Penalties for Saudi Arabia's Zatca E-Invoicing and VAT Violations

Explore the latest updates on Saudi Arabia's VAT and e-invoicing regulations. Learn how non-compliance can lead to fines and understand the importance of adhering to ZATCA guidelines. Stay informed, stay compliant.

Ajith Kumar M
October 6, 2023
5 mins

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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.

What are the penalties for VAT violations in KSA?

  • Failure to issue tax invoices
  • 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.

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:

Penalties:

  • First-time violation: Notice
  • Second-time violation: SAR 1,000
  • Third-time violation: SAR 5,000
  • Fourth-time violation: SAR 10,000
  • After the fourth violation: SAR 40,000

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:

  • Violation: Failure to issue a tax invoice
  • Taxpayer: Qabeel, CEO of a FinTech company
  • Action taken by ZATCA: Issued a notice and allowed three months to issue the tax invoice.

Example 2:

  • Violation: Failure to keep required documents for a specified duration
  • Taxpayer: Jaahnavi, a boutique owner
  • Action taken by ZATCA: Penalized with SAR 1,000 for a second-time violation as per the new decision

Example 3:

  • Violation: Wrong calculation of due tax
  • Taxpayer: Paarth, owner of a fabric manufacturing company
  • Action taken by ZATCA: Paid SAR 10,000 penalty for incorrectly calculating due VAT for the fourth time violation

Penalties for e-Invoice Violations in KSA

The reclassification decision has also impacted penalties for e-invoice violations in KSA.

The following  are the various e-invoice-related violations:

  • Not issuing and saving invoices and notes electronically
  • 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

Penalties:

  • First-time violation: Notice
  • Second-time violation: SAR 1,000
  • Third-time violation: SAR 5,000
  • Fourth-time violation: SAR 10,000
  • After the fourth time violation: SAR 40,000

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.

conclusion

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.