E-Invoicing Target Groups in Saudi Arabia: Which Group Are You In?

When e-invoicing was rolled out in Saudi Arabia, the Zakat, Tax and Customs Authority (ZATCA) did not obligate every business at once. Instead, it divided them into target groups and brought each group in at a specific time according to precise criteria. Understanding this segmentation answers a practical question that concerns every business owner and accountant: which group does my business fall into, and when does my obligation begin?

This guide does not repeat the general explanation of “who is required to issue e-invoices.” You will find that covered in detail in the guide on who is required to use e-invoicing. Here we dig into the logic of the segmentation itself: how ZATCA defines each group, what criteria classify a taxpayer into one group rather than another, and how these groups are tied to the time-based waves. The goal is to pinpoint your position precisely, not to reread the general rule.

Why did ZATCA divide taxpayers into groups?

Applying e-invoicing to hundreds of thousands of businesses in a single step would have overwhelmed the technical system and raised the error rate. ZATCA therefore chose a phased approach. It brought in the larger businesses first, because they have the technical and accounting infrastructure ready, then moved gradually down toward smaller businesses.

This approach achieves three goals. The first is to test the system on a limited number of taxpayers before scaling up. The second is to give smaller businesses more time to prepare. The third is to distribute the load on the Fatoora platform instead of concentrating the full pressure in a single moment.

The result is that every business is required to use e-invoicing, but the timing of its obligation differs according to the group it belongs to. The difference between the groups is not in the obligation itself, but in when it starts and what technical requirements accompany it.

This logic is worth pausing on, because it explains scenes that may seem contradictory. Two businesses in the same neighborhood: one integrated its system a year ago and the other has not yet received a notice. The reason is not that ZATCA is lenient with one of them, but the difference in the revenue band that determines each one’s wave. The segmentation is a precise system, not a matter of individual decisions.

The segmentation also explains the difference in the readiness required. A business in an early wave needs an integration-ready infrastructure quickly, while a business in a later wave has time to build its readiness in stages. Once you understand the basis on which the segmentation was built, pinpointing your position and planning your preparation becomes clearer.

The first classification criterion: VAT registration

Before any division into waves, there is a fundamental condition that determines who enters the scope of obligation in the first place. That condition is registration for value-added tax. Every business registered for VAT falls within the target groups. Every business that is not registered remains outside them until it exceeds the registration threshold.

Here, understanding the VAT registration thresholds becomes the key to pinpointing your position. The thresholds are clear and settled:

• Mandatory VAT registration applies when your annual taxable revenue exceeds SAR 375,000.
• Voluntary registration is available when taxable revenue exceeds SAR 187,500.
• A business whose revenue is below SAR 187,500 does not register for VAT, and therefore does not fall within the e-invoicing target groups.

This rule means that being a small business does not automatically exempt you. What settles the matter is the taxable revenue figure. Once you exceed the mandatory registration threshold, you become registered, and the moment you register you enter the scope of obligation. For the details of value-added tax and how it is calculated, see the page on value-added tax from Qoyod.

Note the important distinction. The VAT registration threshold is the gateway into the entire system. The higher revenue bands, on the other hand, are the criterion for distributing taxpayers across the waves within the second phase. We will detail that shortly.

The second criterion: the taxpayer’s tax residency

VAT registration alone is not enough to determine the group. The second criterion is the taxpayer’s residency status. Here a fundamental difference emerges between two categories that many businesses confuse.

Resident taxable persons

Businesses that are resident in the Kingdom and registered for VAT are the core of the target groups. This category includes Saudi companies, local branches, and resident sole proprietorships. Every resident business registered for VAT is subject to e-invoicing and is classified within a specific wave according to its revenue.

Non-resident persons

Non-residents stand outside the e-invoicing target groups, even though they may be registered for VAT. A non-resident person who makes taxable supplies in the Kingdom is required to register for VAT regardless of the size of its revenue. But this tax obligation does not move them into the e-invoicing scope.

