How to prepare for ZATCA audits [Essential Records and Steps]

It was the end of the quarter when a mid-sized trading company in Riyadh received a formal notice from the Zakat, Tax and Customs Authority (ZATCA). The message was clear: an audit was scheduled in two weeks. Although the company had been compliant with VAT filings, the finance manager quickly realized that several supporting documents were scattered across different systems, and some purchase records were incomplete. The team entered a race against time to gather invoices, reconcile ledgers, and verify entries before the auditors arrived.

This situation is not uncommon for many Saudi businesses. ZATCA audits have become an integral part of ensuring compliance with tax and zakat laws, and preparation is no longer optional; it is a continuous responsibility. The article will explore how to effectively prepare for a ZATCA audit, what records you must keep, and how digital tools can simplify the entire process.

What Is a ZATCA Audit and Why Does It Matter?

A ZATCA audit is an official review conducted by the Zakat, Tax, and Customs Authority to ensure that a business complies with Saudi Arabia’s tax and zakat regulations. The audit involves examining financial statements, VAT returns, invoices, and supporting documentation to confirm the accuracy and completeness of reported information.

ZATCA’s role extends beyond collection; it safeguards the financial system's integrity. Through audits, the Authority verifies that businesses accurately calculate, report, and pay their obligations under Saudi tax laws, including VAT, excise tax, and zakat. An audit may be triggered by several factors, such as discrepancies between filed returns and system data, inconsistent transaction patterns, or random compliance checks. The Authority may conduct these audits either remotely (desk audit), through field visits (on-site audit), or via digital monitoring tools integrated with the e-invoicing system.

From a financial management perspective, the importance of ZATCA audits goes beyond regulatory compliance. They promote transparency, strengthen internal controls, and encourage the adoption of sound accounting practices. Businesses that maintain organized and verifiable records not only avoid penalties but also enhance their credibility with partners, banks, and investors. In today’s regulatory environment, preparedness for a ZATCA audit reflects the maturity of an organization’s financial operations. The more aligned a company is with ZATCA’s reporting standards, the smoother the audit process will be, and the stronger its financial governance becomes.

Types of ZATCA Audits in Saudi Arabia

ZATCA conducts different types of audits depending on the nature of the business, the data discrepancies identified, and the taxpayer's compliance history. Understanding these audit types helps companies prepare adequately and respond effectively when selected for review.

• Desk Audit (Remote Review) A desk audit, also known as a remote or office-based audit, is conducted without an on-site visit. In this type of audit, ZATCA requests specific documents—such as VAT returns, sales and purchase invoices, and reconciliation reports—through electronic submission. The Authority then reviews the provided information for inconsistencies or calculation errors. Desk audits are generally initiated when ZATCA detects minor discrepancies or requires clarification on specific transactions.
• Field Audit (On-Site Inspection) A field audit involves ZATCA officers visiting the company’s premises to examine financial and operational records in detail. During the visit, auditors may review accounting systems, inspect invoices and contracts, interview finance personnel, and verify the alignment between reported figures and actual operations. Field audits are typically more comprehensive and may be triggered by substantial inconsistencies, high-risk transactions, or previous compliance concerns. Businesses are usually notified in advance of a field audit and must provide access to all relevant records.
• Electronic or System-Based Audit With the rise of e-invoicing (FATOORA), ZATCA now employs digital audit tools that analyze taxpayer data in real time. Through automated systems, ZATCA can cross-check VAT declarations, e-invoices, and other digital submissions to identify irregularities or omissions. This method enables the Authority to perform continuous monitoring without necessarily initiating a formal audit request. Companies using fully compliant accounting and invoicing systems reduce their exposure to such risks, as their data remains synchronized with ZATCA’s requirements.

Also Read: The Hassle-Free Way to VAT Submission.

Legal Foundation and ZATCA Authority

The Zakat, Tax and Customs Authority (ZATCA) operates under a clear legal framework that defines its authority, responsibilities, and enforcement powers. Established by Royal Decree No. (A/133) In 2021, ZATCA merged the General Authority of Zakat and Tax (GAZT) and the Saudi Customs to unify the administration of tax, zakat, and customs duties under a single regulatory body.

