Key Violations & Penalties of Excise and Customs Tax in Saudi Arabia

Businesses in Saudi Arabia need to stay compliant with Excise and Customs Tax regulations to avoid hefty fines and operational disruptions. excise tax in KSA is imposed on certain goods such as tobacco, energy drinks and carbonated beverages, while the Customs Tax in KSA is levied on imported goods at different rates. The Saudi authorities are very active in monitoring tax violations and publish key infractions every Tuesday to educate businesses and enforce regulations.

Tax filing inaccuracies, failure to document, and noncompliance with e-invoicing in Saudi Arabia can result in heavy fines, and even license suspension. Since Riyadh is a major business hub, businesses must be updated on e-invoicing in Riyadh and other tax compliance measures if they are to operate smoothly. This blog will discuss some of the most common violations and penalties that a business in KSA can face under Excise and Customs Tax regulations.

Compliance of Excise Duty in Saudi Arabia

In 2017, Saudi Arabia introduced Excise Tax to diversify its revenue sources and to discourage the consumption of harmful or non-essential goods in order to promote public health. It can be applied at the time of manufacture or at the time of import. Excise goods are goods that are subject to special regulations to be taxed properly and avoid penalties. The excise tax rates are:

• Tobacco products: 100%
• soft drinks: 50%
• Energy drinks: 100%
• Electronic smoking devices and related liquids: 100%

Businesses Must Comply with the Following If They Fall Under Excise Laws

• Entities involved in dealing with excise goods are required to register with the tax authority. The authority can automatically register them if they do not do so. The registration decisions are issued within 14 days.
• Excise Tax Period: Tax period of excise tax is every two months. Returns and tax payments must be filed accordingly by businesses.
• Excise tax returns: Return Filing: Excise tax returns are to be filed within 15 days after the end of each tax period.
• Compliance: Companies must comply with the records of goods, transactions and tax payments.
• Excise Duty Payment: Business is required to deposit the amount of excise duty within 15 days of filing returns or notification.

Customs Duty Compliance in Saudi Arabia

The rate of customs duty depends on the type of product imported to Saudi Arabia and it is a tax on goods imported into Saudi Arabia. This duty is primarily to regulate imports, to protect local industries and to maintain economic stability. The customs duty rate can reach 40% for some goods, especially food and agricultural products which exceed the self-sufficiency levels. Such customs regulation prohibits importers from experiencing penalties, delays, or additional charges. For smooth running of the import operations, proper documentation, timely payments and compliance to licensing requirements are important. The following are the main compliance requirements for importers in Saudi Arabia.

Importers Must Comply with the Following Regulations

• Period of Customs Clearance License: Customs clearance license is needed for a period as stipulated by the Commission. It is valid for three years.
• Import related documents: All import related documents like invoices, shipping papers and duty payment receipts should be maintained.
• Customs Duties Charges: Timely payment on customs duties on goods imported to avoid penalty.

Excise and Customs Tax Violations

Smooth trade operations and avoiding legal consequences are ensured by ensuring compliance with excise and customs tax laws. Also, violations can bring heavy penalties such as fines and business disruptions. Authorities keep a close lookout on businesses to avoid tax evasion and other illegalities. The main types of excise tax violations are as follows.

• To enter or try to enter excise goods into the country or take them out without complying with regulations.
• Without following legal provisions, producing, transferring, possessing, storing, transporting or receiving excise goods.
• Production, import or possession of excise goods without proper registration.
• The act of submitting documents, records or declarations in order to evade taxes, which is fabricated or forged.
• Hindering, disabling or preventing ZATCA employees from performing their duties.
• If there is failure to notify ZATCA of changes in registration information before they occur or within 30 days.
• Not notifying ZATCA of changes to license information before the changes take place or within 30 days.

