Higher Returns, Higher Standards
The Kingdom of Saudi Arabia has emerged as one of the leading countries for foreign entrepreneurship, in no small part thanks to forward looking reforms in the business sector, and a Fund dedicated to growing businesses of all sizes. However, while the requirements for entry and setup have relaxed in favour of outside investment, the regulations around tax and compliance with tax are as stringent as they have ever been. On top of this, the fees to pay on breaking the tax code can be very high relative to the economies you’re used to. Starting a business here can be a gold mine, but every step needs to be by the book to satisfy the regulators. If you’ve been considering the prospect of founding a business in KSA, don’t worry! This blog post will explain how VAT penalties in Saudi Arabia work down to the letter of the law.
What Are The VAT Offences in KSA, and What Penalties Do They Carry?
- Submit false documents to evade the payment or reduce VAT due or unlawfully obtain refunds for tax
This is seen as a serious breach of the regulations, and so the VAT penalties in Saudi Arabia for this offence can go from a minimum of the amount of the VAT due, up to a maximum of three times the value of the goods or service subject of the evaded tax.
- Move or attempt to move goods in or out of the Kingdom without paying the VAT due
Identical to the offence above, the VAT penalties in Saudi Arabia for this offence can go from a minimum of the amount of the VAT due, up to a maximum of three times the value of the goods or service subject of the evaded tax.
- Failure to apply for VAT registration
This case is seen as a possible oversight, so the penalty is a flat fine of SAR 10,000. While not cheap, this is still a far cry from most of the VAT penalties in Saudi Arabia.
- Failure to submit the Tax Return
In case the tax return is not filed at all, the owed tax must of course be correctly declared and paid immediately, and in addition, 5% – 25% of the value of the tax that would have had to be declared must be paid as a penalty.
- Failure to pay tax due
Whenever the tax itself has not been paid, the penalty is 5% of the value of the unpaid tax for each month (including partial months).
- Issuance of Tax Invoice by non-registered Person
An unauthorised tax invoice can garner a maximum of SAR 100,000 in penalties, and this does not exclude violators from being charged with further VAT penalties in Saudi Arabia.
- Failure to keep Tax Invoices, books, records and accounting documents
Failure to keep your books can get you a penalty with a maximum of SAR 50,000. This can also apply as an additional penalty if caught keeping doctored records without the originals in hand.
- Prevention or obstruction of ZATCA employees from performing duties
Any sort of non cooperation or delaying tactics can lead to a penalty fine, up to SAR 50,000. This can seem nebulous, but erring on the side of caution is always advisable in these cases.
- Violation of any provision of the VAT Regulations or the VAT Law
This is a blanket fine for any misstep that doesn’t fall under any of the other specific penalties, and the penalty is up to SAR 50,000.
- Filing incorrect tax return, amend a tax return or file any document resulting in a lower amount due
Both accidental and purposeful mistakes can lead to this particular penalty, which is set at 50% of the difference between the calculated tax and the actual tax that is due.
As a general rule, if a violation is repeated within three years of the date of the final decision of the Authority on the matter, the fine imposed for the new violation could be doubled. So when it comes to VAT penalties in Saudi Arabia, the second offense can often lead to a much bigger fine than expected.
Can You Avoid VAT Penalties in Saudi Arabia?
The simplest way to avoid VAT Penalties in Saudi Arabia is to keep on the right side of the regulations, and avoid any violations of the tax code. This is easier said than done, but don’t worry: we’ve had a lot of business setup experience in Saudi Arabia, and there are a few things to keep in mind first and foremost.
The first thing to do is to give up on handling the finances in your business yourself. Unless you’re experienced in navigating tax codes, and specifically Saudi Arabia’s at that, trying to keep records and understand the procedures involved will only overwhelm you and raise the chances for a potential mistake. Even if you haven’t started a business in Saudi Arabia yet, you can use this information, by finding a proper accounting support system for your business. You can hire in house or get an agency to support you with business solutions in this regard.
The next most important thing to do is always make sure that records are being kept up to date, with regular checks to avoid any gaps. This includes making backups, both online and offline. The rule of backups is to make one more than you feel necessary, so that not even a stroke of bad luck can corrupt the data that is so essential to your business.
On top of this, there are some best practices that may not be solutions on their own, but will help minimize any friction that possibly arises. First and foremost is to always cooperate with the Authority on matters of tax code, even if it seems like they are in the wrong. In the scenario that you were right, there’s no harm done, and even in the worst case where there was an offense committed, there is no black mark on your business because of past behaviour. There isn’t much that can be done in that case, but cooperating helps to prevent the situation from getting worse.
The Real One Stop Solution
If you’re actually looking to avoid VAT penalties in Saudi Arabia, the one real solution is to get someone that has actual experience in that market, and can help you every step of the way. That, of course, is a business setup agency, like Arabian Access, who can take care of all the documentation from the very beginning, so that you don’t have to worry about how your finances work on the micro scale. From payroll management, to operational records and tax returns, we can make sure that you are doing business that holds up to the scrutiny of the Authority, and we have the connections to avoid any major problems arising even if accidents were to happen in the course of doing business.
All you have to do is focus on running the business, and we can take care of everything else. In short, you don’t have to worry about regulations after that point. So if you want to know more about business practices in Saudi Arabia, and how to start your own business there, contact us and book a free consultation!
