VAT at 15% and e-invoicing (Fatoorah)
VAT is the tax a Saudi company handles most often — and it now comes with a hard technology requirement that reaches almost every VAT-registered business. Here is the rate, the registration thresholds, the integration waves, and what Fatoorah's two phases actually demand.
15% — and the threshold that decides when you register
Standard VAT is 15% on most goods and services, administered by the Zakat, Tax and Customs Authority (ZATCA); exports are typically zero-rated, and some supplies — certain financial services and residential leasing — are exempt. The rate rose from 5% to 15% in July 2020 and has held there since. Whether you must register depends on your annual taxable supplies, and non-resident businesses making taxable supplies into the Kingdom — including digital services — must register regardless of turnover.
| Annual taxable supplies | VAT registration |
|---|---|
| SAR 375,000 or more | Mandatory |
| SAR 187,500 – 375,000 | Voluntary |
| Below SAR 187,500 | Not eligible to register |
Returns are filed monthly for larger taxpayers and quarterly for smaller ones. Registration is only the start — since 2021, VAT compliance in Saudi Arabia has come with a hard technology requirement that catches foreign entrants off guard: Fatoorah.
Generation, then integration
Structured e-invoices
- All VAT-registered businesses must issue & store structured electronic invoices
- Handwritten and free-form PDF invoices are banned
- Each invoice carries the mandated fields and a QR code
- Applies to every VAT-registered taxpayer, whatever its size
Real-time clearance
- Your system connects by API directly to ZATCA's Fatoora platform
- B2B & B2G invoices are cleared in real time before they reach the buyer
- B2C simplified invoices are reported within 24 hours
- Businesses brought in by revenue, in waves, with ≥6 months' notice
Issue, clear, then share
Generate
Your compliant system creates the invoice as UBL 2.1 XML in the EN 16931 form, with the mandated fields.
Clear / sign
B2B and B2G invoices are sent to ZATCA and cleared in real time — cryptographically stamped, QR-coded and hash-linked to the previous invoice.
Share
Only then is the cleared invoice issued to the buyer. B2C simplified invoices are reported to ZATCA within 24 hours.
Your invoicing system has to connect to ZATCA and clear invoices as you issue them. If your billing software isn't compliant, you simply can't issue a valid invoice — which is why this is an IT project as much as a tax one, and why it has to be scoped well before your wave's deadline.
Integration has arrived at essentially everyone
Phase 2 has rolled out in successive revenue-based waves since January 2023, starting with the largest taxpayers and working downward. The thresholds have fallen steadily, and by 2026 they reach almost the entire VAT-registered population.
| Milestone | Who | Deadline |
|---|---|---|
| Phase 1 — Generation | All VAT-registered businesses | 4 December 2021 |
| Wave 1 — Integration begins | Revenue above SAR 3 billion | 1 January 2023 |
| Wave 23 | Revenue above SAR 750,000 | 31 March 2026 |
| Wave 24 | Revenue above SAR 375,000 (the VAT-registration floor) | 30 June 2026 |
| Wave 25 | Revenue above SAR 187,500 | 1 February 2027 |
A wave captures you if your VAT-taxable revenue crossed its threshold in any one of the reference years (broadly 2022–2025), regardless of your turnover today. Wave 24's SAR 375,000 line equals the mandatory VAT-registration threshold, so Phase 2 now effectively reaches every VAT-registered business; Wave 25 drops to the voluntary-registration floor. ZATCA notifies each wave at least six months before its date — confirm your wave and deadline on the ZATCA portal.
Why the format itself matters
Fatoorah is not a best-efforts regime. Invoices must be genuine UBL 2.1 XML documents in the EN 16931 European standard form, each carrying a cryptographic stamp, a QR code and a hash linking it to the previous invoice — the chain that lets ZATCA detect tampering or gaps. A document that looks like an invoice but fails the technical standard is not a valid invoice, and ZATCA operates a graduated penalty scale for non-compliance: failure to issue or integrate, missing fields, broken QR codes, and late or absent reporting all attract escalating fines.
