Tax evasion penalty in Saudi Arabia and the 2025 Exemption Initiative

Imagine receiving a sudden notice from the tax authority, accusing your company of underreporting revenues. Your heart sinks. Was it a mistake in the documentation? A missed VAT filing? In Saudi Arabia, tax evasion is not just a financial error; it can lead to hefty fines, damaged reputations, and even legal action. Many businesses, especially growing ones, fall into a non-compliance trap without intending to. Understanding the penalties and your rights and options can make a difference between a financial setback and a full recovery. This article walks you through the penalties for tax evasion in Saudi Arabia, how you could resolve issues legally, and how you might benefit from the 2025 tax amnesty initiative.

Understanding Tax Evasion and Its Legal Consequences in Saudi Arabia

Tax evasion refers to the deliberate act of avoiding tax payments that are legally due. The Zakat, Tax and Customs Authority (ZATCA) enforces strict rules in Saudi Arabia to detect and penalize such behavior. Tax evasion not only disrupts fair market competition but also undermines national revenue needed for public services and infrastructure.

The Saudi tax system covers several types of tax, such as VAT (Value Added Tax), Corporate Income Tax, Excise Tax, and Withholding Tax. Businesses or individuals who attempt to conceal taxable income, submit false declarations, manipulate invoices, or fail to register with ZATCA may face serious legal and financial repercussions. Penalties may include:

• Fixed monetary fines.
• Percentage-based penalties on unpaid taxes.
• Suspension of tax certificates.
• Legal prosecution in severe cases.

Detailed Overview of Tax Evasion Penalties in Saudi Arabia

Saudi tax law stipulates different penalties depending on the type and severity of the violation. Here are the main types of penalties for tax evasion under the ZATCA regulations:

• Fixed Fines These are predetermined amounts applied for certain violations, such as failure to register for tax, issue tax invoices, or maintain proper records. For example, failing to issue an electronic invoice may lead to fines starting from SAR 5,000 up to SAR 100,000.
• Percentage-Based Penalties In cases of underreporting or underpayment, penalties can be calculated as a percentage of the unpaid tax amount, often ranging from 25% to 100% depending on whether the taxpayer voluntarily disclosed the error or was discovered during an audit.
• Late Payment Penalties If taxes are paid after the due date, a monthly penalty of 1% of the unpaid amount may apply, accumulating up to a maximum of 25%.
• Criminal Penalties In severe or repeated cases of evasion, the matter may be referred for criminal prosecution, which may result in imprisonment.

Legal Settlement Procedures for Tax Evasion in Saudi Arabia

Taxpayers found liable for tax evasion have the option to enter into a legal settlement with ZATCA. The settlement process aims to resolve disputes, reduce penalties, and avoid prolonged legal battles. Key points about settlement include:

1. Taxpayers must admit to the violation and provide all necessary documentation.
2. Settlement agreements typically include payment of the due taxes along with reduced fines.
3. Early settlement can lead to further reduction or waiver of penalties.
4. Settlements avoid criminal prosecution and allow the taxpayer to continue normal business operations.
5. ZATCA reviews each case individually to determine eligibility for settlement.

ZATCA's 2025 Penalty Cancellation & Financial Amnesty Initiative

The Penalty Exemption Initiative, launched by the Zakat, Tax and Customs Authority (ZATCA) in March 2020, has been extended multiple times due to high taxpayer engagement.

It is now active until December 31, 2025, offering an opportunity for taxpayers to settle their tax obligations without incurring financial penalties.

This initiative grants exemption from unpaid financial penalties, including:

• Waiver of penalties for late registration across all tax systems.
• Waiver of late payment and late filing penalties.
• Exemption from VAT return correction penalties.
• Cancellation of penalties from field audit violations and e-invoicing breaches, by Article 45 of the VAT Law.

To benefit from the initiative, taxpayers must meet the following key conditions:

• Register with the tax system if not already registered.
• Submit all required tax returns, including those not previously filed.
• Disclose any previously undeclared taxes correctly.
• Pay the full principal tax due, or submit an installment request and adhere to the approved schedule.
• Additionally, even late payments under an approved installment plan are exempt from delay penalties, provided the due dates fall after the initiative ends.

Which Taxes Are Included in the 2025 Penalty Exemption Initiative?

The 2025 initiative applies broadly across multiple tax systems managed by the Zakat, Tax and Customs Authority (ZATCA). It covers penalties associated with several types of taxes, allowing businesses and individuals to benefit regardless of the tax category involved. The main tax types covered under the initiative include:

• Value Added Tax (VAT) Includes all penalties related to VAT registration, filing, payment, correction of returns, and violations of electronic invoicing.
• Excise Tax Covering all fines related to delayed registration, incorrect filing, and payment violations.
• Withholding Tax Applies to penalties for failure to deduct, report, or remit the correct withholding amounts.
• Corporate Income Tax Including late declaration, late payment, or errors in reported taxable income.
• Zakat (for Saudi-owned entities) Covers Zakat-related penalties applicable to entities subject to Zakat assessments.

