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Introducing e-invoicing in Saudi Arabia has been revolutionizing the business transactions with transparency, obtaining accuracy, and tax compliance. No matter where you are in Riyadh or any other part of the Kingdom, you need to understand how to handle advance payments correctly. As per the regulations of the Zakat, Tax and Customs Authority (ZATCA), all the transactions including advance payments must be in line with the e-invoicing framework in E-invoicing in Riyadh or else businesses will have to pay penalties.
All resident taxpayers, except for non-residents for VAT purposes, are subject to Saudi Arabia’s e-invoicing system. The implementation of the system is done in two phases to make the process of transition to a fully digital invoicing system smooth. This also includes the correct issuance and documentation of advance payments in KSA in accordance with the required procedures and VAT reporting. Understanding the method of advance payment management and knowing how to do so helps companies get clear of discrepancies in their finances as well as in general operational efficiency.
Therefore, in line with this, ZATCA introduced phase 1 of e-invoicing in Saudi w.e.f 4 December 2021. Additionally, ZATCA issued the below waves under phase 2 of Saudi Arabia e-invoicing as follows:
Wave 1 – Effective January 1, 2023
From January 1, 2023, Phase 2 was required for businesses with a turnover of more than SAR 3 billion in 2021. To validate and comply with real time, these large enterprises had to integrate their e-invoicing solutions with the ZATCA system.
Wave 2 – Effective July 1, 2023
Wave 2 involved VAT registered businesses with turnover exceeding SAR 500 million in 2021. Starting from July 1, 2023 these businesses had to upgrade their invoicing system to be seamlessly integrated with the ZATCA e-invoicing platform for transparent tax reporting.
Wave 3 – Effective October 1, 2023
Under Wave 3 were companies with turnover between SAR 250 million and SAR 500 million in 2021 or 2022. By October 1, 2023, they were required to fully implement Phase 2, which means they had to comply with ZATCA’s structured e-invoicing system for better financial tracking.
Wave 4 – Effective November 1, 2023
If you have a turnover of SAR 150 million to SAR 250 million in 2021 or 2022, you had to comply with Phase 2 by 1st November 2023. The ZATCA e-invoicing system was integrated into these businesses for electronic transaction and tax reporting.
Wave 5 – Effective December 1, 2023
Wave 5 included organizations with turnover in 2021 or 2022 of SAR 100 million to SAR 150 million. Starting from December 1, 2023, it was mandatory for these businesses to issue structured e-invoices and to comply with the real-time invoice reporting system of ZATCA.
Wave 6 – Effective January 1, 2024
Businesses in Saudi Arabia with a turnover of SAR 70 million to SAR 100 million in 2021 or 2022 had to comply with Phase 2 by January 1, 2024. This ensured accurate tax compliance and smooth integration with the national e-invoicing system.
Wave 7 – Effective February 1, 2024
As of February 1, 2024 companies with turnover between SAR 50 million and SAR 70 million were required to integrate their invoicing systems. The transition of such invoicing to automation enabled mid-sized businesses to process their invoicing as well as maintain financial transparency by automated reporting.
Wave 8 – Effective March 1, 2024
Phase 2 was required for organizations with revenue between SAR 40 million and SAR 50 million by March 1, 2024. For digital transactions these companies had to make sure that e-invoicing was compatible with the Fatoora platform.
Wave 9 – Effective June 1, 2024
From June 1, 2024, businesses with a turnover of SAR 30 million to 40 million had to be fully compliant with Phase 2. This integration ensured higher accuracy in tax reporting and decrease in the risk of non-compliance penalties.
Wave 10 – Effective October 1, 2024
Wave 10 included companies who generated SAR 25 million to SAR 30 million in revenue. By October 1, 2024, they were required to be compatible with the national e-invoicing system, which was structured invoicing and improved financial compliance.
Wave 11 – Effective November 1, 2024
Those Saudi businesses with turnover between SAR 15 million and SAR 25 million must comply with Phase 2 by November 1, 2024. To reduce tax errors, and improve efficiency, these businesses were forced to automate invoicing processes.
Wave 12 – Effective December 1, 2024
By December 1, 2024, the Fatoorah portal required VAT registered businesses with turnover between SAR 10 million and SAR 15 million to integrate with the portal. This transition allowed for the real time validation of invoices and the regulating aspect.
