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KSA Guide: What are VAT Penalties?

VAT in KSA
VAT Offences and Penalties in KSA

Non-payment of VAT or non-filing of VAT return in KSA attracts multiple penalties in the Kingdom of Saudi Arabia. The following list enumerates it.

S.No Nature of offence Penalty
1 Where a business submits false documents to evade the payment of the tax due or to reduce its value The Penalty might range between

  • More than the amount of the VAT to be paid
  • Less than three times the value of the goods or service
2 Where a business tries to move goods in or out of the Kingdom without paying the VAT due The Penalty might range between

  • More than the amount of the VAT to be paid
  • Less than three times the value of the Goods or service
3 Do not register for the VAT in the allotted time frame SAR 10,000
4 Do not file VAT return in time 5-25% of the VAT due
5 Do not pay the VAT in time 5% of the VAT due for each month
6 Collect the VAT without being registered Up to SAR 100,000
7 Do not maintain books and records as stipulated in the regulations Up to SAR 50,000
8 Prevent the employees of the Authority from performing their duties Up to SAR 50,000
9 Violation of any provision of the VAT regulations or the VAT law Up to SAR 50,000

REVIEWS AND APPEALS

Under the KSA system of VAT, two independent committees, which are a subset of the Committee for the Settlement of Tax Violations and Disputes will be set up to manage taxpayers’ appeals. These are detailed below:

  • VAT First Instance Committee: The VAT First Instance Committee in KSA is responsible for the adjudication of violations, disputes and claims of public and private rights resulting from the enforcement of the provisions of tax laws and regulations.
  • VAT Appeals Committee: The VAT Appeals Committee in KSA is responsible for the adjudication on objections made against the decisions of the VAT First Instance Committee. The by -laws state that the taxpayers have the right to appeal against decisions of penalties issued by GAZT within 30 days of the date of notification. They shall present the appeals to the VAT First Instance Committee and as described above, this committee will have all the necessary powers to rule on all the submitted cases.

An extra 30 days will be given to present a second appeal to the VAT Appeals Committee in case of disagreement by the taxpayers with the decision issued by the VAT First Instance Committee. After review of the appeal of the taxpayer, the decision issued by the VAT Appeals Committee shall be final and non-appealable before any other judicial authority.

AMENDMENT OF VAT REGULATIONS IN KSA

On 18 July 2019, the Kingdom of Saudi Arabia made amendments to the implementation of VAT procedures in KSA. These amendments were published in the Official Gazette and are effective from the date of publication. These amendments have both technical and administrative implications with respect to Saudi Arabia’s VAT rules and also cover the core areas outlined below.

Exported Services provided to non-GCC residents

As per this amendment, the customer (or any other person) must not “directly” enjoy services in the GCC where that other person is not eligible for full input tax recovery on the supply. This enables the businesses providing services to non-residents to review the application of these rules to its supplies. This amendment has been put in place to ensure that the correct treatment is being applied and to not charge VAT to non-resident customers unnecessarily.

Requirements of providing a financial security to the GAZT

Non-resident taxable persons who have not appointed any tax representative will be required to submit a guarantee for an amount determined by the GAZT for Saudi Arabia VAT purposes.

Storage of VAT-related records for nonresident taxpayers

This amendment states that the non-resident taxable persons who have not appointed any tax representative are required to appoint a third-party for the storage and maintenance of their VAT- related records in Saudi Arabia.

Refund of tax to designated persons

Under this amendment, certain designated persons (e.g., qualifying government bodies, foreign governments and international organizations) are relieved from the restrictions that apply in relation to the refund of VAT incurred on purchases. This refund of VAT incurred on purchases is associated input VAT is blocked under Article 50 of the Regulations. The Authority may request additional evidence to support input tax claims submitted by designated persons in some cases and will provide at least 20 days to submit additional evidence requested, which may include invoices, records, and other information in electronic or physical form.

Tax representative, tax agents and appointed persons

This amendment states that it is optional for a nonresident taxable person to appoint of a local tax representative. However, as noted under section 2, non-resident taxable persons to submit a financial or a bank guarantee for the purposes of VAT registration in Saudi Arabia in a case where no tax representative is appointed for this purpose. In addition, the requirement to notify the GAZT for Saudi Arabian resident taxable persons of the appointment of a tax agent has been removed.

TRANSITIONAL PROVISIONS

Contracts that are not anticipated until the earlier of expiry or renewal date of the contract or 31st December 2018 are treated as zero rated VAT only if the following conditions are met:

  • The provided contract should have been signed before May 2017
  • The supplier registered under VAT is entitled to deduct the full input tax in respect of the supply of goods or services or refund of the tax and the customer should also provide a written confirmation to the supplier that the full input tax can be deducted from the supply

Transitional provisions and application of intra-GCC rules

This amendment specifically states that a GCC country implementing VAT will not be treated as a Member State for VAT purposes. This can be overruled where such GCC country implements an electronic services system.

Implications

Businesses should review the amendments to determine the impact on their business as many of the amendments are expected to have a significant impact on the Saudi Arabian VAT regime, especially with respect to the activities of non-resident taxable businesses and businesses providing services to non-resident customers.

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