Phase One of E-Invoicing in Saudi Arabia (Issuance & Archiving)

Phase One of e-invoicing, known as the “issuance” or “generation” phase, is the starting point of electronic invoicing in Saudi Arabia. It became mandatory on 4 December 2021 under the supervision of the Zakat, Tax and Customs Authority (ZATCA), requiring every VAT-registered establishment to issue its invoices through a compliant electronic system instead of paper invoices. It falls within the general framework of e-invoicing in Saudi Arabia which is built on two consecutive phases.

In this guide we explain Phase One in full: when it began, what it actually requires from establishments, the mandatory fields on an invoice, how it differs from Phase Two, and how to handle the QR code and non-compliant systems. The goal is to give you a clear picture that lets you comply without confusion, whether you are a business owner or an accountant managing a client’s books.

What is meant by Phase One of e-invoicing?

Phase One is the “issuance and archiving” phase. It simply means moving the establishment from issuing invoices on paper or through generic software such as word processors, to issuing them through an electronic invoicing system that meets the Authority’s conditions. In this phase the invoice is created and stored in a structured digital format, carrying all the mandatory fields that make it a valid tax invoice.

The core idea is that Phase One builds the technical capability to issue invoices electronically within the establishment. There is no direct link with the Authority in this phase, and no invoices are transmitted at the moment of issuance. Invoices remain stored on the seller’s own system, provided that the system is able to produce them in the required form and store them securely. This groundwork is what makes the later move to Phase Two possible and smooth.

Phase One covers two types of invoices: the standard tax invoice between businesses (B2B), andthe simplified tax invoice aimed at the end consumer (B2C). Each has its own mandatory fields, and the QR code is added specifically to the simplified invoice.

When did Phase One begin and who does it cover?

Phase One became mandatory on 4 December 2021. Since that date it has been binding on every VAT-registered establishment in the Kingdom, with no exception for the size or sector of the establishment. Any establishment whose taxable sales exceed the mandatory registration threshold of SAR 375,000 per year is registered for VAT and is therefore subject to Phase One.

The obligation also covers third parties that issue tax invoices on behalf of a taxable establishment. This means that any party issuing invoices on behalf of a registered taxpayer must comply with the same electronic issuance requirements. This broad scope was intentional, so that no path issuing tax invoices remains outside the electronic system.

Unlike Phase Two, which was rolled out in batches according to revenue size, Phase One was not divided into waves. It came into effect for everyone on a single date. Therefore, any new establishment registering for VAT today begins its electronic issuance obligation from the moment of registration, before its turn for integration arrives later within its group.

Read also in the Fundamentals track

If you are still at the start of the road, you may first find it helpful to understand what an electronic invoice is in terms of definition and components, then review types of electronic invoices to distinguish between the tax invoice, the simplified invoice and the notes. You will find the practical first steps in the beginner’s guide to e-invoicing.

What does Phase One actually require?

Phase One requirements come down to three core obligations that work together. The first is issuing all invoices and notes electronically; the second is permanently stopping manual and non-compliant invoices; and the third is archiving invoices in a structured format while including the mandatory fields. These obligations form the essence of the e-invoicing conditions in this phase.

1. Issue invoices and notes electronically

The establishment must issue its tax invoices and its credit and debit notes through a compliant electronic invoicing system. A credit note is used when reducing or cancelling the value of a previous invoice, and a debit note when increasing it. Both must be issued electronically and linked to the original invoice. It is no longer acceptable to write an invoice on paper or in a generic text file and then print it.

A compliant system is one able to create the invoice in the required format, include all the mandatory fields, store it, and generate the QR code for simplified invoices. The tax invoice that is valid in this phase is the one that meets these conditions together, not merely a digital file sent by email.

2. Stop manual and non-compliant invoices

The second obligation is to stop any old path for issuing invoices. This includes handwritten invoices, invoices prepared through word processors or spreadsheets, and any software that does not meet the Authority’s specifications. The aim is to ensure that every invoice is issued from a single electronic source that can be verified later.

This point in particular is what drives many small establishments to adopt accounting software that is fully integrated instead of scattered solutions. A compliant program does not just issue the invoice; it links it to the accounting entries, inventory and tax reports in a single flow.

3. Archive invoices and include the mandatory fields

The third obligation is to archive issued invoices in a structured digital format, while including the mandatory fields on every invoice. Among the most prominent of these fields are the seller’s name and VAT registration number, the date and time of issuance, the line-item details, the amount of value added tax and the total, in addition to the QR code on simplified invoices.

Structured archiving does not mean merely keeping a copy. It means that invoices are retrievable and reviewable when needed, because the Authority may request to inspect them as part of audit procedures. This is why it is preferable for the system to handle archiving automatically instead of relying on manual filing that is prone to loss or error.

