Many business owners may fall into what seems like a minor mistake one that could cost them hefty financial penalties or even a temporary suspension of their activities.
With the implementation of Saudi Arabia’s 2025 Value Added Tax amendments, tax compliance has become more precise and complex than ever before.
The issue is that most companies even large ones still misunderstand these updates, leaving them exposed to violations that could have been easily avoided.
In this article, we will reveal the common mistake companies make without realizing it, explain what has actually changed in the Saudi VAT system for 2025, and show how your business can ensure full compliance to avoid fines and future liabilities.
What are the new changes in Saudi Arabia’s 2025 Value Added Tax amendments?
Saudi Arabia’s 2025 Value Added Tax amendments have been officially implemented to enhance tax transparency and tighten supervision over registered companies.
While some investors perceive them as minor updates, the latest changes directly impact how invoices, contracts, and electronic transactions are managed—particularly for businesses operating online or within corporate groups.
Key points to note include:
- Stricter conditions for forming VAT groups, ensuring that only eligible and active companies can be combined under the same group.
- Certain digital platforms are now considered the “actual supplier” of goods and services sold through them making them responsible for collecting and remitting VAT on behalf of sellers.
- Adjustments in VAT recovery when ceasing activity or transferring ownership, requiring immediate notification to the authority to avoid penalties.
- Improvements in the tourist VAT refund process and the unification of procedures for customs-suspended goods.
In simpler terms, these updates aim to close loopholes that were unintentionally exploited by some businesses and to ensure higher accuracy in tax compliance.
Therefore, any misinterpretation of these provisions can lead to violations and fines, even without intentional wrongdoing.
What is the common mistake companies make when applying Saudi Arabia’s 2025 Value Added Tax amendments?
The most common mistake made by many companies after the launch of Saudi Arabia’s 2025 Value Added Tax amendments is assuming that the changes do not affect their current systems or that compliance is limited to the accounting department alone.
In reality, the new amendments require a comprehensive review of all company operations from contracts and invoices to how transactions are recorded through digital systems.
Many businesses have yet to update their systems, resulting in VAT filings that do not align with the revised regulations. This exposes them to fines, payment delays, or even unexpected tax audits.
Successful compliance is not merely about paying taxes on time.
It requires full VAT compliance across the company’s financial and administrative structure, ensuring that every taxable transaction is documented and aligned with the new regulations.
In short:
The problem is not the company’s intent, but its incomplete understanding of the nature of the amendments—treating them as a simple accounting adjustment rather than a strategic change in how VAT is managed within the Kingdom.
Other frequent mistakes companies make include:
- Failing to review old contracts with suppliers and clients
Some clauses in commercial contracts no longer align with the new definition of “supply.”
For example, if a service is provided through a digital platform, the platform may now be considered the “actual supplier,” not the company itself—completely shifting VAT liability. - Ignoring the impact on VAT groups
Many companies registered as a single VAT group must now ensure that each member entity qualifies for independent VAT registration.
Keeping a noncompliant structure risks cancellation of group registration or financial penalties. - Not notifying the authority when ceasing activity or transferring ownership
The amendments now strictly require companies to notify the Zakat, Tax, and Customs Authority (ZATCA) within 30 days of any change in business activity.
Failure to do so may be treated as tax evasion or noncompliance. - Incorrectly distinguishing between domestic and international supplies
Some companies still apply the same tax treatment to all supplies, although the amendments introduced new rules for cross-border goods and services.
This can lead to double VAT payments or loss of refund eligibility.
Given that many companies struggle to understand the new regulations in detail, HFA offers a comprehensive VAT filing service in Saudi Arabia.
This service ensures full compliance with Saudi Arabia’s 2025 Value Added Tax amendments, corrects any errors before submission, and protects your business from penalties and legal exposure
Contact us today to get a customized tax consultation for your company.
What is “VAT Grouping” and what are the new conditions?
VAT Grouping allows two or more companies to register under one unified VAT account, being treated as a single taxable entity by the Zakat, Tax, and Customs Authority.