Legal Framework

ZATCA’s authority to conduct audits and enforce compliance is rooted in several key legislations, including:

• Zakat Collection Law and its Implementing Regulations.
• Value Added Tax (VAT) Law issued by Royal Decree No. M/113
• Excise Tax Law.
• Income Tax Law.
• E-Invoicing Regulation (FATOORA)
• Tax Procedures Law, which governs recordkeeping, audit procedures, and penalties.

Audit Authority and Scope

ZATCA’s audit authority covers all taxable entities and zakat payers in the Kingdom. The Authority can review any business that:

• Files VAT, zakat, or other tax returns.
• Imports or exports goods.
• Engages in transactions subject to tax obligations.

Auditors may examine accounting records, contracts, e-invoices, and any digital or paper-based documentation relevant to the entity’s tax position. Businesses are legally obligated to cooperate, provide full access, and respond to requests within specified timeframes.

Penalties for Non-Compliance

Failure to maintain proper documentation or to cooperate during an audit can result in significant penalties. These may include:

• Fines for late or inaccurate VAT returns.
• Financial penalties for unissued or non-compliant e-invoices.
• Adjustments to zakat or tax assessments.
• Temporary suspension of taxpayer accounts in severe cases.

ZATCA also reserves the right to initiate legal proceedings in cases of repeated or deliberate violations.

Also Read: Tax evasion penalty in Saudi Arabia and the Exemption Initiative.

Importance of Understanding the Legal Context

Understanding the legal basis of ZATCA’s authority is essential for accounting professionals. More than ensuring compliance, it guides internal audit procedures, documentation practices, and risk management. Businesses that align their accounting processes with the ZATCA's legal requirements minimize exposure to penalties and foster stronger financial governance.

What Records You Must Keep for ZATCA Audits

Maintaining comprehensive and well-organized records is a legal requirement under Saudi tax and zakat regulations. ZATCA expects every business to retain supporting documentation that clearly demonstrates the accuracy of its tax filings, accounting transactions, and financial statements. A structured recordkeeping system simplifies audit procedures and reduces the risk of non-compliance penalties.

1. General Accounting and Financial Records Businesses must retain all primary accounting documents that form the basis of their financial reporting, including:

• General ledgers and sub-ledgers.
• Trial balances and financial statements.
• Chart of accounts and journal entries.
• Bank statements and reconciliation reports.
• Petty cash and expense records.

2. VAT and Tax-Related Documentation Since VAT compliance is one of the most frequent audit areas, companies must maintain:

• VAT returns and payment confirmations.
• Tax invoices and simplified tax invoices.
• Credit and debit notes.
• Proof of exports and imports.
• Customs declarations and related forms.
• Records of exempt and zero-rated transactions.

3. Contracts, Purchase Orders, and Supporting Documents ZATCA auditors often request commercial documentation to verify the authenticity and substance of transactions. Businesses should retain:

• Customer and supplier contracts.
• Purchase orders, delivery notes, and receipts.
• Supplier quotations and payment confirmations.
• Service agreements and consultancy invoices.

4. Payroll and HR-Related Records For zakat and income tax purposes, personnel-related data must also be preserved, including:

• Employee payroll registers and salary slips.
• GOSI (social insurance) records.
• Employee contracts and benefits documentation.
• Expense reimbursements and allowances.

5. Import, Export, and Customs Records For businesses engaged in international trade, customs records form an essential component of ZATCA audits:

• Import/export invoices.
• Bills of entry and shipping documents.
• Customs duties and clearance certificates.
• Correspondence with clearing agents.

6. Electronic Records and Data Retention Requirements With the implementation of e-invoicing and digital reporting, ZATCA requires that all records—whether physical or electronic—be retained for no less than six years from the end of the financial year to which they relate. For e-invoicing compliance, businesses must:

• Store invoices in XML format.
• Retain digital archives in Saudi Arabia or an approved cloud server.
• Ensure accessibility for audit purposes at any time.

7. Importance of Consistent Documentation Practices Consistency and accessibility are key. Each record must be:

• Properly dated and sequentially numbered.
• Supported by verifiable evidence.
• Aligned with reported transactions in accounting software.
• Readily retrievable upon ZATCA’s request.

Common Mistakes Businesses Make During ZATCA Audits (and How to Avoid Them)

Even well-managed businesses can encounter challenges during ZATCA audits, often due to procedural oversights rather than intentional noncompliance. Recognizing common mistakes and learning to avoid them helps companies strengthen compliance and minimize risk.

