If your VAT-subject revenue exceeded SAR 187,500 in any year from 2022 to 2025, ZATCA's Wave 25 includes you. Your invoicing system must be connected to the Fatoora platform by 1 February 2027. For a pharmaceutical distributor, this changes the invoice step itself. Each B2B tax invoice is sent to ZATCA as signed XML and cleared before the customer receives it.
What is ZATCA Phase 2?
Saudi e-invoicing (Fatoora) has two phases, according to ZATCA's roll-out page:
- Phase 1 (Generation), from 4 December 2021: all VAT-registered taxpayers must issue and store invoices using a compliant electronic solution. Handwritten and simple spreadsheet invoices are no longer allowed.
- Phase 2 (Integration), from 1 January 2023 in waves: invoices must follow ZATCA's XML and security standards, and the invoicing system must connect to ZATCA. ZATCA gives each group at least six months' notice.
Who is in Wave 25 and when is the deadline?
ZATCA announced Wave 25 on 24 July 2026:
| Wave | Revenue subject to VAT exceeded | Integrate by |
|---|---|---|
| Wave 24 | SAR 375,000 in 2022, 2023 or 2024 (reported) | 30 June 2026 (reported) |
| Wave 25 | SAR 187,500 in 2022, 2023, 2024 or 2025 | 1 February 2027 |
The Wave 24 figures come from secondary sources such as EY. SAR 187,500 is the voluntary VAT registration threshold, and the mandatory threshold is SAR 375,000. That means almost every VAT-registered pharmacy and drug distributor is now in a Phase 2 wave. ZATCA notifies each taxpayer it targets, so check your Fatoora portal account.
What changes for a distributor's invoices?
ZATCA's detailed e-invoicing guidelines set two flows:
| Standard tax invoice | Simplified tax invoice | |
|---|---|---|
| Typical use | B2B: sales to pharmacies, hospitals, other distributors | B2C: pharmacy counter sales |
| ZATCA step | Clearance: ZATCA validates the invoice and stamps it before you share it with the buyer | Reporting: issue to the customer, then report to ZATCA within 24 hours |
| Format | UBL 2.1 XML, shared as XML or PDF/A-3 with the XML embedded | UBL 2.1 XML, printed receipt with QR code |
| Credit and debit notes | Same flow as the original invoice | Same flow as the original invoice |
What must the invoicing system do?
From ZATCA's technical guidelines and the XML implementation standard, your e-invoice generation solution (EGS) must:
- Onboard each device or system unit with ZATCA to get a cryptographic stamp identifier (CSID).
- Generate UBL 2.1 XML with the required fields, including buyer VAT number for B2B, and a VAT category code on each line.
- Add a UUID and an invoice counter, and chain each invoice to the hash of the previous one.
- Sign the invoice with the cryptographic stamp and add a Phase 2 QR code.
- Call ZATCA's APIs for clearance (standard invoices) or reporting (simplified invoices), and handle rejections and warnings.
- Archive the cleared XML and keep it retrievable for the statutory period.
In practice, most distributors meet these requirements through their ERP's own ZATCA module or a certified middleware provider that sits between the ERP and Fatoora.
Whichever route you choose, the ERP remains the source of the invoice data. Buyer details, product VAT categories, prices, discounts and credit-note references must be right before the XML is built, because a rejected invoice cannot simply be edited and resent without a new submission.
How is VAT applied to medicines in Saudi Arabia?
The standard VAT rate is 15 percent. According to ZATCA's General VAT Guideline on Healthcare (January 2023), as summarised by several secondary sources, supplies of qualifying medicines and qualifying medical goods are zero-rated. These are the items classified by the Ministry of Health together with SFDA. Other items a pharmacy or distributor sells, such as cosmetics and many supplements and personal-care products, are generally standard-rated at 15 percent.
We could not open the ZATCA guideline itself on 1 October 2026 to confirm the current wording. Treat the zero-rating detail as unverified and confirm each product's treatment with a Saudi tax adviser and the current SFDA list.
For e-invoicing this matters in two ways. First, each product in the item master needs a VAT category: zero-rated or standard. Second, the XML must carry the correct category code and exemption or zero-rating reason on every line, or ZATCA will reject it.
What should a pharmaceutical distributor do before February 2027?
- Confirm you are in scope by checking your 2022–2025 VAT-subject revenue against SAR 187,500 and looking for ZATCA's notification.
- Ask your ERP vendor whether they have a Phase 2 solution in production today, and see a cleared invoice from a live customer.
- Clean master data: customer VAT numbers, addresses in the required format, and a VAT category on every product.
- List every device that issues invoices, including POS terminals and branches, because each one needs onboarding.
- Test in ZATCA's sandbox with real scenarios: zero-rated and standard lines together, credit notes for returns, and free goods.
- Plan for outages: what happens to dispatch if clearance fails, and who handles rejected invoices.
- Go live before 1 February 2027, not on the day.
How Asli Pharma ERP helps
Asli Pharma ERP runs pharmaceutical distribution today: batch and expiry at receipt, FEFO, quarantine and QC release, batch recall, a per-product VAT treatment flag, approvals and an audit trail. It issues UAE VAT invoices and the UAE FTA VAT 201 return. ZATCA Phase 2, SFDA RSD integration and an Arabic interface are on the roadmap and not available today. Asli is not ZATCA certified, and a Saudi distributor would need a compliant Phase 2 solution alongside it until the module ships.
Frequently asked questions
Is my pharmacy or distributor in Wave 25?
If your revenue subject to VAT exceeded SAR 187,500 in 2022, 2023, 2024 or 2025, you meet the Wave 25 criteria that ZATCA announced on 24 July 2026. ZATCA notifies targeted taxpayers, and the integration deadline is 1 February 2027. Check the Fatoora portal or your ZATCA notification to confirm.
What is the difference between clearance and reporting?
Standard tax invoices, which are mostly B2B, must be sent to ZATCA and cleared before you share them with the buyer. Simplified tax invoices, mostly B2C such as pharmacy counter sales, are issued to the customer straight away and reported to ZATCA within 24 hours.
Are medicines zero-rated for VAT in Saudi Arabia?
Qualifying medicines and qualifying medical goods, as classified by the Ministry of Health and SFDA, are zero-rated, according to ZATCA's healthcare VAT guideline and secondary sources. Other products, such as cosmetics, are generally taxed at the standard 15 percent rate. We could not open the ZATCA guideline to confirm the exact wording, so check each product with your tax adviser and the current SFDA list.
Do zero-rated invoices still need to be cleared?
Yes. Phase 2 applies to all tax invoices and credit and debit notes from a taxpayer in scope, whatever VAT rate applies. A zero-rated line needs the correct VAT category code in the XML, but the invoice still goes through clearance or reporting.
Does Asli Pharma ERP support ZATCA Phase 2?
Not yet. ZATCA Phase 2 is on the Asli Pharma ERP roadmap. Today the product issues UAE VAT invoices and the UAE FTA VAT 201 return. It is not ZATCA certified or integrated, and Saudi customers would need a separate compliant invoicing solution until it ships.
Sources
- ZATCA: Criteria for targeted taxpayers in Wave 25 of the integration phase (24 Jul 2026)
- ZATCA: E-invoicing roll-out phases
- ZATCA: Detailed Guidelines for E-Invoicing (v2, May 2023)
- ZATCA: E-invoicing Detailed Technical Guidelines (Nov 2022)
- ZATCA: Electronic Invoice XML Implementation Standard v1.2
- EY Tax News: Saudi Arabia announces 25th wave of Phase 2 integration