Penalties for Violations of Excise and Customs Tax

The penalties imposed on businesses violating excise tax regulations in KSA are given below:
Excise Tax Violations & Penalties

• Importing or exporting excise goods without full tax payment or breaching compliance requirements → Fine of evaded tax. For repeated offenses, up to 3x the value of the goods.
• Evasion of tax on excise goods by producing, storing, transporting or receiving excise goods with intent to evade tax → Fine equal to evaded tax.
• Evading tax by submitting false/forged documents → Fine equal to the evaded tax.
• Without registration, producing, importing or possessing excise goods → Fine of the amount of tax evaded.
• Not filing tax returns on schedule → 5% to 25% of the unpaid taxes, on the basis of how long after the due date the return is late (up to 120+ days).
• Preventing the Authority’s employees from doing their duties → SAR 50,000.
• Submission of the information requested by the Authority → SAR 1,000 per day (max SAR 50,000).
• If the Authority is not notified of any changes in registration information prior to the change taking effect → SAR 10,000.
• Failing to notify the Authority of any changes in registration information within 30 days after the changes have taken effect → SAR 10 000.
• Safeguard excise goods → Greater of evaded tax or SAR 50,000.
• Registered person failing to keep commercial and electronic records or use an administrative system in accordance with the law and its implementing regulations → SAR 50,000.
• Any other provision of the excise law and its implementing regulations → SAR 10,000 for the first offense; repeated offenses up to SAR 50,000.
• Recommissioning violations within 3 years from the date of the final decision imposing penalties → 200 percent of the prior penalty or a 6 month license suspension.

How Can I Ensure Compliance With Excise and Customs Tax Regulations in KSA?

Companies have to follow strict compliance measures regarding excise and customs tax to avoid penalties and to run the business smoothly. Below are 5 key steps to comply with.

1. Understand the Taxable Goods

Businesses must know which products are under the excise tax regulations such as tobacco, soft drinks, energy drinks and electronic smoking devices. The tax rate for each category is different and if these items are not tracked properly, there are compliance issues. Inventory should be reviewed regularly and taxable goods records should be updated.

2. Zakat, Tax, and Customs Authority Register

ZATCA registers all businesses that import, produce or distribute excise goods. If the company does not register properly, the authority may automatically register the company and the company may also face penalties. Timely and accurate registration is necessary for the legal operation and compliance.

3. Maintain Accurate Records

It is a legal requirement to keep records of all transactions relating to excise goods. According to Excise Tax Law, businesses must document purchases, sales and stock levels. These records should be well organized, regularly updated and available for ZATCA audits without penalties or disruption.

4. Use a Compliant Administrative System

This helps businesses to streamline tax filing and manage taxable goods efficiently by implementing an administrative system that aligns with ZATCA’s requirements. Reduction of risk of non-compliance can be achieved by using software solutions to track and report excise tax liabilities and make timely payments.

5. Change of Registration or License Information

ZATCA must be informed of any modifications to business registration or license details, before they become effective or within 30 days after the change. Failure to notify the authority in time may lead to fines or penalties, so it is important to keep all business information updated.

Conclusion:

Businesses operating in Saudi Arabia need to comply with Excise and Customs Tax regulations in order to avoid penalties and avoid any difficulties in operation. Businesses too becomes responsible of proactive steps to comply with the legal rules from time of registering with ZATCA to maintaining proper records and using the compliant administrative systems. It is important to know what is taxable goods, what reporting guidelines you should follow to avoid costly violation and disruptions. Regular tax filing in accordance with the law and in regular consultations with R&B accountants helps improve compliance and creates a good working environment and thereby increased efficiency for businesses.

As the digitalization increases, it is crucial to stay updated with regulatory changes such as e-invoicing in Saudi Arabia or e-invoicing in Riyadh in order to be compliant in the long run. As businesses in KSA are dealing with excise tax in KSA and Customs tax, they have to make sure their processes fit the latest government requirements. The companies can save themselves from financial penalties and keep their reputation, as well as help the Kingdom’s economic stability by prioritizing compliance.