• Incomplete or disorganized recordkeeping – Implement a structured digital filing system and ensure all documents, especially invoices and tax returns, are stored and indexed for easy access.
• Incorrect VAT treatment – Regularly review VAT postings to ensure compliance with ZATCA guidelines, and conduct periodic internal reviews with certified tax advisors.
• Failure to reconcile e-invoices with VAT returns – Perform monthly reconciliations between your accounting software and VAT reports before submission to prevent discrepancies.
• Ignoring ZATCA correspondence or deadlines – Assign a compliance officer to monitor all ZATCA communications and respond promptly with complete documentation.
• Inconsistent zakat calculations – Verify zakat base computations annually and ensure they align with ZATCA’s latest calculation methodologies.
• Overreliance on manual processes – Adopt cloud-based accounting software to automate bookkeeping, reconciliation, and VAT calculations while maintaining ZATCA compliance.

Steps to Prepare for a ZATCA Audit

Preparing for a ZATCA audit requires a proactive and structured approach. By following clear steps, businesses can demonstrate compliance, reduce the likelihood of penalties, and make the audit process efficient and stress-free.

1. Review Your Tax and Zakat Filings Start by reviewing all VAT returns, zakat declarations, and excise tax reports filed with ZATCA. Ensure figures match your accounting records, and confirm that supporting documents such as invoices and ledgers are complete and consistent.
2. Reconcile E-Invoices with Financial Records ZATCA’s e-invoicing system captures all transactions in real time. Verify that total sales and purchase invoices recorded in the system align exactly with your VAT submissions. Any discrepancies should be investigated and corrected before the audit begins.
3. Organize Supporting Documentation Gather all relevant documents that auditors may request, including contracts, bank statements, asset registers, inventory records, and payroll reports. Store them in clearly labeled digital folders for easy retrieval.
4. Conduct Internal Audit or Pre-Audit Review Before ZATCA’s visit, perform an internal audit or engage a tax advisor to simulate the audit process. This helps identify potential issues, like misclassifications, missing invoices, or zakat base errors—before the Authority finds them. Know more: Audits Explained: Internal vs External.
5. Assign a Compliance Coordinator Designate a responsible person (or team) handling audit communications with ZATCA. This ensures that all requests for clarification or documentation are handled promptly and professionally.
6. Ensure E-Invoicing System Compliance Confirm your invoicing system meets all ZATCA requirements, including integration with Phase 2 (Integration Phase) specifications. Non-compliance with technical standards can trigger audit observations.
7. Prepare Explanations for Unusual Transactions Prepare explanations and supporting evidence in advance if there are exceptional or one-off transactions (such as asset sales, mergers, or intercompany adjustments). This prevents delays during the audit review.
8. Train Your Accounting Team Ensure your accounting and finance staff understand ZATCA regulations, VAT treatment, and e-invoicing procedures. Continuous training minimizes the risk of repeated errors in future filings.
9. Maintain Open Communication with ZATCA Throughout the audit, communicate transparently and respond promptly to all requests. Cooperative and professional interaction can lead to a smoother and faster audit closure.

What Happens During a ZATCA Audit

Understanding the structure and flow of a ZATCA audit helps businesses manage the process efficiently and respond appropriately to official requests. While the specific scope of each audit may vary depending on the company’s profile, the general procedure follows a clear and consistent framework.

1. Notification of Audit ZATCA typically notifies businesses in advance through an official letter or electronic notice on the ZATCA portal. This notice specifies the type of audit, the period under review, and the documentation required. In certain cases, especially on desk audits, ZATCA may request records electronically without a physical visit.
2. Submission of Documents Businesses are required to submit the requested records within the specified timeframe. These may include financial statements, invoices, tax returns, contracts, bank reconciliations, and zakat working papers. Failure to provide documents on time may result in penalties or the presumption of non-compliance.
3. Preliminary Review Auditors conduct a preliminary assessment to compare submitted data against filed returns, e-invoicing records, and ZATCA databases. This phase identifies any variances that may warrant further clarification or supporting evidence.
4. Field or Desk Examination Depending on the audit type, ZATCA may perform: Desk audits, conducted remotely based on electronic submissions, or field audits, where auditors visit the business premises to inspect physical records, systems, and operational practices. During field visits, auditors may interview accounting staff, review ledgers, and assess the company’s accounting software for e-invoicing compliance.
5. Clarifications and Additional Requests If discrepancies arise, ZATCA will issue official requests for clarification or additional documentation. Businesses must respond within the given deadline and provide detailed explanations supported by evidence.
6. Audit Findings Report Upon completion, ZATCA issues a findings report outlining any identified non-compliance, discrepancies, or adjustments. The report also details potential tax differences, penalties, and the reasoning behind each conclusion.
7. Response and Appeal Businesses have the right to respond or appeal audit findings within a defined period, presenting further documents or explanations. If disagreements persist, the matter can be escalated to ZATCA’s internal committees for review.
8. Final Assessment After reviewing the company’s response, ZATCA finalizes the audit and issues an official assessment reflecting any additional taxes or zakat owed, along with penalties if applicable.

