What is ZATCA Phase 2? If you are a business owner in Saudi Arabia, you are already familiar with the Zakat, Tax, and Customs Authority (ZATCA) E-Invoicing system, or FATOORA.
However, many businesses mistake ZATCA Phase 1 compliance for Phase 2 readiness. The difference is not just an upgrade, it’s a complete shift in how your system interacts with the regulator.
If your turnover is SAR 1 Million or more, you are currently facing the deadline to comply with the far more technical and rigorous Phase 2 (Integration Phase) requirements.
Here is a clear breakdown of the fundamental differences between ZATCA Phase 1 and the critical mandates of Phase 2.
Phase 1: The “Generation Phase” (The Starting Point)
Phase 1, which started in December 2021, was the foundational stage designed to move businesses away from paper and manual invoices.
- Core Requirement: Generating and storing electronic invoices and notes using a compliant solution.
- Connection to ZATCA: None. The process was internal. Your system created the invoice, but it was not transmitted to ZATCA’s platform.
- Format: Required the use of electronic solutions to generate invoices with mandatory fields (like a basic QR code on Simplified Invoices).
- The Key Takeaway: Your business started using e-invoicing software, but you were not yet integrated with the government.
Phase 2: The “Integration Phase” (The Mandatory Upgrade)
Phase 2 is the game-changer, implemented in waves based on taxpayer turnover (like the upcoming wave for SAR 1 Million+ businesses). It requires a live, system-to-system connection with ZATCA’s FATOORA platform.
| Feature | Phase 1 (Generation) | Phase 2 (Integration) |
| Connection | Internal process. No direct link to ZATCA. | MANDATORY Direct System-to-System Integration |
| Clearance (B2B) | Not required. | REQUIRED (Real-time clearance from ZATCA before issuing to the buyer). |
| Reporting (B2C) | Not required. | REQUIRED (Must be reported to ZATCA within 24 hours of issuance). |
| Invoice Security | Basic requirements (no editing after generation). | Advanced Cryptographic Features (UUID, Invoice Hash, Cryptographic Stamp). |
| Format | Basic e-invoice structure (often PDF with basic data). | Mandatory XML format and PDF/A-3 with embedded XML. |
| Timeline | All applicable businesses implemented in one go. | Implemented in Waves based on annual turnover threshold. |
Why Phase 2 Demands Immediate Action
For businesses with SAR 1 Million+ turnover, the December 31, 2025, deadline isn’t for generating an e-invoice; it’s for completing the complex, technical integration.
- It requires an ERP/POS system upgrade. Your existing software from Phase 1 likely does not have the necessary APIs or cryptographic features.
- The Clearance Process is New: For B2B invoices, your system must transmit the invoice to ZATCA, receive a digital stamp, and only then can you legally share the final, stamped invoice with your customer. This requires robust, real-time connectivity.
The clock is ticking. Don’t mistake Phase 1 compliance for Phase 2 readiness. Ignoring this integration requirement risks penalties and severe disruption to your B2B transactions.
ACT FAST! Speak to an expert about your Phase 2 integration today.
Call +966 56927 1692