Saudi Arabia: Reclassification of the VAT field violations

03 February, 2022

In brief

The Board of Directors of Zakat, Tax and Customs Authority (‘ZATCA’) have issued a decision to reclassify VAT’s table of violations to ensure proportionality between the violation and the penalty imposed.

Additionally, ZATCA published a guide (available in Arabic and English) to provide additional clarification on the reclassification of VAT field violations and examples relevant to every case of penalties determination.

In detail

ZATCA clarified that the decision to reclassify the table of violations comes as part of their efforts to support the private sector, improve the business environment in the Kingdom, and raise taxpayers’ compliance rates. They want to provide an opportunity for establishments to identify and address violations before penalties are applied, seeing how violations begin by first alerting and educating the taxpayer before the fine is issued.

The decision highlights the following:

  • Reclassifying violations and determining penalties starts with first alerting and educating the taxpayer before imposing a fine.

  • Granting the violator up to 3 months from the date of inflicting the penalty to correct the violation, except when the violation prevents or impeds the Authority’s employees from performing their duties and tasks, which will be inflicted consecutively in the event of a repetition by the violator. 

  • 12 months is the cut-off limit for a non-recurring violation by the violating taxpayer, provided that the violation is treated and not committed again within the 12 months.

There will be no change in assessment of non-field violations resulting from non-compliance or fulfillment of obligations such as:

  • Tax evasion

  • Failure to file declarations

  • Delayed filing of VAT returns

  • Failure to pay VAT dues

  • Late payment of VAT dues

  • Manipulation of VAT returns.

The reclassification of penalties covers both VAT and e-invoicing violations. It starts with a notice to the taxpayer and granting an appropriate time period of up 3 months to address the violation. After that, penalties will be calculated as follows:

1st time 2nd time 3rd time 4th time After 4th time
Alerting the taxpayer and giving an appropriate time period of up to 3 months to address the violation SAR 1,000 SAR 5,000 SAR 10,000 SAR 40,000

"This decision of reclassification of penalties related to VAT and e-invoicing aims to ensure proportionality between the violation and the penalty imposed on violators of the legislation."

Tax and Legal Services - PwC Middle East

The Takeaway

Taxpayers should take note of this important change in the application of violation penalties and strive to best comply with applicable laws and regulations related to VAT and E invoicing.


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