The reason is logical. The e-invoicing system is built on integrating the taxpayer’s system with the Fatoora platform and issuing signed invoices from within the Kingdom. A non-resident does not have this infrastructure locally, so they were excluded from the target groups, and their obligation remained confined to the tax side.

This distinction is practical, not theoretical. If you deal with a non-resident supplier, do not expect a signed e-invoice from them via the Fatoora platform. Your dealings with them are subject to different rules, which we will point to later.

How were the groups distributed across the two phases?

E-invoicing in Saudi Arabia proceeds in two phases. Each phase defines the groups differently. A precise understanding of this difference is what determines your true position.

The first phase: a single comprehensive group

The first phase, the generation phase, became mandatory on 4 December 2021. Here, businesses were not divided into waves. All taxpayers registered for VAT entered at once, on a single unified date.

The reason is that the requirements of the first phase are relatively simple. They come down to issuing the invoice through an electronic system instead of paper and manual files, while storing it in a structured format. There is no direct integration with the Authority in this phase. For the details of this phase’s requirements, see the guide on the phases of e-invoicing implementation.

The summary of the first phase is that the target group in it is every VAT-registered taxpayer, with no distinction between large and small. The real segmentation begins in the second phase.

The second phase: multiple groups and successive waves

The second phase, the integration phase, began on 1 January 2023. This is where the actual segmentation logic appeared. Businesses did not enter all at once; instead, ZATCA distributed them across successive waves according to a clear criterion: the size of annual revenue.

Each wave represents a target group with a specific revenue threshold and a start date known in advance. The larger the business, the earlier the wave ZATCA brings it into. The smaller it is, the later its entry, to give it a longer preparation window.

The wave logic: how does revenue classify a taxpayer into its group?

The governing criterion for distributing the groups in the second phase is annual taxable revenue. ZATCA starts from the highest revenue band and moves down gradually. The first wave comprised businesses with annual revenue exceeding SAR 3 billion, and their obligation began in January 2023.

After the first wave, ZATCA announced the subsequent waves in batches. Each batch targets a lower revenue band than the one before it. ZATCA gives the taxpayer a window before the start date of its wave that is sufficient for technical preparation and integrating the system.

The pivotal idea here: the groups in the second phase are not fixed in number from the outset. ZATCA announces a new revenue band periodically, and a new group forms from the businesses that fall within that band. This explains why one business receives an obligation notice while a business smaller than it has not yet received one.

How do you determine your wave in practice? Annual taxable revenue is the starting point. Compare your revenue with the band announced for each wave. But the decisive reference remains the official notice you receive from ZATCA, not self-estimation. Your obligation begins from the date stated in your notice, not from your guess about your position.

For a deeper look at this phase’s requirements and the technical integration it entails, see the guide on second-phase requirements.

What does a late wave mean in practice?

Falling into a late wave does not mean postponing the decision. It means you have a defined window before your obligation start date that you use to prepare. This window is an opportunity to choose a compliant system, test it, and train your team — not a justification to delay until the last moment.

A business that waits for its notice and then begins preparing finds itself under time pressure. A business that prepares early enters its wave smoothly. A late wave is therefore a preparation advantage for those who use it well, and a burden for those who neglect it.

An important point: your wave’s start date is calculated from ZATCA’s notice, not from your estimate. Even if you accurately estimate your wave from your revenue, the official notice remains what fixes the date. So follow ZATCA’s official channels regularly, as the notice may arrive only a limited period before the start date.

Why does the distribution start from the largest and move toward the smallest?

Choosing to start with large businesses is not arbitrary. Businesses with high revenue have advanced accounting systems, technical teams, and resources for rapid preparation. Bringing them in first reduces the risk of the implementation failing on a wide scale.

In contrast, small and medium businesses need more time to choose a compliant system and train their staff. Delaying their entry gives them this window and allows them to benefit from the experience of those who preceded them. You will find the situation of small businesses detailed in the guide on e-invoicing for small businesses.

Classifying transactions within the target group

Classification does not stop at the business level. Within the same obligated business, invoice requirements differ according to the type of transaction and its counterparty. This is a second dimension of the segmentation logic that many overlook.