Excluded Cases from the 2025 Penalty Exemption Initiative

While the 2025 initiative is broad in scope, some specific situations and violations fall outside its coverage. Understanding these exclusions helps taxpayers set realistic expectations and avoid misunderstanding the extent of the relief offered. The initiative does not cover the following:

• Criminal Tax Violations Cases that involve deliberate fraud, forgery, or falsification of documents may be subject to legal prosecution.
• Final Judicial Rulings Any case where a final court judgment has been issued cannot benefit from the initiative, as the legal process has concluded.
• Penalties Already Paid Penalties that were fully paid before the initiative came into effect are not refundable or reversible.
• Violations Outside ZATCA's Scope Any administrative or financial penalty not directly related to taxes under ZATCA’s jurisdiction (e.g., labor fines, municipal violations).
• Non-Compliance with Initiative Conditions Taxpayers who fail to submit outstanding returns, disclose undeclared taxes, or commit to an approved installment plan are not eligible.

Who Can Benefit from the 2025 Penalty Exemption Initiative?

To benefit from ZATCA’s 2025 Penalty Exemption Initiative, taxpayers—whether individuals or entities—must meet specific eligibility conditions. These requirements are designed to ensure only those genuinely seeking to comply benefit from the relief.

The main eligibility conditions include:

• Registration with the Tax System For unregistered taxpayers, it is mandatory to register in the appropriate tax system (e.g., VAT, Excise) during the initiative period.
• Filing All Outstanding Returns Taxpayers must submit all tax returns that were previously due but not filed.
• Correct Disclosure of All Obligations Any previously undeclared or incorrectly declared taxes must be disclosed and corrected through amended returns.
• Payment of Principal Tax Amount The full principal amount of tax must be paid. Alternatively, the taxpayer may submit a request to pay in installments, which must be approved by ZATCA and followed strictly.
• Adherence to Installment Plan Deadlines For those opting to pay in installments, timely payment according to the approved schedule is a condition for maintaining exemption from additional penalties.

Also Read: Tax Exemption in Saudi Arabia: Who Qualifies and How to Apply.

How to Request a Payment Plan for Outstanding Tax Liabilities

For taxpayers unable to pay their full tax dues immediately, ZATCA offers the option to request a structured installment plan. This allows businesses and individuals to manage their obligations without losing eligibility for the 2025 penalty exemption, provided they meet the conditions and adhere to the plan.

Step-by-Step Guide to Submitting an Installment Request

1. Log in to the ZATCA Portal Access your taxpayer account via zatca.gov.sa.
2. Navigate to the “Taxpayer Services” Section Choose the relevant tax type (VAT, Excise, etc.) and locate the installment request service.
3. Submit the Installment Request Form Include the total outstanding amount, desired installment duration, and any supporting financial documents (e.g., cash flow, and bank statements).
4. Await Approval ZATCA will review the request based on your financial position and compliance history. Processing may take several business days.
5. Receive an Approved Installment Plan If approved, the plan will outline due dates, amounts per installment, and conditions for compliance.
6. Begin Payments Immediately You must start payments on the agreed schedule. Delays or defaults may result in cancellation of the exemption.

Also Read: The Top Accounting Software for Small and Medium-Sized Businesses.

Tax evasion carries significant financial and legal consequences in Saudi Arabia. However, the ongoing 2025 Penalty Exemption Initiative offers taxpayers a rare opportunity to resolve outstanding issues, settle dues, and rebuild compliance with reduced or waived penalties. Businesses could correct their status and avoid future risks by understanding the types of violations, eligibility criteria, and procedures for installment plans. Taking timely action is not only financially wise—it also builds trust and credibility with ZATCA.

FAQs About Tax Evasion Penalties and the 2025 Initiative

What is the difference between tax evasion and late payment?

Tax evasion involves intentionally concealing or falsifying financial data to avoid paying taxes. On the other hand, Late payment refers to failing to pay tax dues on time but without intent to deceive. Both may lead to penalties, but evasion carries heavier legal consequences.

Can I benefit from the initiative if my tax case is already under ZATCA audit?

Yes, as long as no final assessment or judgment has been issued. You must correct the returns, disclose the unpaid taxes, and settle or request installment of the principal tax due.

Are previously paid penalties refundable under the initiative?

No, penalties that had already been paid before the initiative are not eligible for refunds.

What if I miss an installment payment under an approved plan?

Failure to comply with the approved installment schedule may result in cancellation of the penalty exemption, and the remaining fines may become payable.

When does the 2025 Penalty Exemption Initiative end?

The current extension of the Penalty Exemption Initiative ends on December 31, 2025.