A Guide to Responsible Tax Practices In Saudi Arabia: Ensuring Compliance for Foreign Firms
Remaining tax compliance in Saudi with various regulations is an essential part of a business expansion process.
Expanding into a high-growth market like Saudi Arabia requires a thorough understanding of the local tax regime. For companies entering the market, staying compliant with tax compliance in Saudi regulations is proven to be advantageous for streamlining the market expansion process and maintaining the sustainability of operations as part of ensuring long-term success.
Understanding tax regulations in Saudi Arabia and adhering to them can significantly aid in avoiding potential Saudi tax penalties and ensuring smooth business operations.
Foreign businesses, for instance, need to ensure that the necessary VAT and ZATCA in certificates are updated regularly to avoid restrictions when pursuing government contracts, tenders, and bids. The bidding authorities would require these certificates from prospective bidders.
The governmental systems in Saudi Arabia are digitally interconnected, and failing to abide by the regulations in one aspect of the business can potentially lead to disruptions across multiple other areas, potentially resulting in the suspension of operations or exiting the Saudi market.
Tax Compliance in Saudi: Understanding Tax Evasions and Penalties
Tax evasion can come in the form of late payments of taxes or avoiding paying them altogether, as well as providing false, fraudulent documents to reduce tax liabilities. Below is an overview of the violations and corresponding fines for all types of taxes as outlined by Zakat, Tax and Customs Authority (ZATCA) regulations in Saudi Arabia.
- A business can be charged a penalty of 1% of its tax value for every 30 days of delay from the due date.
- Late submission of tax returns is subject to a fine of 25% of the amount due, while late payment of fines is subject to 25% of the amount.
VAT Compliance in Saudi Arabia: Penalties Associated With VAT Taxation
- Submission of false documents to evade payments or minimize their value.
Penalty: More than the VAT amount due, but at most three times the value of goods and services.
- Movement of goods in and out of the country without paying VAT
Penalty: More than the VAT amount due, but not more than three times the value of goods and services.
- Non-Registration in the Specified Timeframe
Penalty: A fine of SAR 10,000.
- Late VAT Return Submission
Penalty: a fine ranging from 5-25% of the amount due.
- Non-VAT Payment
Penalty: A fine of 5% of the VAT due for each month.
- VAT Collection Without Registration
Penalty: a fine of SAR 10,000 or less
- Failure to Maintain Records as Per the VAT Regulations
Penalty: A fine of SAR 50,000 or less.
- Preventing ZATCA Employees from Performing Their Duties
Penalty: A fine of SAR 50,000 or less.
- Violation of Other VAT Provisions or Regulations
Penalty: A fine of SAR 50,000
Overview of the ZATCA’s Decision to Extend Cancelation and Exemptions of Fines Until the End of 2024
Earlier in July, Saudi Arabia announced the extension of the "Cancellation of Fines and Exemption of the Financial Penalties Initiative" for taxpayers for an additional six months until December 31, 2024. The initial due date was set for June 30th, 2024.
The decision applies to withholding taxes, income taxes, excise taxes and real estate transaction taxes. It covers late registration of all taxes, late payment, late filing of all tax returns, incorrect VAT returns and violations of VAT field control related to applying the e-invoicing regulations and other general VAT provisions in Saudi Arabia.
The initiative was first introduced in 2020 as part of the authority’s efforts to help alleviate the impact of the pandemic on businesses with taxable income; however, it excludes penalties related to tax evasion violations and fines paid before the initiative came into effect.
In order for a taxpayer to benefit from the initiative, they must be registered under the tax law, submit all returns due to previously non-submitted returns to ZATCA and pay all outstanding payments associated with the tax returns.
As per the ZATCA guidelines, taxpayers can have the option to settle them via installments on the condition that the application is submitted while the initiative is in effect. Payments should be made on the due dates specified in the authority-approved installment scheme.
Bill Payments Via SADAD System in Saudi
The authority allows the payment of taxes and fines via e-banking services or ATMs, namely through Mada cards, for amounts of SAR 20,000 or less.
Once the bill is paid through the SADAD payment system, a zakat certificate will be automatically issued only if there are no other outstanding bills. Obtaining the bill is considered an acknowledgment that the information provided in the declaration is accurate.
The Sadad system was established by the Saudi Central Bank (SAMA) and it serves as the national electronic payment service provider. Through the SADAD system, taxpayers can submit their bills, taxes and fines, streamlining the process of maintaining tax compliance.
As a leading business expansion platform, AstroLabs brings almost a decade of experience in expanding high-growth businesses to the Kingdom, enabling them to effectively navigate the local tax landscape and tax compliance paperwork using the help of its on-ground team.
Having done so, we recently partnered with local service provider Innovant Management Consulting to assist incoming companies with their tax needs.
Remaining fully compliant with tax regulations in Saudi Arabia is mandatory to establish trust and credibility, ultimately achieving greater success in the dynamic market of Saudi Arabia while allowing companies to take advantage of the opportunities brought about by Vision 2030 and its roadmap.
Read the first article in our two-part series on Saudi Arabia's tax landscape here.
