Confused about connecting your software directly to ZATCA (Zakat, Tax and Customs Authority)? You are not alone. Let’s clarify the difference between Phase 1 (Generation) and Phase 2 (Integration) based on real-world questions.

For many business owners in Saudi Arabia, especially those starting a new venture or shifting business lines on an existing CR, the rules around e-invoicing can be confusing. A common question we get is: “Does my software need to be directly linked with Zakat & Income (ZATCA) right now?”

The answer depends entirely on which المرحلة of e-invoicing your business falls into.

Based on a recent conversation with a client starting a new business, we’ve compiled the most critical questions and answers to help you understand your position and ensure compliance without unnecessary worry.

Q&A: Understanding ZATCA Phase 1 vs. Phase 2

Q1: Is my POS or ERP software directly linked to ZATCA right now?

Answer: If you are in Phase 1 (The Generation Phase), the answer is no. Your software does not need a live connection to ZATCA servers.

If you are in Phase 2 (The Integration Phase), the answer is yes, it is mandatory. Your system must be technically “onboarded” with ZATCA to report invoices.

Q2: How do I know if my business is in Phase 1 or Phase 2?

Answer: This is determined by your annual taxable revenue (sales). ZATCA releases “Waves” that mandate Phase 2 integration for businesses exceeding a certain revenue threshold in previous years (like 2022 or 2023).

• Phase 2 currently applies to larger businesses. As of late 2025, ZATCA has been gradually lowering the threshold, targeting businesses with revenues over 4 Million SAR and lower.
• If you are a new or small business with revenue well below these high thresholds, you are almost certainly still in Phase 1.

Q3: I am a new business, or I changed my business activity on an old CR. My previous revenue was very low. Which phase am I in?

Answer: You are in Phase 1 for sure.

ZATCA determines your phase based on historical sales data. If your previous business activity didn’t generate enough revenue to even register for VAT, you are not on the immediate radar for Phase 2 integration.

Q4: So, who tells me when to move to Phase 2? How will it be justified?

Answer: ZATCA will tell you directly. You don’t have to guess.

If your business is selected for a Phase 2 Wave, ZATCA will send an official notification (via email and SMS to the registered contact) at least 6 months before your deadline. They will also provide a special link in your Fatoora portal to begin the technical onboarding process.

Until you receive that official notice, you remain in Phase 1.

Q5: Even if I’m in Phase 1, must every invoice I issue include VAT generated regularly?

Answer: Yes, absolutely. This is mandatory for every business registered for VAT, regardless of the phase.

Phase 1 Requirements:

• You must use a compliant electronic system (no handwritten invoices).
• Invoices must be issued with the correct VAT amount.
• Simplified (B2C) invoices must have a compliant QR code.
• You do NOT need to submit these invoices to ZATCA in real-time. You just need to store them electronically.

Q6: Suppose my sales grow to over half a million or a million annually. Will I then be forced to link electronically with ZATCA?

Answer: Eventually, yes, but not immediately.

It happens after you make the sales and file your VAT returns. Once your reported annual revenue crosses the threshold set by ZATCA for a new Wave, you will be selected for integration. Remember, they will give you a 6-month notice period to get ready.

The Bottom Line: Don’t Worry, Be Prepared

For new and smaller businesses, the key takeaway is simple: Focus on Phase 1 compliance first. Ensure your software generates proper e-invoices with compliant QR codes.

Good News for Our Clients: Our software is already fully “Phase 2 Ready.” We have implemented integration for large enterprise clients.

When ZATCA notifies you that it’s your turn, you don’t need to buy new software. We can activate the Phase 2 integration features and get your system fully onboarded with ZATCA within 7 days.

Stay compliant today, and be ready for tomorrow without the stress.