This system was particularly useful for corporate groups with subsidiaries under common ownership, as it simplified tax filing and avoided duplicate VAT on internal transactions.
However, under Saudi Arabia’s 2025 Value Added Tax amendments, the rules for VAT grouping have changed significantly to ensure accuracy and prevent misuse of the system.
Key new conditions include:
- Each company in the group must independently qualify for VAT registration—that is, it must exceed the mandatory revenue threshold.
- The relationship between companies must be clear and documented, such as shared ownership or actual managerial control.
- Inactive or non-registered entities are excluded from joining the group, even if owned by the same parent company.
- A 180-day transition period has been granted for existing groups to adjust their structure in line with the new requirements.
In other words, VAT grouping is no longer just a procedural convenience—it is now a regulatory responsibility that demands proof of eligibility and full transparency.
Therefore, every investor or corporate group should review their financial and administrative structures to ensure compliance with Saudi Arabia’s 2025 Value Added Tax amendments before the adjustment period ends.
How should tax return errors be handled? What are the penalties?
First: Correcting errors
- If a company discovers an error in its VAT return after submission, it must file a revised return immediately through the ZATCA platform.
- Minor errors can be corrected within the grace period without penalties—provided they are reported before an audit or inspection begins.
- Major errors (such as omitting taxable supplies or unjustified input deductions) must be disclosed promptly, along with payment of any due tax, to avoid escalation.
Second: Penalties and fines
According to Saudi Arabia’s 2025 Value Added Tax amendments, penalties vary by violation type:
- Late filing of VAT returns: 5%–25% of the unpaid tax amount.
- Providing incorrect or incomplete information: Up to 50% of the tax discrepancy.
- Failure to register despite exceeding the mandatory revenue threshold: Monetary fines plus retroactive registration with interest.
- Late payment of due VAT: A 5% monthly fine on the outstanding balance.
The Authority emphasizes that these measures are not meant to punish but to enhance compliance and transparency—ensuring that companies treat VAT as an integrated administrative and financial responsibility, not merely an accounting burden.
What records and documents must companies retain under the amendments?
Under Saudi Arabia’s 2025 Value Added Tax amendments, record-keeping requirements have become stricter and clearer to promote transparency and facilitate tax audits by ZATCA.
Every VAT-registered company must now retain all financial and tax-related documentation in an organized manner for no less than six years from the date of the transaction.
These records include:
- Original and electronic tax invoices (issued and received) containing all mandatory VAT details.
- Sales and purchase ledgers showing taxable and exempt supplies.
- Submitted VAT returns and all related payment or refund documents.
- Commercial contracts and agreements with clients and suppliers, especially those involving taxable transactions or VAT groups.
- Records of fixed assets, their book value, and related input tax.
- Electronic correspondence and documents supporting the validity of transactions, particularly for businesses operating via digital platforms.
Additionally, Saudi Arabia’s 2025 Value Added Tax amendments require that all such records be readily available and electronically accessible upon request.
Failure to provide them—or loss of records—is now considered a violation subject to financial penalties.
Is VAT registration optional for some companies?
According to Saudi Arabia’s 2025 Value Added Tax amendments, VAT registration is no longer entirely optional.
It now depends on the company’s annual revenue.
ZATCA has defined three key thresholds:
- Mandatory registration:
Any business with annual revenue exceeding SAR 375,000 must register for VAT within the specified timeframe, or face non-registration penalties. - Voluntary registration:
Businesses with annual revenue between SAR 187,500 and SAR 375,000 may register voluntarily.
This is a strategic move for small businesses, allowing them to reclaim input VAT on their purchases. - Limited-revenue entities:
Companies earning less than SAR 187,500 are currently exempt from registration, but may be required to register later if their operations expand.
These provisions fall under Saudi Arabia’s 2025 Value Added Tax amendments, aiming to enhance tax compliance and broaden the tax base gradually while considering the size and capacity of different businesses.
