Saudi Arabia: E-invoicing Phase 2 Developments

Update: 30 May 2024 by Dilara İnal

Implementation waves of Phase 2 of E-invoicing in Saudi Arabia

Implementation of Phase 2 of Saudi Arabia’s e-invoicing initiative started in January 2023 with the first wave of taxpayers. Subsequent waves – which are announced by Saudi Arabia’s Zakat, Tax and Customs Authority (ZATCA) – are based on the generated revenue subject to VAR in Saudi Arabia.

In addition to announcements on ZATCA’s website, ZATCA notifies taxpayers at least six months before the enforcement date of their new e-invoicing requirements.

Current timeline for Phase 2 waves

Waves dictate when taxpayers of particular revenue statures are required to take part in Saudi Arabia’s e-invoicing program. The table below details the waves, revenue threshold and applicable dates for the initiative’s second phase.

Read our overview for more information regarding Saudi Arabia’s push towards e-invoicing.

Update: 20 January 2023 by Dilara İnal

Voluntary participation in Phase 2

Taxpayers now have the option to start complying with the Phase 2 requirements on a voluntary basis before the integration enforcement date arrives.

Companies were previously not allowed to voluntarily start the implementation of Phase 2. ZATCA changed its approach to voluntary participation in December 2022.

Looking for further clarification on Phase 2 of Saudi Arabia’s e-invoicing system? Contact our experts now.

Update: 24 October 2022 by Dilara Inal

Upcoming phase 2 requirements for e-invoicing in Saudi Arabia

Phase 2 of Saudi Arabia’s e-invoicing system rollout is fast approaching. See below for details about the timeline and the requirements for the integration stage of implementation.

Rollout and timeline of Phase 2

Implementation will begin in January 2023 and taxpayers will need to issue and submit e-invoices in a specific format.

Phase 2 is planned as a gradual implementation. The first wave of implementation covers taxpayers with an annual turnover of 3 billion riyals (approximately 800 million USD) or more for the 2021 period.

Taxpayers who are in the scope of the first wave are notified by the tax and customs authority (ZATCA) about their obligations under Phase 2 – these obligations start six months after this notification, even though the official date has been announced as 1 January 2023.

The second wave of taxpayers are businesses with revenue subject to VAT which exceed half a billion riyals during 2021. Taxpayers in this group will be notified during the first six months of 2023 and their Phase 2 obligations start six months after this notification. The second wave of Phase 2 will be implemented during the period of 1 July 2023 to 31 December 2023.

Integration phase requirements

Firstly, all invoices must be issued in UBL 2.1 format. B2B invoices are subject to a CTC clearance regime, whilst B2C invoices are reported to the tax authority within 24 hours.

Under the new regime, B2B invoices can only be sent to the buyer after the tax authority’s approval which gives legal validity to invoices.

Each invoice must be generated in a single sequence and include a hash value computed from previous invoices’ elements. This hash function ensures that invoice data isn’t modified or tampered with.

Also, an invoice counter value and a globally unified identification number (UUID) must be included. The QR code is generated by ZATCA during the clearance of an invoice, and it must be shown in case B2B and B2G invoices are sent to the buyer in human-readable form. For B2C invoices, the QR Code is generated and applied by the taxpayer during issuance of the invoice. In addition, self-billing is permitted for domestic B2B transactions and the invoice must contain a statement declaring it is self-billed.

Taxpayers who are yet to be notified by ZATCA for phase 2 implementation should continue to comply with phase 1 requirements without any change.

How to prepare for the changes

We advise all taxpayers to follow upcoming updates to ensure they are prepared for phase 2’s complex requirements. Considering the impact of this CTC regime, other e-invoicing initiatives are expected to be implemented in the Gulf region in the near future

Still have questions about Saudi Arabia’s e-invoicing phase 2 implementation? Speak to our tax experts.

Update: 30 May 2022 by Selin Adler Ring

ZATCA launches e-invoicing developer portal for e-invoicing phase 2

Saudi Arabia´s e-invoicing system is being rolled out in two phases; the second phase’s requirements differ from the first phase. The first phase started as of 4 December 2021 for all resident taxable persons. The second phase will go live on 1 January 2023, and the impacted taxpayer group has not yet been announced. However, the Zakat, Tax and Customs Authority (ZATCA) has made considerable progress in kicking off phase 2.

Launch of the e-invoicing portal

Phase 2 will introduce a Continuous Transaction Controls (CTC) regime in which e-invoices, electronic credit and debit notes will be transmitted to the ZATCA platform in real-time. A clearance regime is prescribed for B2B invoices, while B2C invoices must be reported to the tax authority platform within 24 hours of issuance. Therefore, ZATCA was expected to introduce its e-invoicing platform well in advance of the launch of phase 2.

As expected, the ZATCA recently announced the launch of an E-Invoicing Developer Portal (Sandbox). Users will use the Sandbox to simulate the integration with ZATCA’s platform and can access details on the APIs and other requirements through this platform upon registration.

Proposed changes to e-invoicing rules

ZATCA has proposed specific changes to e-invoicing rules. The proposed changes are under public consultation and interested parties may submit their feedback until 10 June 2022.

The changes aim to clarify some requirements (e.g. Cryptographic Stamp, hash, counter etc.) rather than introducing new ones.

The next steps

The last clarifying changes to the e-invoicing rules are underway, and the developer portal has been launched. We’re now expecting ZATCA’s announcement of the taxpayer groups in the scope of the mandate and expect it to happen at least six months before the go-live date. As the ZATCA plans to roll out phase 2, there will be different timelines for different taxpayer groups. We expect this information within the coming months.