Transactions between two businesses (B2B)

Invoices issued to another business are called standard tax invoices. These invoices are subject to the clearance mechanism. They must be sent to the Fatoora platform and approved by it before being delivered to the buyer. In other words, the invoice is not handed to the other party until it has been cleared by the Authority in real time.

Transactions with the final consumer (B2C)

Invoices issued to the final consumer are called simplified tax invoices. These are issued and delivered to the buyer immediately, then reported to the Authority within 24 hours. The difference is that prior clearance is not required here; rather, it is subsequent reporting.

For a precise distinction between invoice types and the mechanism of each, see the guide on the difference between an e-invoice and a tax invoice.

The takeaway is that a single business may issue both types. A retail store that sells to individuals and distributes to shops issues simplified invoices to individuals and standard invoices to shops. The classification here falls at the transaction level, not the business level.

Reading the segmentation logic from the angle of each category

The preceding criteria seem abstract until you apply them to real categories. Each type of business reads the segmentation differently, because its position in terms of revenue, residency, and transaction type differs. This is a practical reading of how the classification logic applies to the most prominent categories.

The large enterprise with high revenue

This category entered first, because its revenue placed it in the earliest waves of the second phase. The criterion that classified it is high annual revenue, which is the same criterion that gave it entry priority. These companies often have advanced accounting systems, so their focus was on the technical integration with the Fatoora platform rather than on the shift to electronic invoicing itself.

The lesson here is that high revenue means earlier entry and technical requirements applied at an early time. The larger the business, the earlier the date of its obligation to use the real-time clearance mechanism for standard invoices.

The small and medium business

This category is the one most in need of understanding the segmentation logic, because its position is determined by two thresholds together. The first is exceeding the VAT registration threshold, which brings it into the system in the first place. The second is its revenue band, which places it in a relatively late wave within the second phase.

Many owners of these businesses assume that small size exempts them. The reality is that VAT registration is the deciding factor, not size alone. A medium business registered for VAT is obligated, and the delay of its entry into the waves does not mean it is exempt but rather gives it a preparation window.

The accountant and the accounting firm

The accountant is not classified by their own revenue; rather, they manage businesses that fall into multiple groups and waves at the same time. One client is in the second wave, another in a later wave, and a third is still outside the system. The accountant’s task is to determine each client’s wave individually and follow ZATCA’s notices for each file.

This makes understanding the segmentation logic part of their daily work, not a passing piece of information. An error in determining a client’s wave may delay their integration and expose them to a violation.

The point-of-sale and retail business

This category often deals with the final consumer, so its invoices are predominantly the simplified type subject to reporting within 24 hours. But if it also sells to other businesses, it issues standard invoices subject to clearance. The classification here falls at the transaction level within a single business, not only at the business level.

The lesson is that the type of your audience determines the type of your invoices and the mechanism for issuing them, even within the same revenue group.

Who is outside the target groups?

Understanding who falls outside the scope is no less important than understanding who falls inside it. There are categories and supplies that do not fall within the e-invoicing target groups, and each has a clear reason.

• Businesses not registered for VAT: Because VAT registration is the entry gate, a business that is not registered remains outside the system until it exceeds the mandatory registration threshold.
• Non-resident persons: As we explained, their obligation is confined to the tax side and does not extend to e-invoicing.
• Supplies coming from outside the Kingdom: Imports are not issued with a local e-invoice, because the supplier is outside the scope of the Saudi system.
• Supplies subject to the reverse charge mechanism: In this case, the buyer accounts for the tax on itself, and no e-invoice is issued in the usual way.

Being exempt from issuing an e-invoice does not mean being exempt from the tax obligation. A business may remain registered and obligated to file its tax return even if a particular transaction is outside the e-invoicing scope. Distinguishing between the two scopes protects you from confusion.

How do you move from one group to another?

A business’s classification is not fixed for life. A business whose revenue grows may move from one band to a higher one, advancing the date of its obligation or changing its requirements. And a business that exceeds the VAT registration threshold for the first time enters the target groups after having been outside them.