Mandatory fields on a Phase One invoice

For an invoice to be valid in Phase One, it must carry a set of mandatory fields. The absence of any of them may render the invoice incomplete from a compliance standpoint. Some details differ between the tax invoice between businesses and the simplified invoice aimed at the consumer, but the general framework is the same.

On the standard tax invoice (B2B), the seller’s name and tax number must appear, along with the buyer’s name and tax number if registered, the issuance date, the description of line items with their quantities and prices, the tax rate and amount for each item, and the total inclusive of tax. On the simplified invoice (B2C), it is sufficient to include the seller’s details, the line items, the tax and the total, with the QR code added as mandatory.

The QR code on the simplified invoice

The QR code is a pivotal element on the Phase One simplified invoice. The code carries basic invoice data such as the seller’s name and tax number, the date and time of issuance, the invoice total, and the tax amount. The aim is for any party to be able to read this data directly by scanning the code, which enhances transparency and eases verification.

A compliant system generates this code automatically when each simplified invoice is issued, so the user does not need any manual step. This automation in particular is one of the fundamental differences between a compliant system and generic solutions that cannot produce a valid code.

The tax invoice and the simplified invoice in Phase One

Distinguishing between the two invoice types is essential to understanding Phase One. The standard tax invoice is issued in transactions between businesses (B2B), where the buyer is a VAT-registered establishment that needs the invoice to deduct input tax. This invoice therefore requires the buyer’s full details and tax number, alongside the seller’s details and a breakdown of line items and tax.

The simplified invoice, on the other hand, is issued in transactions with the end consumer (B2C), such as retail sales, restaurants and shops. Here the buyer does not need to deduct tax, so the invoice is limited to the seller’s details, the line items, the tax and the total, with the QR code added as mandatory. This code is what enables the consumer or the regulatory body to read the invoice data quickly.

In Phase One, both types are issued and archived electronically without a link to the Authority. The difference in treatment becomes clearer in Phase Two, where the tax invoice passes through clearance before reaching the buyer, while the simplified invoice is reported within 24 hours. But even in Phase One, the system must distinguish between the two types and apply the correct mandatory fields for each, foremost among them the QR code on the simplified invoice.

Establishments dealing with both types together, such as a merchant selling to individuals and to companies, need a system that handles both cases smoothly. Choosing the right invoice is not left to manual judgment, but is determined by the nature of the customer and the transaction. A compliant system sets this automatically, reducing errors of issuing the wrong type that could invalidate the invoice or disrupt the tax return later.

The difference between Phase One and Phase Two

Confusion between the two phases is common, but the difference between them is clear. Phase One focuses on issuing and archiving the invoice electronically within the establishment’s system, without any direct link to the Authority. As for Phase Two (integration) it adds a layer of real-time connection with the Fatoora platform, so that every invoice passes through the Authority before or after reaching the buyer depending on its type.

In Phase Two, new technical elements are added that did not exist in Phase One. The most important are the cryptographic digital stamp that signs the invoice using a PKI certificate from the Authority, the unique invoice identifier (UUID), and the hash value of the previous invoice to ensure the integrity of the invoice chain. The compliance identifier (CSID) for each issuing device is also managed, which is what officially links the device to the Authority.

The invoice path also differs by type in Phase Two. The tax invoice between businesses (B2B) must pass through the Authority for clearance before being sent to the buyer. The simplified invoice (B2C), on the other hand, is issued and delivered to the buyer directly, then reported to the Authority within 24 hours. This distinction in path determines how the system handles each invoice, and depends on the invoice type.

What remains constant across both phases?

Despite the differences, the Phase One foundation remains in place in Phase Two. Electronic issuance, structured archiving, the mandatory fields and the QR code are all continuing requirements. Phase Two does not cancel Phase One; rather, it builds a layer of integration on top of it. That is why every establishment starts by mastering compliant issuance first, then moves to integration when its group’s turn arrives.

Phase Two in waves: how is your date set?

Phase Two began on 1 January 2023 and was rolled out in batches according to annual revenue size. The first wave covered establishments whose revenue exceeds SAR 3 billion, then the Authority announced the following waves successively with smaller revenue brackets, giving each group sufficient time to prepare. Each establishment is notified of its onboarding date through a direct notice from the Authority and via its official website.

The practical rule is to verify your group’s date from the official notice addressed specifically to you, not from a general estimate. The waves are defined by revenue brackets that may change, and relying on an assumption may delay your preparation. In all cases, an establishment that has mastered Phase One is in a better position to move quickly to integration.

How does Qoyod help you in Phase One and Phase Two?

