Phase 2 Expansion: More Saudi Businesses Required to Implement E-Invoicing in 2025

Did you know your paper invoices could now cost you up to 50,000 SAR in fines? E-invoicing Phase 2 isn't just another government requirement – it's a complete overhaul of how Saudi businesses handle transactions. With ZATCA's strict new rules taking effect, your old invoicing methods could put you at risk of heavy penalties. But here's the good news: compliant software like Wafeq can automate the entire process while keeping you 100% legal. Let's break down exactly what Phase 2 demands and how you can adapt without slowing down your business.

What is ZATCA’s E-Invoicing Phase 2?

The Kingdom of Saudi Arabia (KSA) has been at the forefront of digital transformation in taxation, with the Zakat, Tax, and Customs Authority (ZATCA) implementing mandatory electronic invoicing (e-invoicing) to enhance transparency and combat tax evasion. The e-invoicing system is divided into two phases, with Phase 2 (Integration Phase) introducing stricter compliance requirements. For businesses operating in KSA, selecting a ZATCA-compliant e-invoicing solution is critical to avoid penalties. Wafeq, a leading accounting and tax software, fully complies with ZATCA’s Phase 2 requirements, ensuring seamless integration with the government’s Fatoora platform.

Implementation Timeline for Phase 2 of E-Invoicing

The Zakat, Tax and Customs Authority (ZATCA) has established a phased implementation schedule for Phase 2 of e-invoicing (Integration Phase) for small and medium enterprises in Saudi Arabia, based on annual revenue thresholds:

from January 1, 2023, to December 31, 2024: Applied to enterprises with annual revenues of 3 billion SAR and above, starting from January 2025, will apply to small and medium enterprises with annual revenues between 15 million SAR and 25 million SAR.

Implementation Timeline for Groups 15 to 22 of the E-Invoicing Integration Phase

Small and medium enterprises (SMEs) with annual revenues under 5 million SAR and above 1 million SAR are now being gradually mandated to comply with the integration phase until the end of 2025, as per official announcements from ZATCA.

These businesses must integrate their e-invoicing systems with ZATCA's "Fatoorah" platform before their particular group deadlines. They must also ensure real-time reporting, QR code generation, and digital signatures to avoid penalties.

Requirements for linking with the ZATCA (Phase Two)

Phase 2, also known as the Integration Phase, mandates that businesses integrate their e-invoicing systems directly with ZATCA’s platform for real-time reporting. Key requirements include:

• QR Code Generation: Every tax invoice must involve a QR code containing essential details such as the seller’s VAT number, invoice timestamp, and total amount (including VAT).
• Real-Time Reporting (CTR): Invoices must be transmitted to ZATCA’s system immediately upon issuance.
• Advanced Cryptographic Stamp (UUID): Each invoice must have a unique digital signature to ensure authenticity and prevent tampering.
• Archiving & Retention: Businesses must store invoices for five years in a secure, accessible format.

Digital Signature Requirements for E-Invoicing in Saudi Arabia (ZATCA Phase 2)

Under ZATCA’s Phase 2 e-invoicing regulations, all tax invoices must include a cryptographic digital signature (UUID) to ensure authenticity and prevent tampering. Key requirements include:

• Advanced Cryptographic Stamp (CSR & UUID) Each invoice must be digitally signed using ZATCA-approved encryption standards.
• Tamper-Proof Security The digital signature must ensure that invoice details (amounts, VAT, seller/buyer info) cannot be altered after issuance.
• Integration with ZATCA’s Platform Invoices must be signed and transmitted to Fatoorah in real time for validation.
• Compliance with Global Standards The signature must follow PKI (Public Key Infrastructure) and AES-256 encryption protocols.

Fines for Not Complying with ZATCA's E-Invoicing Requirements (Phase 2)

The Zakat, Tax and Customs Authority (ZATCA) in Saudi Arabia imposes strict penalties on businesses that fail to comply with Phase 2 (Integration Phase) of the e-invoicing mandate. According to ZATCA’s regulations:

• Non-compliance with real-time invoice reporting (CTR) can result in fines ranging from SAR 5,000 to SAR 50,000 per violation.
• Failure to generate a compliant QR code on invoices may lead to fines of up to SAR 10,000 per invoice.
• Delayed or incorrect integration with ZATCA’s Fatoorah platform can trigger additional penalties, including temporary suspension of VAT registration for repeat offenders.

Why do Businesses Choose Wafeq to Comply with Phase 2 E-Invoicing?

Businesses in Saudi Arabia trust Wafeq as their preferred e-invoicing solution for ZATCA Phase 2 compliance due to its advanced features and seamless integration capabilities. Here’s why:

• Compliant e-Invoices in XML & PDF/A-3 Formats Wafeq generates invoices in the exact formats (XML and PDF/A-3) mandated by ZATCA, ensuring full compliance with Phase 2 requirements.
• Easy Integration with Any ERP System Whether you use SAP, Oracle, or any other ERP, Wafeq connects effortlessly, eliminating the need for complex manual processes.
• High-Scale Invoice Generation Wafeq can issue millions of invoices efficiently, making it ideal for fast-growing businesses.
• User-Friendly REST API The advanced yet simple REST API allows businesses to automate invoicing, sync data in real time, and streamline operations.
• Automated Email Delivery with PDF Attachments Wafeq automatically sends invoices via email with attached PDFs, improving customer experience and reducing manual follow-ups.

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