Direct Answer / Quick Summary:

Saudi Arabia's ZATCA Phase 2 E-Invoicing (Integration Phase / مرحلة الربط والتكامل) enforces real-time API connectivity between taxpayer ERP/POS systems and the Fatoora Platform. Rather than enforcing integration for all enterprises simultaneously, the Zakat, Tax and Customs Authority (ZATCA) rolls out Phase 2 in progressive Targeted Waves based on annual taxable revenue subject to VAT.

Wave Determination Criteria: An enterprise's wave is determined by its annual revenues subject to VAT* reported in its official VAT returns across previous tax years (2021, 2022, 2023, and 2024).

Mandatory 6-Month Advance Notice: By statutory decree, ZATCA notifies taxpayers in each wave at least 6 months in advance* of their mandatory enforcement deadline via registered email, SMS, and the ERAD portal.

Threshold Progression: Wave 1 began with large enterprises generating over SAR 3 Billion in 2023. By 2025 and 2026, the threshold systematically scaled down through 15+ waves, capturing medium and small businesses with revenues exceeding SAR 5 Million, SAR 3 Million*, and ultimately all VAT-registered entities.

Non-Compliance Penalties: Failure to integrate by your wave deadline triggers statutory VAT fines starting at SAR 1,000 for first-time technical violations, escalating up to SAR 50,000*, suspension of import clearances, and tax audit freezes.

Phase 1 (Generation) vs Phase 2 (Integration): The Structural Shift

Under the national E-Invoicing (Fatoorah) mandate, Saudi Arabia introduced a two-tiered transformation:

1Phase 1 (Generation Phase - Dec 4, 2021): Required all VAT-registered taxpayers to stop issuing handwritten invoices, adopt compliant e-invoicing software, include QR codes on simplified B2C receipts, and archive PDF/electronic copies. Phase 1 operated offline without direct government server communication.
2Phase 2 (Integration Phase - Jan 1, 2023 onwards): Mandates real-time, programmatic API integration with ZATCA's centralized Fatoora portal. In Phase 2, B2B invoices must be cryptographically cleared by ZATCA before being legally issued to clients, while B2C invoices must be cryptographically reported within 24 hours.
Phase 1Standalone POS/ERP

Offline Generation

Taxpayer generates PDF/XML locally with basic QR code; no direct ZATCA connection

Stage 02ERAD / SMS Notice

Advance Notification

ZATCA audits VAT returns and formally serves taxpayer with 6-month integration deadline

Stage 03Fatoora API Live

Phase 2 Wave Enforcement

Enterprise must complete EGS onboarding, CSID issuance, and live API connectivity

Stage 04Automated Audit

Compliance Auditing

All B2B transactions cleared in real-time; non-integrated systems blocked from issuing legal invoices

Master Schedule: ZATCA Phase 2 Wave Rollout & Revenue Thresholds

The following authoritative matrix details the rollout schedule, revenue criteria, and official enforcement deadlines across all announced waves:

Wave NumberRevenue Qualification Threshold (VAT Subject)Relevant Tax Year AuditedOfficial Announcement DateMandatory Enforcement Deadline
Wave 1Exceeding SAR 3 Billion2021Jun 2022Jan 1, 2023
Wave 2Exceeding SAR 500 Million2021Dec 2022Jul 1, 2023
Wave 3Exceeding SAR 250 Million2021 / 2022Mar 2023Oct 1, 2023
Wave 4Exceeding SAR 150 Million2021 / 2022Apr 2023Nov 1, 2023
Wave 5Exceeding SAR 100 Million2021 / 2022May 2023Dec 1, 2023
Wave 6Exceeding SAR 70 Million2021 / 2022Jun 2023Jan 1, 2024
Wave 7Exceeding SAR 50 Million2021 / 2022Jul 2023Feb 1, 2024
Wave 8Exceeding SAR 40 Million2021 / 2022Aug 2023Mar 1, 2024
Wave 9Exceeding SAR 30 Million2022 / 2023Nov 2023Jun 1, 2024
Wave 10Exceeding SAR 25 Million2022 / 2023Feb 2024Oct 1, 2024
Wave 11Exceeding SAR 15 Million2022 / 2023Mar 2024Nov 1, 2024
Wave 12Exceeding SAR 10 Million2022 / 2023Apr 2024Dec 1, 2024
Wave 13Exceeding SAR 7 Million2022 / 2023May 2024Jan 1, 2025
Wave 14Exceeding SAR 5 Million2022 / 2023Jun 2024Feb 1, 2025
Wave 15 & 2026 WavesExceeding SAR 3 Million & SME Thresholds2023 / 2024Progressive2025 / 2026 Rolling Deadlines

How ZATCA Determines Your Enterprise Wave

Many enterprise finance teams ask whether wave thresholds apply to individual branch revenues or consolidated group performance:

Statutory Safeguards & Rights Protection

Mandatory protections enforced by MHRSD & Saudi Labor Law

1
Consolidated VAT GroupingIf an enterprise belongs to a formal VAT Group, the qualification revenue is assessed based on the consolidated aggregate taxable turnover of the entire group.
2
Branch vs Company CRsAll sub-branches operating under a single commercial registration or shared 15-digit Tax Identification Number (TRN) are governed by the parent entity's wave.
3
Audited BasisThe turnover criterion is evaluated exclusively on 'Taxable Supplies Subject to Standard 15% Rate' and 'Zero-Rated Supplies' declared on historical VAT return lines. Exempt supplies are generally excluded from threshold calculations.
4
Mandatory Written NotificationReceipt of official ZATCA email and SMS communication confirms legal in-scope status, starting the formal 6-month countdown timer.
5
Early Voluntary IntegrationTaxpayers in lower revenue tiers do not need to wait for their official wave; voluntary onboarding is permitted and encouraged at any time.

