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VAT payment management is a major responsibility for any business that operates in Saudi Arabia. The introduction of E-invoicing in Saudi Arabia has improved the VAT processes by making them more streamlined, and thus more accurate and compliant. If you’re running a small business or a big corporation, the fact of VAT obligations is unavoidable as a means to not pay for penalties for not doing that or to keep the financial flow within your company running smoothly. VAT regulations can be understood from Jeddah to Dammam, and even for businesses using E-invoicing in Riyadh, so as to maintain transparency and efficiency in your transactions.
Value Added Tax (VAT) is payable by every taxpayer in Saudi Arabia on or before the date stipulated by the Zakat, Tax, and Customs Authority (ZATCA). Penalties can be incurred for missing deadlines, hence, businesses need to keep updated on VAT timelines. In this article, we will explain everything about VAT payment in Saudi Arabia, including late payment penalties, tax payments on imports, VAT obligations for government entities, and possible VAT payment extensions. Let’s dive in!
All taxpayers registered under the KSA VAT law in Saudi Arabia are required to pay VAT to the Zakat, Tax, and Customs Authority (ZATCA) for supply of goods and services. This applies to all businesses that reach the VAT registration threshold and tax is collected at every stage of the supply chain. The VAT collected from customers must be calculated by companies and remitted to ZATCA on time. If this isn’t done, the creditors can impose financial and legal consequences.
Furthermore, if the reverse charge mechanism (RCM) is applicable, the recipient of goods or services is the one who has to pay the VAT and not the supplier. This is usually the case for transactions with foreign suppliers who are not VAT registered in Saudi Arabia, whether the transaction is related to imports or services received from them. According to this mechanism, the recipient must pay VAT on the transaction and pay the due amount to ZATCA directly. For businesses to remain compliant and avoid fines which are not necessary they need to understand these obligations.
Self-assessed VAT payments are the amount of VAT liability that taxpayers work out and declare at the end of each tax period. Businesses need to decide their VAT liability based on the total VAT collected on sales minus any eligible input tax credits on purchases. This self-assessment also helps businesses to make sure that the amount of VAT paid to the Zakat, Tax and Customs Authority (ZATCA) is correct. It is important to keep proper records and invoices to avoid discrepancies and possible audits.
Saudi taxpayers must pay self-assessed VAT before the due date mentioned by ZATCA. Penalties can include fines or extra charges for the amount that is overdue. For accounting businesses to remain in compliance they must regularly review their VAT records, file their VAT returns on time and use automated accounting system to work smoother with the VAT reporting.
If the taxpayer’s VAT liability is assessed by the Zakat, Tax and Customs Authority (ZATCA) then it will issue a formal assessment order for the amount that is due. It can occur if the taxpayer’s VAT filings are inconsistent, payments are not made or calculations are incorrect. If the amount of assessed VAT is to be settled by the taxpayer in such cases, then the taxpayer must settle the amount of the assessed VAT before the date mentioned in the notification of assessment.
Failure to make the payment in due time could mean having to pay extra, interest charges or even legal action against the defaulting party. Businesses should therefore make sure they report VAT accurately and deal with any assessments from ZATCA if they occur.
In Saudi Arabia, the tax is payable in the last day of the month subsequent to the end of the tax period. It’s a rather heavy burden on businesses which means it must make sure it settles its VAT payments on time in line with regulations laid down by the Zakat, Tax, and Customs Authority (ZATCA). The due date for payment of the VAT will be according to whether a business files VAT returns on a monthly or quarterly basis. These deadlines have to be adhered to not only to avoid late payment penalties but also to enable smooth operation of your business.
Let’s say a taxpayer files a quarterly VAT return for a period of April to June, in such event the VAT payment has to be done before the expiration of July. For instance, the payment deadline for businesses that file monthly returns on the VAT is the following month’s last day. In the case when the tax period is January, VAT payments completing should be done before February 28th. As such, businesses need to monitor these deadlines and make sure they are paid on time in order to remain compliant.
If the VAT payment deadline is missed, there is a risk of financial penalties including a percentage of the unpaid tax accumulating ‘over time’. Businesses should also have to implement efficient accounting systems, automate VAT calculations and remind their customers about their due dates in order to prevent such problems. VAT management is fundamental especially as that prevents businesses from adding up to an unnecessary fine and keep a good standing with ZATCA.
VAT payments by Saudi Arabian taxpayers need to be made online through the ZATCA but it is a smooth and swift procession of all the tax required. When a taxpayer files his VAT return, the system generates a SADAD invoice showing the taxpayer’s unique invoice number and the VAT amount due. Taxpayers may withhold payments about the completion of the deadline to avoid penalties, however, they must utilize this invoice. The online system helps prevent VAT transaction under payments and provides companies with a traceable record of their VAT transactions.
Taxpayers can pay their VAT through SADAD (Saudia Arabia Direct Automated Debit) payment system through bank branches, ATMs, online banking and mobile banking app. This system facilitates an easy way to fulfill the government settle, cuts loss time and ensures compliance at the right time. Using SADAD allows businesses to carry out their VAT payments securely without requiring such paperwork, thus centrally managing the tax further simplifying and minimizing the hassle.
Multiple payment methods are offered on the ZATCA portal to help paying VAT liabilities. This guarantees flexibility and convenience to businesses depending on their tax obligations. The total, two, main methods of VAT payment in Saudi Arabia are below.
