Are you ready for the second phase of e-invoicing (Fatoorah)? 🤔 Many companies have been surprised by the new technical requirements and are unsure where to begin!

Direct Answer (SGE-Optimized): Phase Two of e-invoicing in Saudi Arabia (Integration Phase) requires businesses to connect their invoicing systems directly with the Zakat, Tax and Customs Authority (ZATCA). The requirements include encryption, real-time system integration, and invoice validation.

In this guide, you’ll learn:

• What e-invoicing is and why Phase Two matters.

• Who is required to comply and when.

• The key technical requirements (integration, encryption, XML format).

• Its impact on accounting and daily operations.

• How your business can prepare for full compliance.

What is E-Invoicing (Fatoorah) and Why Does Phase Two Matter?

Definition by ZATCA

E-invoicing (Fatoorah) is a system that requires businesses to issue and store invoices electronically through systems that comply with ZATCA specifications—replacing manual or paper invoices.

Difference Between Phase One and Phase Two

• Phase One (Generation): Launched in December 2021, focused on issuing invoices in electronic format stored locally.

• Phase Two (Integration): Known as the Integration Phase, where invoicing systems must connect directly with ZATCA to submit and validate invoices in real time.

Objectives of Implementation

• Enhance transparency.

• Combat tax evasion.

• Accelerate the shift toward a fully digital economy.

Who is Required to Comply and When?

Targeted Businesses

• Large companies with revenues above SAR 3 billion were mandated starting January 1, 2023.

• Medium and small companies are being included gradually, based on revenue brackets.

Implementation Timeline

ZATCA has announced staggered waves of enforcement, beginning with the largest businesses and expanding until all taxpayers are included.

Penalties for Non-Compliance

• Financial fines reaching tens of thousands of riyals.

• Suspension of services or restrictions on official transactions.

Phase Two Technical Requirements

API Integration with ZATCA

• The invoicing/ERP system must support direct integration with ZATCA via Application Programming Interfaces (APIs).

Encryption and Digital Signature

• Every invoice must carry a digital signature to confirm its authenticity.

• Ensures protection against tampering or modification after issuance.

Invoice Format (XML / UBL)

• All invoices must be in XML format aligned with the UBL standard.

Qualified Systems and Devices

• Only ZATCA-approved invoicing or ERP systems are allowed.

• Systems must support automatic updates and continuous compliance.

Suggested Comparison Table

Accounting and Tax Implications

Impact on Sales and Purchases

• Sales: Every issued invoice must be transmitted directly to ZATCA.

• Purchases: Invoices must be validated before being recorded in the system.

Relation to VAT Compliance

E-invoicing ensures more accurate and faster VAT return validation.

Role of the Accountant

• Monitor the validity of invoices.

• Ensure VAT is properly reported and remitted.

Reducing Errors and Enhancing Transparency

• Prevent issuance of fake invoices.

• Minimize human error.

Steps to Prepare for Compliance

1. Review your ERP/Invoicing System

   • If your current system does not support ZATCA integration, it must be upgraded or replaced.

2. Select an Approved Technology Provider

   • Choose a provider registered with ZATCA to reduce compliance risks.

3. Train Your Accounting Team

   • Conduct workshops and simulate invoice issuance and submission.

4. Test Integration with ZATCA Before the Deadline

   • Run pilot tests to confirm invoices are accepted automatically.

Practical Compliance Checklist

• Update accounting/invoicing systems.

• Ensure invoice formats are XML/UBL-compliant.

• Implement digital signatures.

• Test direct integration with ZATCA.

• Train staff thoroughly.

Conclusion

• Phase Two = Direct integration with ZATCA.

• Technical requirements include APIs, encryption, and XML/UBL format.

• Preparation starts with system upgrades and ends with team training.

Compliance is not just an obligation—it’s an opportunity to improve efficiency and strengthen your company’s credibility.

FAQs

Does Phase Two apply to all companies?
No, implementation is gradual based on revenue size and business category.

What’s the difference between Phase One and Phase Two?
Phase One focused on issuing electronic invoices, while Phase Two requires direct integration with ZATCA.

Do I need to replace my ERP system completely?
Not necessarily, but your system must support integration with ZATCA and XML/UBL format.