The VAT Law sets out a scale of fines depending on the type of violation: a fine of 10,000 riyals for failing to register, a fine ranging between 5% and 25% of the tax amount for failing to file a return, a fine of 5% of the unpaid tax for each month of delay, in addition to harsher penalties for tax evasion. These fines appear in Chapter Sixteen of the Law, titled "Tax Evasion and Penalties," and they apply regardless of the type of invoice or how it was issued.
Tax Evasion
Under the Law, tax evasion includes submitting false, forged, or fabricated documents, returns, records, or information with the intent of evading payment of a due tax, reducing its value, or unlawfully obtaining a refund. Tax evasion is punishable by a fine not less than the amount of tax due and not more than three times the value of the goods or services subject of the evasion.
Registration and Return Violations
- Failure to register: a person who fails to apply for registration within the periods specified by the Regulations is subject to a fine of 10,000 riyals.
- Incorrect return: a fine equal to 50% of the difference between the calculated tax and the tax actually due, where an incorrect return results in an amount less than the tax due.
- Failure to file a return: a fine not less than 5% and not more than 25% of the tax amount that the taxpayer should have declared.
Payment and Record-Keeping Violations
A person who fails to pay the tax due within the period specified by the Regulations is subject to a fine equal to 5% of the unpaid tax for each month or part thereof for which the tax remains unpaid. A non-registered person who issues a tax invoice is subject to a fine not exceeding 100,000 riyals. A fine not exceeding 50,000 riyals is imposed on any person who fails to keep tax invoices, books, records, and accounting documents for the period stipulated in the Regulations, with the fine applying for each tax period.
Illustrative Example
As a hypothetical example, if the unpaid VAT for a given period is 10,000 riyals and the taxpayer delays payment by three full months, the fine is calculated at 5% per month of delay, i.e. 500 riyals x 3 months = 1,500 riyals (illustrative example with assumed figures).
Repeated Violations
If the same violation is repeated within three years from the date the previous penalty decision becomes final, the fine imposed on the violator may be doubled. Imposing any of these fines does not affect the obligation to pay the tax due itself, and applying any of these penalties does not prejudice any other penalty stipulated in any other law.
How Are Penalties Imposed?
The Authority imposes the penalties stipulated in the Law in accordance with a classification of violations and a determination of penalties issued by a decision of the Board of Directors, taking into account the proportionality between the violation and the penalty. The penalty is imposed by a decision of the governor of the Authority, or a person delegated by the Board of Directors for that purpose. The penalty decision may also include publishing its operative part at the violator's expense in a local newspaper, depending on the type, severity, and effects of the violation, and after the decision becomes final.
Legal References
- Law of Value Added Tax — Articles Thirty-Nine to Forty-Eight: Tax Evasion and Penalties, and Imposition of Penalties and Review of Violations.
For questions about your specific situation, you can ask the Saudi Arabia Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.