Kingdom of Saudi Arabia has experienced a massive change in tax management with the introduction of e-invoicing, which is being championed by the Zakat, Tax and Customs Authority (ZATCA). The reform will take the country to the next level of total digitalization in the process of invoicing, where the use of paper-based systems is abandoned, following the global best practices.
ZATCA introduced the accounting e-invoicing in Saudi Arabia through two stages. The Generation Phase is Phase One that came into effect on December 4, 2021. This stage involved the VAT registered organizations to produce and save invoices electronically through compliant systems. Phase two, the Integration Phase, started in January 2023, and it involved a required real-time connection with ZATCA platform to clear and report invoices.
E-invoicing in Saudi Arabia substitutes handwritten, scanned and unstructured electronic invoices. The companies have to now issue structured XML invoices that are approved by the software and are in accordance with ZATCA approved e-invoicing in Saudi Arabia specifications. It begins with the creation of the invoice in the ZATCA-compliant format that has the mandatory details (UUID and QR code). The digital signature of the invoices is used and cleared or reported to ZATCA depending on its type. Invoices have to be archived safely as the regulation demands.
This program is in line with other national goals of promoting digital tax administration and raising the level of transparency and compliance in the business environment.
The Two Main Types of E-Invoices: Standard vs. Simplified:
The two major categories of e-invoices identified by ZATCA e invoice phase 2 framework are Standard Tax Invoices and Simplified Tax Invoices. They are all meant to suit various compliance requirements and transaction models.
Standard Tax Invoices:
Applied to Business-to-Business (B2B) transactions. Such invoices are to be cleared in real-time with ZATCA prior to being shared with the buyer. They contain vital data points which are buyer and seller VAT numbers, line items on the invoice, total amount of VAT, unique identifier of the invoice (UUID) and a cryptographically secure digital signature.
Simple Tax Invoices:
They are configured with Business-to-Consumer (B2C) transactions, i.e. retail or hospitality. Such invoices could be issued to the customer but have to be reported to ZATCA e invoice phase 2 in Saudi Arabia within 24 hours. They are also similar in their structure but have a QR code to be checked and referred to faster.
The two types of ZATCA e invoice phase 2 in Saudi Arabia invoices have provisions to include credit and debit notes, which are structured and cleared or reported the same as the initial invoice. Such standardization creates transparency and traceability in every financial adjustment.
Who Must Follow the ZATCA e-Invoicing Regulations?
ZATCA vat registration requires all resident entities, which have been registered to VAT in Saudi Arabia, to adhere to the e-invoicing requirements. These are companies, partnerships, sole proprietors, and any other authorized representatives, who exercise on behalf of the respective entities.
Non-resident entities which are not registered in the Kingdom and only enter the VAT zatca approved e-invoicing in saudi arabia in accordance with certain conditions are not subject to e-invoicing.
The implementation of zatca invoice format compliance has been carried out in phases depending on revenue of the business each year. The early implementation focused on bigger businesses that had higher revenues with small businesses and certain sectors, including healthcare and e-commerce, being rolled out slowly.
Key Features of a ZATCA-Compliant e-Invoicing System:
In order to continue to operate within the framework of the Zatca compliance in saudi arabia regulations, an e-invoicing solution should comprise a powerful set of features that guarantee the security of the data, standardization, and flawless interaction with the authority. The main features that businesses ought to have been as shown below:
UBL 2.1 Support of Formats:
The invoices should be in the UBL (Universal Business Language) 2.1 format thus being consistent and interoperable within different zatca developer portals. This common XML format facilitates the transfer of invoice information between companies and ZATCA.
The QR Code Generation:
Every invoice should contain a ZATCA QR code reader, in particular, Simplified Invoices. This allows immediate verification and scanning by the end-users and tax auditors to enhance customer confidence and transparency in compliance.
API Integration with ZATCA:
To facilitate real-time invoice clearance and reporting, your invoicing software is to be connected to the central platform of ZATCA through APIs. This interface allows the invoice statuses to be submitted, validated, and retrieved without any difficulties.
Digital Signature:
ZATCA requires the use of digital signatures on Standard Invoices. These encrypted signatures authenticate every invoice and keep out tampering or fraud.