The Qoyod system issues your invoices and notes electronically in a structured format from day one, generates the QR code automatically for simplified invoices, and archives every invoice securely and retrievably. This fully covers the Phase One requirements without your needing additional tools or manual steps.

And when the time comes for your move to Phase Two compliant with the Authority’s requirements, Qoyod handles signing every invoice with the cryptographic stamp, adding the unique identifier and the hash value, managing the compliance identifier (CSID), and the real-time link with the Fatoora platform. Clearance is carried out for invoices between businesses and reporting for simplified invoices within 24 hours, through the integration link with the Authority built into the system.

The advantage is that the establishment does not deal with the two phases as two separate projects. It starts with compliant issuance, then moves to integration from within the same system without changing its software or reconfiguring its invoices. And because Qoyod links invoicing to the accounting entries, inventory and tax reports, your books stay consistent with your invoices at every phase. You can see the full details on the page for Qoyod’s e-invoicing software.

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Practical steps to move to electronic issuance

Moving to Phase One does not require a complex technical project. It comes down to clear steps that any establishment can complete quickly. The first step is to make sure the establishment is registered for VAT, because the obligation is tied to this registration. If your annual taxable sales exceed the SAR 375,000 threshold, registration becomes mandatory, and the electronic issuance obligation then applies to you.

The second step is to choose an electronic invoicing system compliant with the Authority’s specifications. When choosing, verify that the system generates the tax and simplified invoice with all the mandatory fields, produces the QR code automatically, and archives invoices in a structured format. It is also preferable for the system to be able to support Phase Two later, so that you do not have to change it when the integration date arrives.

The third step is to configure your establishment’s data within the system: the trade name, the tax number, the address, and the list of products or services with their prices and tax rates. This configuration ensures the mandatory fields appear correctly on every invoice without repeated manual entry. The fourth step is to issue a test invoice and review it to confirm the completeness of its elements and the validity of the QR code before full adoption.

The final step is to train the team on the new path, especially those who handle sales and issue invoices at points of sale or in offices. A successful transition is one that makes electronic issuance a daily habit rather than an exception. And with an integrated accounting system, every invoice is automatically reflected in the accounting entries and inventory, cutting double-entry steps and reducing errors.

Invoice format and technical archiving in Phase One

In Phase One, the invoice is created in a structured digital format that allows the system to read and verify it. This differs fundamentally from an image or a printed file that carries no processable data. The structured format ensures that every field on the invoice is clearly defined, which later eases the move to Phase Two, which requires a signature and a link that rely on this structure.

As for archiving, what is meant is keeping every issued invoice in a way that allows it to be retrieved quickly when needed. The Authority may request to inspect invoices as part of audit procedures, and having an organized digital archive makes the response immediate and reliable. Relying on scattered files or paper filing exposes the establishment to the risk of losing invoices or difficulty finding them at review time.

A compliant system handles archiving automatically the moment the invoice is issued, and links it to the customer record, the product and the accounting entry. This interconnection turns the archive from mere storage into an integrated source of information that serves accounting and tax reports together. And the more organized and linked the archiving, the easier and more accurate it is to prepare the VAT return, because the data is ready and consistent with the actual invoices.

Common mistakes in Phase One compliance

Many establishments think they are compliant while falling into mistakes that invalidate their invoice. The most common of these mistakes is continuing to issue invoices through generic, non-compliant software on the grounds that they are digital. A digital invoice alone is not enough; what is required is that it be issued from a compliant system that meets the Authority’s specifications.

The second mistake is omitting the QR code on simplified invoices, or generating it in a way that does not carry the correct data. The third mistake is disorganized archiving that makes it hard to retrieve invoices during an audit. The fourth mistake is forgetting to issue credit and debit notes electronically, as some users treat them as if they were outside the system when they are part of it.

Avoiding these mistakes starts with adopting a compliant system that handles issuance, archiving and code generation automatically, and treats invoices and notes with the same level of compliance. Compliance then becomes a natural result of the daily way of working, not an extra task done manually.

Is Phase One still in effect today?

Yes. The Phase One requirements are a permanent foundation that does not end with the launch of Phase Two. Compliant electronic issuance, structured archiving, including the mandatory fields and the QR code are all ongoing. Phase Two added integration on top of this foundation, but it did not cancel it.

Any new establishment starting today first complies with compliant electronic issuance from the moment it registers for VAT, then prepares for integration when its group’s turn arrives within the Phase Two waves. That is why understanding Phase One remains a necessary step for everyone entering the e-invoicing system in Saudi Arabia, whatever the size of their activity.

Frequently asked questions

Read also in the Fundamentals track

• E-invoicing in Saudi Arabia
• What is an electronic invoice?
• Phase Two of e-invoicing
• e-invoicing conditions