There are no exceptions based on industry or size (though the compliance timeline is phased). Whether a business operates in retail, services, manufacturing, or e-commerce, it must follow the e-invoicing mandate.

Objectives Behind the Mandate

ZATCA’s goals for implementing e-invoicing include:

• Reducing tax evasion and commercial fraud.

• Enhancing the efficiency of tax collection.

• Encouraging digital transformation.

• Promoting fair competition in the local market.

• Enabling better visibility of economic transactions.

The initiative aligns with Vision 2030’s goal of creating a more digitized, data-driven economy.

The Two Phases of E-Invoicing in KSA

Saudi Arabia is implementing e-invoicing in two major phases:

Phase One: Generation Phase (Fatoorah)

Effective from: December 4, 2021

In this phase, companies are required to:

• Generate and store invoices in a structured electronic format (XML format is mandatory).

• Eliminate handwritten, scanned, or unstructured invoices.

• Include specific fields such as the buyer’s details, VAT amount, and QR code for B2C invoices.

• Use a system or software that prohibits invoice tampering and allows proper archiving.

This phase focuses on invoice creation, not yet involving real-time clearance or integration with ZATCA.

Phase Two: Integration Phase

Effective from: January 1, 2023 (rolled out in waves)

This phase involves:

• Real-time or near real-time integration with ZATCA’s Fatoorah platform.

• Clearance of B2B invoices before they are shared with the buyer.

• Reporting of B2C invoices to ZATCA within 24 hours.

• Use of a compliant solution certified by ZATCA.

• Application of security measures like cryptographic stamps, UUIDs, and digital certificates.

Businesses are notified of their inclusion in specific waves based on their annual revenue.

Types of Invoices Covered

The e-invoicing system in Saudi Arabia classifies invoices into two main types:

1. Tax Invoices (B2B)

These invoices are used for business-to-business transactions. They must:

• Include full buyer details and VAT breakdowns.

• Be cleared in real-time through ZATCA before being sent.

• Be issued in XML format.

• Include a digital signature and cryptographic stamp.

2. Simplified Tax Invoices (B2C)

Used for business-to-consumer transactions, such as retail sales. They must:

• Be generated at the point of sale.

• Contain a QR code for instant verification.

• Be reported to ZATCA within 24 hours of issuance.

Key Technical and Functional Requirements

To comply with e-invoicing regulations, a company’s invoicing system must:

• Generate e-invoices in structured XML format.

• Prevent invoice tampering or deletion.

• Generate a unique invoice identifier (UUID).

• Apply a cryptographic stamp to verify authenticity.

• Produce QR codes for simplified invoices.

• Store all invoices and associated data for a minimum of six years.

• Use digital certificates for secure communication with ZATCA.

Businesses must ensure their software is compliant, capable of integration, and either developed in-house or acquired through certified vendors.

Compliance Timelines and Revenue Thresholds

Phase Two implementation is being rolled out in waves:

• Wave 1: Revenue above SAR 3 billion (effective Jan 1, 2023)

• Wave 2: Revenue above SAR 500 million

• Wave 3 to Wave 10: Gradual rollouts for lower revenue brackets

ZATCA notifies businesses in advance of their inclusion in each wave. It’s essential for companies to monitor announcements and prepare early.

Consequences of Non-Compliance

Failing to comply with e-invoicing regulations can result in:

• Fines and financial penalties.

• Suspension of tax services.

• Rejection of tax invoices during audits or VAT returns.

• Reputational damage and loss of customer trust.

ZATCA is actively monitoring compliance and conducting audits. Timely adherence is not just a legal requirement but a business necessity.

How to Prepare for E-Invoicing Compliance

Businesses should take the following steps to ensure they’re ready:

1. Perform a Gap Analysis

Evaluate current billing and accounting systems against ZATCA’s requirements. Identify gaps and define the technical changes needed.

2. Choose a Compliant E-Invoicing Solution

Work with a ZATCA-certified solution provider or update your ERP or POS system to ensure compatibility and integration.

3. Train Key Staff

Educate your finance, IT, and accounting teams on new workflows, compliance needs, and system usage.

4. Test and Simulate

Conduct test runs before going live to ensure all functions—from invoice generation to real-time reporting—are working correctly.

5. Monitor for Updates

ZATCA frequently updates technical specifications and guidelines. Stay informed and adjust your systems accordingly.

Benefits Beyond Compliance

While the mandate requires significant effort, e-invoicing brings long-term business benefits:

• Efficiency: Faster processing of invoices reduces delays.

• Accuracy: Automation minimizes errors in invoice details.

• Visibility: Real-time data helps with performance monitoring and analytics.

• Cost savings: Lower paper, printing, and storage costs.

• Faster payments: Quicker invoice cycles lead to improved cash flow.

Conclusion

E-invoicing in Saudi Arabia is a major step toward financial digitization and greater tax transparency. While the requirements may seem technical and detailed, with the right preparation and systems, companies can turn compliance into a business advantage. By understanding and meeting ZATCA’s requirements, businesses not only avoid penalties but also streamline operations, reduce errors, and prepare for a more digital future.