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Penalties for VAT & e-Invoicing Offences in KSA

Updated on :  

08 min read.

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.

Tax amnesty initiative in Saudi Arabia

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:

Edit
VAT-related ViolationsPenalties
Failure to issue tax invoices





First time violation: Notice

Second time violation: SAR 1,000

Third time violation: SAR 5,000

Fourth time violation: SAR 10,000

After fourth violation: SAR 40,000
Failure to include all contents of the tax invoice in tax invoices or credit and debit notes
Failure to keep invoices, records and other accounting documents for the specified duration
Failure to issue credit or debit notes or not provide them to the customer
Preventing or not allowing the Authority’s employees from performing their job duties and tasks
Wrong calculation of due tax
Violating any other provision of the VAT Law or regulation

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:

Edit
e-Invoicing related ViolationsPenalties
Not issuing and saving invoices and notes electronically





First time violation: Notice

Second-time violation: SAR 1,000

Third time violation: SAR 5,000

Fourth time violation: SAR 10,000

After fourth time violation: SAR 40,000
Not including the QR (Quick Response) code in the e-invoice
Non-compliance with keeping e-invoices and electronic notes according to the format stipulated in the system
Adding any of the prohibited functions in the e-invoicing system used to issue and save invoices electronically
Failure to inform the Authority of any malfunctions that hinder the process of issuing invoices and electronic notes
Violation of any other provision of the e-Invoicing Law and related executive decisions
Deleting invoices or electronic notes, or adjusting them after issuance

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.

Nature of Offence Penalty or Fine
Failure to maintain books and recordsUp to SAR 50,000
Failure to register for the VAT SAR 10,000
Submitting false documents with an intent to evade VAT or to reduce its valueAt least the amount of the VAT due Up to three times the value of the goods or services
Preventing ZATCA employees from performing their dutiesUp to SAR 50,000
Failure to pay the VAT in time5% of the VAT due for each month or part thereof
Moving goods in or out of the KSA without paying the VATAt least the amount of the VAT due Up to three times the value of the goods or services
Failure to file VAT return in time5-25% of the VAT in respect of non-filed return
Collecting VAT without being registeredUp to SAR 100,000
Violation of any other provision of VAT lawUp to SAR 50,000
Incorrect filing of tax return, amending a tax return after submission or filing any VAT document with the authority resulting in a lower amount dueEqual to 50% of the value of the difference between the calculated tax and tax already due

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.

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