1. Online Banking
The SADAD system issues the invoice after filing the VAT return with invoice number that is unique. This number can be used by the taxpayers to make payments using the internet banking service of their bank before the due date. It is a clean cut, convenient, secure and time bound manner of processing transactions in real time. Companies will have the ability to make VAT payments from anywhere no longer requiring physical visits to a bank. Most banks also give digital receipts, which are much easier to track as well as verify payment. Online banking also enables businesses schedule payments in advance and lessen the risk of missing a deadline and paying fines.
2. Automated Teller Machine (ATM)
ATMs can also be used to pay taxes over the barcoded VAT invoice number demanded by the taxpayer. This is a good method for the businesses or people who would like to perform their transactions directly at their bank’s ATM services. According to most ATMs in Saudi Arabia, VAT payments are possible and therefore taxpayers can pay online without bank support. It is a simple process — users enter the SADAD number, verify the VAT and finally confirmed payment. This eliminates hassles with banking via the Internet and also makes for compliance with ZATCA regulations, achieved through immediate processing.
In Saudi Arabia, penalty is charged to a taxpayer who doesn’t pay the VAT due on due date. ZATCA has now fixed the month penalty rate for the VAT at a rate of 5% of the amount of the VAT payable every month, or proportion of a month, during which payment has not taken place. In such cases, even a small delay would bring about significant additional costs for the business and it’s essential for businesses to track their VAT payment schedule.
If, for example, a taxpayer was supposed to pay VAT for December but didn’t do so by 31st January, it will be penalised 5 percent of unpaid VAT per month after this due date. Even if the delay happens for just a couple of days, the penalty is calculated on the true VAT amount due and it is payable. The greater the delay, the greater the penalty and the easier it is for the overall tax burden to escalate.
Say a taxpayer owed SAR 2,000 of VAT for the month of December to pay by the end of January but only made payment until the end of March and I would subject such individual to a penalty of 5 per cent per month for a period of three months, i.e., for the month of February, March and April. Since the penalty here will be SAR 300 (SAR 2,000 × 5% × 3 months), the penalty in this case is SAR 300. But this penalty in addition to the original VAT amount is what makes taxpayers pay attention and come up with a way to avoid an extra amount of money.
VAT is charged by Saudi Customs on imported goods at the time of import in Saudi Arabia. Customs declaration by importers on the details of the goods and taxes is necessary with their arrival in Kingdom. This declaration is the official record of the imported goods and its associated VAT obligations.
VAT can be paid by the importers through the Customs portal, as well as any other applicable duties or charges. If payments are not made with due haste, delays will ensure and the payments will not be in compliance with the customs regulations.
According to the supply is related to economic or non-economic activities, the supply of goods and services is subject to them or being paid VAT by the government bodies regardless of whether the supply includes economic activity or non-economic activity. It signifies that the VAT applies on any goods or services supplied to government organizations as well and for them to also adhere to the common tax, if any, regulations. But the VAT payment process is different in nature of the supply and in the registration status of the government authority.
1. Non-Resident Supplier with Non-Registered Government Body
If the government body does not have a VAT registration and buys goods or services from a non-resident supplier, then it is the non-resident supplier who must register for VAT and pay VAT. The same applies even where the supply relates only to the non-economic activities of the public authority. This means that the non-resident supplier must comply with VAT and will have to pay the VAT. There will be no complications or delays in there customs and or tax processing.
2. Registered Government Body with Economic Activity
If a government body is registered for VAT and its supply is within the scope of an economic activity, then it must apply reverse charge mechanism. In this case the government body itself acts in the capacity of recording the VAT and then doing the payment directly to ZATCA. Reverse charge mechanism of VAT ensures complying with taxes applied on supplies of services connected to economic operations even when the supplier is a non-resident.
However, in cases of exceptional circumstances, taxpayers in Saudi Arabia can request for an extension of VAT payment beyond the stipulated due date. To be able to do it, they should write a written request to the Zakat, Tax, and Customs Authority (ZATCA) with the necessary parts. An extension request will be checked by the authority to decide if a grant is possible.
1. Request Details
Details which should be included in the written request to ZATCA include:
The amount of VAT due
This pertains to the tax period of the VAT amount.
The main reason the payment cannot be made on time.
ZATCA draws these details to determine whether the extension should happen or not in the case of an assessment.
The request is then submitted and is reviewed with 20 days by ZATCA based on the circumstances. Depending on the reason, either the request is approved or disapproved by the authority. The original due date for payment of VAT will be valid until the extension is granted.
Generally, VAT payments are to be made by the prescribed due date to be avoided of penalty. Yet, in rare cases where it is not possible to pay on time, ZATCA may allow an extension. Financial hardship and other valid grounds to not be able to pay should be accompanied with appropriate documentation.
Request for extension will be evaluated by the ZATCA within 20 days and a response will be given. The original VAT payment due date remains in effect until the request is approved and the taxpayer must observe it as not to incur penalties.
In conclusion, it is important to understand the process of VAT payment in Saudi Arabia to comply with ZATCA regulations, and to avoid penalties. It is best to ensure Tax payment on time if it is through E-invoicing in Saudi Arabia, E-Invoicing Riyadh and so on, or if it’s traditional payments such as, online banking and ATM, to enable businesses work smoothly and not incur unnecessary fines. With timely payment of VAT and using available tools, a business can travel the VAT waters.
If you are uncertain about the VAT deadlines or unable to pay in time, ZATCA provides extensions under exceptional circumstance. Nevertheless, you should pay within the set deadlines to avoid problems. Always keep your records in order, automate as much as possible from processes, and you should know what the changes are to the VAT system so you stay compliant.
