Understanding Non-VAT Registration Penalties in KSA: Avoiding Common Mistakes

Value Added Tax (VAT) was introduced in the Kingdom of Saudi Arabia (KSA) in 2018 as part of the government's efforts to diversify revenue streams and reduce dependence on oil exports. VAT is a Consumption Tax levied on eligible goods and services at a standard rate of 15%. Registration for VAT is mandatory for businesses exceeding a certain annual turnover threshold.

Failure to register for VAT or comply with VAT regulations can result in significant penalties, which can be detrimental to businesses. Therefore, it is crucial for businesses operating in KSA to understand the implications of non-VAT registration and take necessary steps to avoid common mistakes. In this blog, we will delve into the world of non-VAT registration penalties in KSA, exploring the common mistakes that lead to these penalties and providing best practices to avoid them.

What is VAT Registration?

VAT registration is the process of registering a business with the General Authority of Zakat and Tax (GAZT) in the Kingdom of Saudi Arabia (KSA) to obtain a unique VAT identification number. This number is required for businesses to charge and collect VAT on taxable supplies, claim VAT credits on business expenses, and file VAT returns.

Who needs to register for VAT in KSA?

The following businesses need to register for VAT in KSA:

• Taxable persons (individuals or businesses) with an annual turnover exceeding SAR 375,000 (approximately USD 100,000)
• Taxable persons expecting their turnover to exceed SAR 375,000 in the next 12 months
• Non-resident businesses supplying goods or services in KSA
• Businesses voluntarily registering for VAT (optional)

Penalties for Non-VAT Registration

The main penalties for failing to register for VAT in Saudi Arabia when required include:

Late VAT Registration Penalty

• Penalty of SAR 10,000 for each taxable person who should have registered but failed to do so within the specified timeframe

Paying VAT Collected

• Businesses must pay any VAT they collected from customers to the ZATCA, even if they failed to register on time
• Non-compliance with remitting the collected VAT may result in additional penalties and interest costs

Late VAT Payment Penalties

• 5% of the VAT due for each month or part thereof for which the tax has not been paid
• 2% of the unpaid tax is due immediately
• 4% is due the seventh day following the payment deadline
• 1% per day is charged on any amount still unpaid one calendar month after the deadline, up to a maximum of 300%

Other Penalties

• Penalty of 5-25% of the VAT in respect of a non-filed return for failure to file VAT return in time
• Fine of up to SAR 100,000 for collecting VAT without being registered
• Potential imprisonment for up to 6 months and/or fines for operating without VAT registration or failure to furnish VAT returns

Common Mistakes Leading to Penalties in KSA

Failure to register within the deadline:

• Missing the registration deadline can result in penalties and fines
• Businesses must register within 30 days of exceeding the turnover threshold

Incorrect or incomplete registration information:

• Providing inaccurate or incomplete information can lead to registration rejection or penalties
• Ensure accuracy in details such as business name, address, and contact information

Failure to file VAT returns:

• Failing to file VAT returns on time can result in penalties and fines
• VAT returns must be filed quarterly or annually, depending on the business's registration type

Other common mistakes:

• Failure to charge and collect VAT correctly
• Incorrect VAT calculations or rates applied
• Failure to maintain proper VAT records and documentation
• Non-compliance with VAT regulations and guidelines

Avoiding Penalties: Best Practices

To avoid penalties and ensure compliance with VAT regulations in KSA, follow these best practices:

Registering on time

• Monitor your business's turnover and register for VAT as soon as you exceed the threshold
• Allow sufficient time for registration processing and obtaining a VAT identification number

Ensuring accurate and complete information

• Double-check your business information for accuracy and completeness
• Ensure consistency in registration details across all relevant documents and records

Filing VAT returns correctly and on time

• Understand your VAT return filing frequency (quarterly or annually) and deadlines
• Ensure accurate VAT calculations, charging, and collection
• Maintain proper records and documentation to support VAT returns

Seeking professional advice

• Consult with a VAT expert or tax consultant to ensure compliance and accuracy
• Stay updated on VAT regulations, changes, and guidelines
• Seek advice on complex VAT matters or specific business situations

Why Choose Reyson Badger?

Reyson Badger is your trusted partner in navigating the complexities of VAT registration and compliance in KSA. With our team of experts, you can rely on extensive knowledge and experience in VAT registration and deregistration, VAT return filing and compliance, VAT audit and dispute resolution, and tax planning and advisory services. By choosing us, you can avoid costly penalties and fines due to non-compliance, ensure accurate and timely VAT registration and return filing, receive expert guidance on complex VAT matters, stay up-to-date on changing VAT regulations and guidelines, and focus on your business growth while we handle your VAT needs. Trust Reyson Badger to help you avoid common mistakes and ensure VAT compliance in KSA. For more information on our services, contact us today.