How Wafeq Helps Businesses Stay ZATCA-Compliant

Maintaining compliance with ZATCA regulations requires precision, documentation discipline, and seamless digital processes. Manual systems often lead to errors, missed deadlines, and inconsistencies in reporting. This is where Wafeq adds measurable value.

1. Automated e-Invoicing Aligned with ZATCA Standards Wafeq is fully integrated with ZATCA’s e-invoicing (Fatoora) requirements, ensuring that every issued invoice meets the Authority’s technical and formatting standards. Businesses can generate and automatically transmit electronic invoices, reducing compliance risk and saving valuable time.
2. Centralized and Secure Recordkeeping All financial documents, including invoices, receipts, purchase orders, and tax returns, are securely stored in Wafeq’s cloud-based system. This makes retrieving documents during an audit instant and eliminates the risk of lost or inconsistent records.
3. Real-Time VAT and Zakat Tracking Wafeq automatically calculates VAT on sales and purchases, helping businesses file accurate returns confidently. In addition, the system supports Zakat computation features that simplify end-of-year obligations and align them with ZATCA’s updated methodologies.
4. Audit-Ready Reporting The software provides built-in audit reports summarizing VAT movements, sales and purchase data, and Zakat calculations. These reports can be exported instantly, ensuring your finance team is fully prepared for any ZATCA audit request.
5. Seamless Bank Integration By integrating with local and regional banks, Wafeq helps businesses maintain accurate reconciliations between accounting records and actual bank transactions, a crucial factor during audits.
6. Multi-User Access and Controlled Permissions Wafeq allows accountants, auditors, and business owners to collaborate within the same system while maintaining access control. This ensures that data integrity and confidentiality are preserved across teams.
7. Continuous Compliance Updates ZATCA regulations evolve frequently. Wafeq continuously updates its system to comply with new requirements, ensuring users stay aligned with current tax, zakat, and e-invoicing standards without manual intervention.

Also Read: A guide on how to prepare for an external audit using Wafeq's reports.

ZATCA audits are not merely regulatory procedures, but are essential measures to ensure transparency, accuracy, and fairness in Saudi Arabia’s financial system. Businesses that maintain organized records, comply with e-invoicing standards, and review their tax positions regularly can navigate audits confidently

FAQs about ZATCA Audits and Recordkeeping

What triggers a ZATCA audit?

ZATCA may initiate an audit if there are discrepancies in VAT returns, irregularities in e-invoicing data, inconsistencies between reported and actual financial records, or as part of routine compliance checks.

How far back can ZATCA request records?

ZATCA typically requires businesses to maintain financial and tax records for at least six years. However, in some cases, such as ongoing disputes or investigations, the retention period may be extended.

What are the most important records to keep for a ZATCA audit?

Businesses should retain sales and purchase invoices, VAT returns, zakat computations, bank statements, payment vouchers, inventory records, and contracts related to taxable activities.

How long does a ZATCA audit usually take?

The duration depends on the size and complexity of the business. A standard audit may take a few weeks to several months, especially if additional clarification or documentation is required.

Can I correct mistakes found during a ZATCA audit?

Yes. Businesses can submit corrective filings or adjustments through ZATCA’s portal, provided they are made within the allowed timeframe and supported by documentation.

What happens if I fail to provide the required records?

Failure to provide adequate documentation can result in penalties, reassessments, or suspension of tax privileges. Maintaining complete and accessible records is essential for compliance.

Does ZATCA conduct audits remotely or on-site?

ZATCA may conduct both desk-based (remote) audits and field (on-site) audits, depending on the case. In both situations, businesses must provide accurate and timely information electronically.