The Zakat, Tax, and Customs Authority (ZATCA) has made e-invoicing mandatory for Value Added Tax (VAT) invoices in Saudi Arabia since December 4th, 2021. Fines related to e-invoicing have recently had their penalties amended. Penalties are imposed when a taxpayer fails to comply with regulations, making it essential to know what penalties apply for violations. This article aims to detail the penalties imposed for VAT and e-invoicing fines in KSA and outline recent updates from ZATCA.
Under the recent reclassification decision, if ZATCA officials detect any of the above violations, the taxpayer will be given three months to correct the error. After three months, the following penalties will apply:
If a taxpayer repeats the above-mentioned VAT violations after 12 months, it will be considered a new violation, and the penalty cycle will restart with a notice. However, if the violation is repeated within the 12 months limit, the taxpayer will be given a three-month notice period to correct the misconduct. If the taxpayer still violates the provision, then the revised penalties will be applicable, starting with a SAR 1,000 penalty for a second-time violation after three months of alert given by the ZATCA official. The penalties will keep increasing for subsequent violations.
Example 1:
Example 2:
Example 3:
The reclassification decision has also impacted penalties for e-invoice violations in KSA.
The following are the various e-invoice-related violations:
After an initial violation, taxpayers have 12 months to rectify the issue before facing escalated penalties. If the violation is repeated, the ZATCA officials will issue a notice, and if the issue remains unresolved after three months, a penalty of SAR 1,000 will be imposed. This pattern will continue for subsequent violations, with increased penalties of SAR 5,000, SAR 10,000, and SAR 40,000, respectively.
Example 1: A first-time violation of failing to include a QR code in an e-invoice
Aaeesha is a small business owner in Saudi Arabia, specializing in handmade crafts. After obtaining a KSA VAT registration, she issued an e-invoice to a client without including a QR code. This was detected during an inspection by ZATCA officials.
For this first-time violation, Sara was served a notice by the officials, who stressed the importance of including all required details in e-invoices. She was given three months to correct the mistake.
Example 2: Third-time violation of not issuing electronic credit notes
Aamir owns a clothing store in KSA and has committed a violation for the third time - failing to issue electronic credit notes. When inspected by ZATCA officials, he was penalized with a SAR 5,000 fine.
Example 3: Repeated violations of not saving electronic invoices
Zuharah is the CEO of a printing company in Riyadh. Over 12 months, she failed to save electronic invoices more than four times. As per the new regulations, she was penalized with a SAR 40,000 fine.
If Zuharah commits the same violation after 12 months, it will be considered a new violation, and she will be served with a notice to correct the breach within three months by ZATCA officials.
In conclusion, the Zakat, Tax, and Customs Authority (ZATCA) has made e-invoicing mandatory for Value Added Tax (VAT) invoices in Saudi Arabia since December 4th, 2021. The penalties for violations have recently been updated to encourage compliance with regulations. The penalties for VAT and e-invoicing fines have been reclassified, with the first violation resulting in a notice and subsequent violations attracting penalties ranging from SAR 1,000 to SAR 40,000. Taxpayers have three months to rectify any violations, and if the issue remains unresolved, a penalty will be imposed. However, if a violation is repeated within 12 months, it will be considered a new violation, and the penalty cycle will start with a notice.
