VAT in Saudi Arabia: Stay Compliant & Avoid Costly Penalties

 Did you know? Since January 1, 2018, businesses in Saudi Arabia have been required to register for, file, and pay VAT under the regulations set by ZATCA (Zakat, Tax, and Customs Authority). Then, in December 2021, the government introduced Fatoora e-invoicing, making digital compliance a must for all VAT-registered businesses. 

ZATCA’s e-invoicing system is being implemented in two phases:

• Phase 1 (December 4, 2021): Required businesses to generate and store e-invoices but did not mandate real-time integration.
• Phase 2 (January 1, 2023 onward): Requires businesses to integrate their invoicing systems with ZATCA for real-time invoice reporting and compliance.

Here’s a quick Q&A to help you understand the rules and keep your business VAT-compliant.  

1. Do I need to register for VAT? 

• Yes, if your annual sales exceed 375,000 SAR.  
• Optional, if your sales are between 187,500 SAR and 375,000 SAR.  
• No, if your sales are below 187,500 SAR (you are exempt).  

2. How often do I need to file VAT returns?

• Monthly, if your annual revenue exceeds 40 million SAR.  
• Quarterly, if your revenue is below 40 million SAR.  

3. When is the VAT return deadline?

• VAT returns must be submitted by the end of the following month.  

(For example, VAT for January is due by February 28/29.)  

4. What happens if I file or pay VAT late?

• Late filing → Fine of 5% to 25% of the VAT due.  
• Late payment → 5% per month on the unpaid amount.  
• Incorrect VAT filing → Up to 50% of unpaid tax.  
• Failure to register for VAT → Fine of up to 10,000 SAR.  

5. What are the invoice and record-keeping requirements? 

• You must issue tax invoices with the correct VAT details.  
• VAT records must be kept for at least 6 years.  

6. Can I get a VAT refund?  

• Yes, if you have paid more VAT on purchases than collected from sales, you can apply for a refund or adjust it in the next tax period.  

Understanding ZATCA Phase 2

ZATCA’s Phase 2 of e-invoicing (FATOORAH) is the Integration Phase, which mandates businesses to integrate their invoicing systems with ZATCA for real-time invoice reporting. This builds upon Phase 1, which required electronic invoice generation without integration.

Who Must Comply? 

•  Businesses registered for VAT in Saudi Arabia.  
•  Implementation is done in waves, starting from January 1, 2023.  
• ZATCA notifies eligible businesses six months in advance before they must comply.  

Main Requirements in Phase 2:  

• E-Invoice Integration: Systems must connect to ZATCA’s platform.  
• Cryptographic Stamp: Each invoice must have a unique cryptographic signature.  
• UUID (Universal Unique Identifier) for every invoice.  
• QR Code: Must be included in the invoice for verification.  

 Invoice Clearance & Reporting:  

• B2B (Business-to-Business) Invoices: Require real-time clearance from ZATCA before issuing to customers.  
• B2C (Business-to-Consumer) Invoices: Must be reported to ZATCA within 24 hours of issuance.  

Technical Considerations:

Businesses need API integration with ZATCA’s system.  

• Must use a ZATCA-approved e-invoicing solution.  
•  The system should support XML or PDF/A-3 format (with embedded XML).  

How Can I Simplify VAT Compliance?

Managing VAT can be complex, but kpi.com’s accounting module makes it easy.  

– Automated VAT reports & tax calculations.

– Seamless Fatoora & ZATCA compliance.

– Integrated with Fai for effortless e-invoicing.

Simplify VAT Compliance with kpi.com & Fai.sa Integration

With kpi.com’s accounting module, you can easily generate VAT reports, track invoices, and ensure ZATCA & Fatoora compliance—all in one place. Plus, our seamless Fai.sa integration automates tax calculations, e-invoicing, and real-time reporting, saving you time and effort.

Ready to streamline your VAT process? Try kpi.com today. [link to free trial/demo]