ZATCA Phase 2 E-Invoicing: ERPNext Compliance Guide

If your business in Saudi Arabia had more than SAR 187,500 in VAT-taxable revenue in any year from 2022 to 2025, the clock is ticking.

In July 2026, ZATCA announced Wave 25 of the e-invoicing Integration Phase (Phase 2). The revenue threshold was halved from the previous wave's SAR 375,000, which means thousands of small and mid-sized businesses are now in scope. The integration deadline is 1 February 2027.

That's less than three months away. For many SMEs, this is the first time e-invoicing is a hard legal deadline rather than "something for big companies".

This guide explains what Phase 2 actually requires, what happens if you miss it, and how ERPNext handles it.

ZATCA's e-invoicing penalties range from warnings for first offences to fines that increase with repeat violations. Wave 24 businesses have faced penalties of SAR 5,000 to SAR 50,000 since 1 July 2026.

Beyond fines, the bigger risk is commercial. Larger customers increasingly reject invoices that haven't been cleared, so a non-compliant invoice can mean a delayed payment.

Whatever software you use, it must be able to:

1. Generate invoices in UBL 2.1 XML, with all ZATCA-mandated fields (seller and buyer VAT numbers, line-level VAT, totals).
2. Apply a cryptographic stamp using a Cryptographic Stamp Identifier (CSID) issued by ZATCA when you onboard each device or system.
3. Give every invoice a UUID and a hash that chains it to the previous invoice, so invoices can't be altered or deleted later.
4. Print a Phase 2 QR code on every invoice.
5. Send B2B invoices for clearance and wait for ZATCA's response before sharing the invoice.
6. Report B2C invoices within 24 hours.
7. Handle credit and debit notes the same way.
8. Store everything for the statutory retention period.

If your current system is a spreadsheet, a basic billing app or an old desktop accounting package, it almost certainly can't do this.

ERPNext is used widely across Saudi Arabia, and ZATCA compliance is handled through dedicated Frappe apps that plug into the standard Sales Invoice.

• Onboarding: generate the CSR, get your compliance CSID from the Fatoora portal, run ZATCA's compliance checks, and receive the production CSID, all from inside ERPNext.
• Automatic XML and signing: when you submit a Sales Invoice, the app builds the UBL 2.1 XML, signs it and calculates the hash chain.
• Clearance and reporting: standard invoices go to ZATCA for clearance in real time. Simplified (POS) invoices are reported automatically.
• Status on the invoice: each invoice shows whether it was cleared, reported or rejected, with ZATCA's error message if something is wrong.
• Phase 2 QR code on the printed invoice, in Arabic and English.
• POS support: retail and restaurant counters stay fast, with B2C invoices reported in the background.

Because ERPNext is also your accounting, inventory and VAT system, there's no separate "e-invoicing box" to reconcile. The invoice that clears with ZATCA is the same invoice in your ledger.

1. Week 1: Confirm scope. Check your ZATCA notification and list every place you issue invoices (head office, branches, POS counters, e-commerce).
2. Week 2: Clean your master data. Customer VAT numbers, CR numbers and addresses must be complete and correct. This is where most rejections come from.
3. Week 3: Set up and onboard. Install the ZATCA app, configure your company and onboard to the Fatoora simulation environment.
4. Week 4: Test. Run real scenarios: standard invoice, simplified invoice, credit note, multi-currency, discounts.
5. Week 5: Train. Show the billing team how to read clearance status and fix rejections.
6. Week 6: Go live on the production environment, ahead of the deadline, not on it.

Does Wave 25 apply to my business?

It applies if your VAT-taxable revenue exceeded SAR 187,500 in any year from 2022 to 2025, and ZATCA has notified you. Check the ZATCA portal to confirm.

Can I keep using my current accounting software?

Only if it supports Phase 2 integration: UBL 2.1 XML, cryptographic stamping, and clearance and reporting via the Fatoora API. Ask your vendor for proof of ZATCA compliance.

Is ERPNext ZATCA compliant?

Yes. ERPNext supports ZATCA Phase 1 and Phase 2 through Frappe apps that handle onboarding, XML generation, signing, clearance and reporting.

How long does ZATCA integration take in ERPNext?

For a business already on ERPNext, onboarding and testing typically take a few weeks. A new ERPNext implementation including ZATCA takes longer, so start now.

Don't leave it to January

We help Saudi SMEs implement ERPNext with ZATCA Phase 2 built in, from onboarding to go-live and staff training.

[Book a free ZATCA readiness call with LABOFWEB](https://labofweb.com/contact)