Penalties for VAT & e-Invoicing Offences in KSA

The Zakat, Tax, and Customs Authority (ZATCA) (earlier known as GAZT) of the Kingdom of Saudi Arabia (KSA) has mandated e-invoicing of the Value Added Tax (VAT) invoices from 4th December 2021. The authority also recently amended the penalties for offences related to e-invoicing.

Penalties are usually imposed when a taxpayer fails to meet the guidelines or instructions provided in the regulation. Hence, every taxpayer must be mindful of what penalties are imposed if they commit an offence. 

This article aims to explain various penalties imposed for the offences related to KSA VAT and e-invoicing, along with the recent amendments approved by ZATCA.

Latest Updates

Tax amnesty initiative in Saudi Arabia

25th July 2023

ZATCA has extended the "Cancellation of Fines and Exemption of Penalties initiative" until 31st December 2023. Further, it clarified that the exemption continues for the same penalties mentioned in the previous decision.

Previously, ZATCA extended the initiative till 31 May 2023 to help taxpayers reduce the burden of the COVID-19 pandemic.

30th November 2022

ZATCA announced the ‘Cancellation of Fines and Exemption of Penalties Initiative’ and extended the tax initiative for six more months from 1st December 2022 to 31st May 2023. The exemption of fines decision includes the below penalties:

• Late registration under all tax laws
• Late tax payment
• Late filing of returns in all tax systems
• Correcting VAT returns
• Violation of VAT field control related to applying the e-invoicing regulations and other general regulations

30th January 2022

ZATCA relaunched the amnesty initiative to exempt fines imposed under various tax laws, including VAT and e-invoicing violations identified during the field detection. This initiative applies from 1st June 2022 to 30th November 2022. Please refer to the ZATCA’s Simplified Guide on Exemption of Penalties Initiative for more information.

Latest reclassification of VAT & e-invoicing offences in KSA

ZATCA issued a reclassification decision amending the penalties for certain offences under VAT and e-invoicing effective from 30 January 2022. 

The objective of reclassifying the penalties is to increase awareness about compliance to the law and give a chance to the taxpayers to adhere to the requirements of the regulation.

Key highlights of the recent reclassification decision

• When a ZATCA official finds any violation during their visit, they will issue a notice to the taxpayer and warn them not to repeat the offence.
• Once the taxpayers are warned, they are given a three months notice period within which they will have to correct the violations, except for some instances. 
• If the taxpayer still violates the provision, the revised penalties will apply. 
• ZATCA clarified that if the same violation is repeated after 12 months, it will be considered a new violation, and the penalty cycle will start with a notice.

What are the penalties for VAT violations in KSA?

Under the reclassification decision, the on-field violations, if found by the ZATCA officials. They will be given three months to correct the offence. After three months, the penalties will be applicable in the following manner:

The above violations have a 12 months cut-off limit after which if the violating taxpayer repeats these violations, it starts with the notice followed by a SAR 1,000 penalty for a second-time violation after three months of alert given by the ZATCA official, and so on.

Example 1: first time violation of failure to issue a tax invoice

Imad, a Chief Executive Officer (CEO) of a FinTech company in Saudi Arabia, has obtained a KSA VAT registration. His services are chargeable at 15% KSA VAT.

When the ZATCA officials visited his premise for an inspection, they found the CEO missed to issue a tax invoice for one of the services he offers. 

In such a case, as per the new decision, the ZATCA officials served a notice to the taxpayer and explain to him that he must issue a tax invoice for all the services he offers. They also allowed him three months to issue the tax invoice, which he did not. 

Example 2: Second time violation of failure to keep required documents for a specified duration

Sheeba Khan, a boutique owner from Riyadh, repeated a violation of failure to keep the accounting documents for a specified duration for a second time. 

Since she was already given a notice by the ZATCA officials before for a first-time violation, she was penalised with SAR 1,000 penalty for a second-time violation as per the new decision.

Example 3: Fourth time violation of calculating due tax correctly

Vinayak is the owner of a fabric manufacturing company in KSA, and he has his factory in Riyadh. He has committed a VAT offence of wrong tax calculation for the fourth time in 12 months. 

As per the new notification, he paid SAR 10,000 penalty for incorrectly calculating due VAT for the fourth time violation.

What are the penalties for e-invoice violations in KSA?

Penalties for the offences related to the e-invoicing are also reclassified as under:

The above violations have a 12 months cut-off limit after which if the violating taxpayer repeats these violations, it starts with the notice followed by a SAR 1,000 penalty for a second-time violation after three months of alert given by the ZATCA official, and so on.

Example 1: first time violation of failure to include the QR code in the e-invoice

Karen, a Chief Executive Officer (CEO) of a consulting company in Saudi Arabia, has obtained a KSA VAT registration. Her services are chargeable at 15% KSA VAT. 

She committed the offence of not including a QR code in the e-invoice she issued to one of her clients, which was detected during an inspection by the ZATCA officials. 

For the first time detecting the violation, the officials made her aware of how important it is to include all the essential details in the e-invoice and was served a notice to correct the mistake within three months. 

Example 2: Third time violation of the provision to issue electronic credit notes

Saad is a retail shop owner in KSA. He committed an offence for the third time, a violation of issuing credit notes electronically during their inspection.

Hence, ZATCA officials penalised him with SAR 5,000 for violating the provision for the third time in 12 months.

Example 3: More than four-time violations of saving electronic invoice

Kuber is the owner of a beverage company in Riyadh. He failed to save an e-invoice more than four times in 12 months. 

As per the new notification, ZATCA imposed a penalty of SAR 40,000 within 12 months of the offence. 

However, suppose he commits the violation after 12 months. In that case, it will be considered a new offence and the officials will serve a notice on him to correct the breach within three months.

What are the earlier penalties for offences under KSA VAT?

The KSA VAT had the following penalties for the VAT-related violations before the reclassification under the new decision issued by the ZATCA.

What offences are not covered under the latest reclassification?

The latest reclassification decision amends violations committed on the field, which the ZATCA official observes. Hence, the decision does not cover non-field violations as mentioned below:

• Failure to file declarations
• Tax evasion
• Failure to pay due tax
• Manipulation in the tax return
• Late payment of due tax
• Late filing of tax returns

The authority reclassified the penalties for certain violations to increase awareness among taxpayers about the consequences of the offences and to encourage them to comply with each requirement of the KSA VAT law.