If a taxable person in Saudi Arabia discovers an error in a filed VAT return that understated the tax due, they must notify the Authority and correct the return within 20 days, unless the resulting tax difference is less than SAR 15,000, in which case it may instead be corrected by adjusting the net tax directly in the next return, without being bound by the 20-day notice period.
Understatement of Tax
The Implementing Regulations of the VAT Law provide that where a taxable person becomes aware of an error or an incorrect amount in a previously filed return which has resulted in the amount of tax payable to the Authority being understated, that person must notify the Authority within 20 days of becoming aware of the error, by filing a submission to correct the return.
The Exception for Small Differences
As an exception to the 20-day notification rule, the Authority amended the Implementing Regulations to raise the threshold that allows a taxable person to correct an error simply by adjusting the net tax in their next return (without a separate correction submission), from SAR 5,000 to SAR 15,000; this simplified route now applies to any tax difference whose net value is less than SAR 15,000.
Overstatement of Tax
Where an error results in an overstatement of the tax reported (i.e. more tax paid than due), the taxable person may correct that error by adjusting the tax in any subsequent return filed after discovering the error, without an immediate notification obligation. However, no correction relating to an overstatement of tax may be made after five years have passed from the end of the calendar year in which the relevant tax period falls.
Information Required When Correcting
Any correction submitted to the Authority must include, at a minimum: the tax period or periods to which the return being corrected relates; the amount of Output Tax and Input Tax being corrected for each period; and information explaining the reason for the error or incorrect information in the return. This information allows the Authority to review the correction accurately and verify its financial impact before it is applied to the taxable person's account.
Why the Notification Deadline Matters
Failing to notify the Authority of an error that understates tax within the prescribed period exposes a taxable person to added risk, including the possibility that the Authority itself discovers the error through an assessment, which may open the door to the penalties prescribed for errors in a tax return if the taxable person does not proactively correct the situation within the statutory period.
Illustrative Example
If a business discovers that its return for the first quarter understated the tax due by SAR 12,000, it may correct this by adding the amount to the net tax directly in its next quarterly return, since the difference is less than SAR 15,000. If the difference were instead SAR 20,000, the business would have to notify the Authority and submit a correction to the original return within 20 days of discovering the error.
Legal References
- IMPLEMENTING REGULATIONS OF THE VALUE ADDED TAX LAW — Article 63 (Paragraphs 1, 2, 4 and 5: correcting understatement and overstatement, the time limit, and the required information).
- Amendments to the Implementing Regulations of the VAT Law (published 2023) — Paragraph (3) of Article Sixty-Three (raising the simplified correction threshold to SAR 15,000).
For questions about your specific situation, you can ask the Saudi Arabia Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.