Wave 13 – Effective January 1, 2025
From January 1, 2025, Phase 2 was applicable to companies that make between SAR 7 million and SAR 10 million. This ensured that smaller businesses took to digital invoicing for accurate tax submissions and compliance.
Wave 14 – Effective February 1, 2025
Wave 14 includes organizations with a turnover between SAR 5 million and SAR 7 million. By February 1, 2025, these businesses had to upgrade their invoicing systems to comply with ZATCA’s compliance framework.
Wave 15 – Effective March 1, 2025
Companies with a turnover between SAR 4 million and SAR 5 million had to connect to the e-invoicing system by March 1, 2025. This digital transition helped in accurate tax reporting and also in avoiding invoicing discrepancies.
Wave 16 – Effective April 1, 2025
Phase 2 was to be complied with by VAT registered businesses with revenue between SAR 3 million and SAR 4 million as of April 1, 2025. This made it mandatory for businesses to streamline invoicing and avoid tax related issues.
Wave 17 – Effective July 31, 2025
Wave 17 included companies with turnover between SAR 2.5 million and SAR 3 million. By July 31, 2025, they had to integrate their invoicing system with the Fatoorah portal to comply with ZATCA regulations.
Wave 18 – Effective August 31, 2025
By August 31, 2025, businesses earning SAR 2 million to SAR 2.5 million had to start using digital invoicing. The process of invoicing became seamless, their compliance risks diminished.
Wave 19 – Effective September 30, 2025
Under Phase 2, Saudi businesses with a turnover of SAR 1.75 million to SAR 2 million were the last group. By September 30, 2025, they had to integrate with Fatoorah system for real time tax compliance and invoice processing.
In order to comply with Phase 2 of Saudi Arabia’s e-invoicing, businesses must integrate their ERP, accounting or POS systems into the Fatoorah portal seamlessly. Standard tax invoices along with related credit and debit notes (CDNs) must be cleared in real time and simplified tax invoices and their CDNs must be reported within 24 hours of generation. The shift leaning toward this type of regulatory regulation will guarantee more transparency and efficiency in tax compliance.
Businesses are obliged to generate e-invoices using the e-invoicing software compliant for advance payments. Advance payments should be documented properly to avoid discrepancies in VAT reporting. In order to avoid penalties and to keep the financial operations under the updated e-invoicing framework smooth, a business must understand various advance payment scenarios and their invoicing requirements.
In Saudi Arabia, the Value Added Tax (VAT) applies on the advance payments, so businesses in Saudi Arabia have to issue e-invoices for such transactions. According to KSA VAT invoicing rules, an invoice has to be generated within 15 days subsequent to the end of the month in which the advance payment was received. For example, if a business receives 1,000 riyals advanced payment on January 10, 2023, it has to issue the tax invoice not later than February 15, 2023. This helps businesses ensure timely invoicing of advance payments in KSA which keeps them on the right side of VAT regulations and record keeping.
Let’s see what different scenarios of advance payments are:
If a business receives 100% advance payment for goods or services, it has to issue a tax invoice immediately that clearly states the full advance amount and applicable VAT. The advance payment is adjusted against the total invoice value once the goods or services are delivered and a final tax invoice is issued for record keeping and compliance.
If the advance payment is received even partly, a business has to issue a tax invoice for the received amount. The goods or services are delivered and the partial advance amount is deducted from the final invoice, and tax invoice is issued for the balance amount, keeping in mind the VAT regulation.
In conclusion businesses need to know and comply with the advance payment treatment under the Saudi Arabia’s e-invoicing system. Whether it is a full or partial advance, it is important to ensure that the tax invoicing is done properly so that the VAT records are correct and penalties are avoided. As part of the overall e-invoicing in Saudi Arabia, businesses must integrate their systems with the Fatoorah portal to manage both standard and advance payment invoices efficiently.
If businesses adhere to the outlined procedures, they can avoid any hiccups in operations, proper VAT reporting and timely invoicing as per ZATCA’s guidelines. This will help build trust with tax authorities while also streamlining business processes in Riyadh and the Kingdom as a whole.
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