For a foreign group, two gaps recur. The first is assuming an overseas accounting system can keep issuing Saudi invoices as before — it generally cannot without a ZATCA-integrated solution. The second is intercompany invoicing: charges billed into the Saudi entity by a foreign parent must themselves be Fatoorah-compliant, a point easily overlooked until an audit surfaces it.
Four things, every cycle
A compliant, integrated solution
E-invoicing software connected to ZATCA's Fatoora platform and kept current with its technical requirements.
Correct VAT treatment
The right rate per supply — standard, zero-rated or exempt — applied consistently across the business.
Timely returns
Monthly or quarterly VAT filings, reconciled to your cleared invoices.
Compliant intercompany invoicing
Group charges into the Saudi entity must be Fatoorah-compliant too — a common gap when a foreign parent bills locally.
Digital services and the foreign supplier
A point foreign suppliers routinely miss: a non-resident making taxable supplies into Saudi Arabia — including electronically supplied and digital services to Saudi customers — must register for VAT regardless of turnover, with no benefit of the SAR 375,000 threshold. For business-to-business supplies, the reverse-charge mechanism often shifts the accounting to the Saudi customer; for business-to-consumer digital services, the non-resident supplier is generally the one that must register and account for the 15%. Getting this wrong is a common and expensive oversight for SaaS, media and e-commerce businesses selling into the Kingdom from abroad.
The practical sequence for any foreign group is therefore to answer three questions before invoicing into Saudi Arabia: are my supplies taxable there, does the reverse charge apply or must I register, and is my invoicing able to meet the Fatoorah technical standard for any Saudi-established entity in the chain. Answered up front, VAT is a manageable line; answered after the first audit, it is penalties plus back-tax.
Questions we get asked first
What is the VAT rate in Saudi Arabia?
15% on most goods and services since 2020, when it rose from 5%. Exports are typically zero-rated, and some financial services and residential leasing are exempt. ZATCA administers it.
When must I register for VAT?
Mandatory once annual taxable supplies exceed SAR 375,000; voluntary between SAR 187,500 and SAR 375,000. Below SAR 187,500 you cannot register. Non-residents making taxable supplies, including digital services, must register regardless of turnover.
What is Fatoorah?
Saudi Arabia's mandatory e-invoicing system, run by ZATCA in two phases: Phase 1 (Generation) since 4 December 2021, and Phase 2 (Integration) in revenue-based waves since 1 January 2023.
What does Phase 2 require?
Your invoicing system must connect by API to ZATCA's Fatoora platform and clear B2B and B2G invoices in real time before they reach the buyer, with B2C simplified invoices reported within 24 hours. Invoices are UBL 2.1 XML with a cryptographic stamp, QR code and hash link.
Which wave am I in?
A wave captures you if your VAT-taxable revenue crossed its threshold in any single reference year. Wave 24 (deadline 30 June 2026) covered everyone above SAR 375,000 — effectively all VAT-registered businesses; Wave 25 reaches SAR 187,500 by 1 February 2027. Confirm your wave on the ZATCA portal.
Does it apply to intercompany invoices?
Yes. Group charges billed to the Saudi entity must be Fatoorah-compliant, which is a frequent gap when a foreign parent invoices its Saudi company.
Treat VAT as a systems question, not just an accounting one
The rate is simple; the machinery around it is where compliance now lives. Get the registration threshold right, put a compliant, ZATCA-integrated invoicing solution in place before your wave's deadline, apply the correct treatment per supply, keep intercompany invoicing compliant, and file on time. It is highly automatable — which is exactly where dependable back-office support earns its keep.
Need VAT and Fatoorah handled properly?
We set up compliant e-invoicing, get the VAT treatment right per supply, and run the returns for you.
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This article is general information, current as of 2026, and is not legal or tax advice for any specific situation. Confirm current rules and official Arabic texts with the relevant authority before acting.