The 6-Month Preparation Roadmap for In-Scope Taxpayers

When your enterprise receives an official Wave notification, your IT and finance teams must execute a synchronized transition roadmap:

Months 1-2Gap Assessment

ERP & Solution Gap Audit

Audit existing billing software against ZATCA UBL 2.1 specifications; select certified provider

Months 3-4Developer Sandbox

Sandbox Simulation Testing

Generate cryptographic keys, obtain Simulation CSID, and test API endpoints

Month 5Pilot Run

Production Onboarding & Pilot

Obtain live Production CSID; run dual parallel billing tests on non-critical workflows

Month 6Mandatory Live

Mandatory Go-Live Cutover

Switch 100% of B2B transactions to real-time clearance and B2C transactions to reporting

Prohibited Invoicing Features Under Phase 2

Enterprises transitioning into Phase 2 must ensure their software does not contain any of the prohibited technical capabilities outlawed under the E-Invoicing Regulations:

No Uncontrolled Sequential Counter Resetting: Invoice numbers must be strictly sequential, tamper-proof, and perpetual without annual resets.
No Offline Editing or Deletion: Issued invoices cannot be edited, deleted, or overwritten in the database. Any correction requires issuing an official Credit Note (*Ish'ar Da'in*) or Debit Note (*Ish'ar Madeen*).
No Multiple Invoice Sequences for One Device: An individual EGS unit cannot generate multiple concurrent number sequences.
No Absence of Cryptographic Hash Chaining: Every invoice must mathematically incorporate the cryptographic hash of the immediately preceding invoice.

Statutory Penalties for Missing Your Wave Deadline

Failing to complete Phase 2 integration by your assigned wave enforcement date exposes the enterprise to severe statutory liabilities under the Saudi VAT Law (Royal Decree No. M/113):

Violation CategoryFirst Offense Statutory PenaltyRepeat Offense Statutory PenaltyOperational / Business Impact
Failure to Issue Electronic InvoicesFormal Warning / SAR 1,000SAR 5,000 to SAR 20,000Invoices deemed invalid for client input VAT deduction.
Non-Compliance with Phase 2 SpecificationsSAR 1,000 to SAR 10,000SAR 20,000 to SAR 50,000Inability to clear B2B transactions legally.
Altering or Deleting Issued InvoicesSAR 10,000 minimumUp to SAR 50,000 per incidentClassified as willful tax fraud; potential criminal referral.
Failure to Report B2C Invoices within 24 HoursSAR 1,000SAR 5,000Portal compliance score downgrade; targeted tax audit.
Persistent Systemic Non-IntegrationPlatform suspensionMaximum statutory finesBlocking of import licenses, customs clearances, and bank facilities.
Compliance Warning / Enforcement Risk

Client Inability to Deduct Input VAT:

If an enterprise in an enforced wave continues issuing un-cleared Phase 1 invoices to corporate B2B buyers, the buyer's corporate accountants cannot legally claim the 15% input VAT deduction on those invoices. This immediately damages commercial vendor relationships.

How to Verify Your Enterprise Wave Status on the ZATCA Portal

To verify whether your establishment has been officially assigned to a live or upcoming wave:

1Open https://zatca.gov.sa and log into the ERAD Taxpayer Portal.
2Navigate to Tax Services → Value Added Tax (VAT).
3Open Correspondence & Notifications (المراسلات والإشعارات).
4Filter by sender: ZATCA E-Invoicing Department.
5Check for official circulars titled: Notice of In-Scope Wave Inclusion for Phase 2 Integration.
6Review the specified enforcement date and initiate technical integration with your ERP vendor immediately.

Frequently Asked Questions (FAQ)

Can an enterprise request an extension for its assigned wave deadline?

No. ZATCA strictly adheres to wave enforcement deadlines and does not grant individual corporate postponements. The mandatory 6-month advance notification window is legally designated as sufficient time for enterprise ERP readiness and testing.

What happens if our revenue drops below the threshold in the following year?

Once an enterprise is legally notified and integrated into Phase 2, it remains permanently subject to Phase 2 requirements, regardless of whether its revenue declines in subsequent fiscal years.

Can a company integrate into Phase 2 voluntarily before its wave?

Yes. ZATCA encourages voluntary early integration. Any VAT-registered taxpayer can onboard their EGS units, obtain Production CSIDs, and begin clearing invoices through the Fatoora Portal before their mandatory wave is announced.

Are export invoices and zero-rated transactions subject to Phase 2?

Yes. Export invoices, zero-rated supplies, and inter-company commercial transactions between VAT-registered entities must all comply with UBL 2.1 standard invoice clearance rules in Phase 2.

Does a retail store selling exclusively to walk-in consumers need Phase 2 integration?

Yes. Retail stores issue Simplified Tax Invoices (B2C). When their assigned wave goes live, their POS devices must be onboarded with dedicated CSIDs and must report all simplified transactions to ZATCA's API within 24 hours of issuance.