This is why you need to monitor your annual taxable revenue periodically. Exceeding the mandatory registration threshold requires you to register within the statutory period, and the moment you register you enter the scope of the e-invoicing obligation according to the wave that applies to you.

The official notice from ZATCA remains the decisive reference. ZATCA notifies the taxpayer of its wave and the start date of its obligation through its official channels. Following these notices is part of your responsibility, and failing to pay attention to them does not exempt you from complying on time.

A summary of the classification logic in five steps

If you want to pinpoint your position precisely, follow this logical sequence:

• Step one: Check your VAT registration. If you are not registered and have not exceeded the registration threshold, you are currently outside the groups.
• Step two: Confirm your residency status. A registered resident is inside the groups; a non-resident is outside them.
• Step three: Determine your annual taxable revenue, as it is the criterion for your distribution across the waves of the second phase.
• Step four: Review the official notice from ZATCA to know your wave and the start date of your obligation precisely.
• Step five: Classify your transactions as standard for businesses and simplified for individuals, so you know the mechanism for each invoice.

How does Qoyod help you comply, whatever your group?

Once you have determined your group and wave, practical implementation remains. This is where a compliant accounting system comes in to handle the technical side on your behalf. Qoyod is designed to work with all target groups and all types of transactions.

Qoyod integrates you with the Fatoora platform, issues standard invoices via the real-time clearance mechanism, and simplified invoices via the reporting-within-24-hours mechanism. The system automatically adds the cryptographic stamp, the unique identifier, and the QR code, and manages the technical compliance certificate (CSID) without any manual intervention from you. To understand this certificate and its place in the integration, see the guide on the CSID certificate.

Qoyod is officially integrated with the Fatoora platform and compliant with the second-phase requirements. This means that your move from one wave to another, or a change in the classification of your transactions, does not require you to rebuild anything. For the technical details, see the page on second-phase compliance from Qoyod and the page on e-invoicing from Qoyod.

The practical advantage is that you focus on running your business, while the system takes care of matching your invoice to the requirements that apply to your group. The rules and waves change, and your system stays compliant.

Frequently asked questions about the e-invoicing target groups

What is the difference between “the required parties” and “the target groups”?

“The required parties” is a general term that includes everyone obligated to apply e-invoicing. “The target groups,” on the other hand, refers to dividing those required parties into bands that enter at different times according to the criteria of revenue, residency, and VAT registration.

Does my business size alone determine my group?

No. VAT registration is the entry gate. After that, the size of your annual revenue determines your wave within the second phase. A small business registered for VAT is obligated, and a larger business that is not registered may remain outside the scope.

I am a small business — which wave do I fall into?

The waves start from the businesses with the highest revenue and move down gradually toward the smallest. Determine your position by comparing your annual taxable revenue with the announced bands, and rely on the official notice from ZATCA as the final reference for the start date of your obligation.

Does a non-resident supplier issue me an e-invoice?

No. A non-resident is outside the e-invoicing target groups, even if registered for VAT. Your dealings with them are subject to different rules, such as the reverse charge mechanism where it applies.

If my revenue grows, does my group change?

Yes. Revenue growth may move you to a higher band, or bring an unregistered business into the scope of obligation after it exceeds the registration threshold. Monitor your annual revenue and follow ZATCA’s notices regularly.

Does Qoyod determine my group and register with the Authority?

Qoyod prepares your system for compliance and integrates it with the Fatoora platform, but registering the compliance certificate and determining your wave is your responsibility, based on ZATCA’s notice. Qoyod guides you through the technical steps and does not file the tax return on your behalf.

Key terms in this guide

• The target group: A band of taxpayers that enters the e-invoicing obligation according to specific criteria and at a particular time.
• The wave: A batch of businesses within the second phase that share a single revenue band and a single start date.
• The mandatory registration threshold: SAR 375,000 of annual taxable revenue, which requires registration for value-added tax.
• The non-resident person: A taxpayer that does not reside in the Kingdom, is subject to tax upon supply, but is outside the e-invoicing target groups.
• Clearance: The mechanism for approving the standard invoice (B2B) by the Fatoora platform before it is delivered to the buyer.