UUID and Hashing:
Every invoice should contain a universally unique identifier (UUID) and hash value. These factors offer digital fingerprinting to traceability, to avoid duplication or modification.
Safe data storage:
The compliant solutions must be able to provide secure digital storage which has redundancy. The requirements of ZATCA allow keeping invoices at least six years to fulfill the audit and legal requirements.
Bilingual Language Assistance:
Invoices should be both in Arabic and English in case they will be required to serve different customer bases and obey the local laws. Bilingual assistance is also useful in audits and cross border transactions.
Audit Trail logging:
A good e-invoicing tool must have a careful documentation of every activity carried out on invoices e.g. edits, submissions, and approvals. This is to guarantee absolute traceability and increase accountability.
The features do not only help in regulatory compliance, but also assist in enhancing internal controls, superior operational performance, and stronger financial reporting.
Why Choose the O2b ZATCA e-Invoicing Solution?
O2b provides an end-to-end e-invoicing platform, which fully complies with the e-invoicing solution providers in saudi arabia requirements. O2b makes Phase One and Phase Two requirements easy since it is designed to integrate easily with SowaanERP.
The zatca e invoicing solution provider platform offers the capabilities of real-time API integration, auto-generation of necessary fields, such as UUIDs and QR codes and digital signatures of all invoices. Users can enjoy templates, ease of use, dashboards, and archiving features.
The difference is that O2b has a local support structure and implementation skills. The clients are offered custom onboarding, training, and ongoing updates on compliance. O2b has already been successfully implemented in many businesses in various sectors, decreasing the number of manual processes, removing any possibility of invoice errors, and being audit-ready.
Future-proofing clients with the solution means it is able to adjust to the updates given by zatca-compliant e-invoicing solution.
Mandatory Requirements for E-Invoices:
ZATCA e invoicing business solution also provides certain structural as well as technical requirements, which should be followed by all e-invoices. The mandatory zatca approved e invoicing solution provider requirements include:
Invoice Type:
Should be well identified as Standard or Simplified
Mandatory Fields:
The vat lookup ksa number, UUID, date/time issue, buyer/seller data, and invoice total, and line item VAT data
QR Code:
The zatca qr code in the case of Simplified invoices, which can be seen by the customer
Digital Signature:
In the case of Standard invoices, verifiable and encrypted
Clearance ID:
If Standard invoices are done after validation
Language:
The material should be in Arabic (and English translation is optional)
No Manual Editing:
Illegal invoices written by hand or changed manually are strongly disallowed
Retention Rules:
They should keep invoices in safe storage not less than six years
An inability to comply with these requirements can lead to a penalty, compliance or business operation disruption.
Which Businesses Does E-Invoicing Apply To?
The small business e-invoicing is universal to all the businesses registered with VAT in Saudi Arabia. The e invoicing business solution includes:
- Freelancers and Sole Proprietors who issue VAT invoices
- Small and Medium Enterprises (SMEs) across various sectors
- Large Enterprises with significant transaction volumes
- E-commerce Platforms engaging in B2C or B2B sales
- Retail Chains and Outlets issuing simplified tax invoices daily
ZATCA’s e invoicing software for business phased implementation allowed businesses to prepare based on their revenue classification. Companies with annual revenues exceeding SAR 3 billion were among the first to comply. Subsequent waves targeted businesses with revenues between SAR 500 million and SAR 3 billion, with future waves covering smaller businesses.
Regardless of size or industry, if an entity is registered for VAT and operates within Saudi Arabia, compliance is mandatory.
See O2b e-Invoicing in Action — Watch the Demo
To see how O2b simplifies ZATCA compliance, watch our product demo or book a consultation with our experts.
Our interactive demo walks you through:
- Creating a Standard or Simplified invoice in the system
- Automatic generation of QR codes and UUIDs
- Real-time API interaction with ZATCA’s portal
- Instant invoice clearance and archive storage
- Multilingual invoice preview and download
Ready to explore how it works?
With O2b, compliance doesn’t have to be complex. Let our solution do the heavy lifting while you focus on growing your business.