1Third Edition | May 2026

The penalty shall be increased by 10% if the taxpayer’s compliance record is deemed to be very weak. The penalty shall be increased by 5% if the taxpayer’s compliance record is deemed to be weak. The penalty shall be increased by 5% if the difference between the tax calculated and the tax due -whether payable or refundable- relating to the total periods subject to amendment, represents more than 20% in the case of returns for monthly tax periods, or more than 40% in the case of returns for quarterly tax periods. Secondly: Reduction of the Penalty The Authority may reduce the percentage of the penalty associated with the violation of “submitting an incorrect tax return, or amending a tax return after submission, or providing any document to the Authority relating to the tax due, which results in an understatement of the amount of tax payable” to as low as zero percent, where one or more mitigating factors apply, as follows: The penalty shall be reduced by 5% where the taxable person has a good compliance record. The penalty shall be reduced by 5% if the percentage difference between the tax assessed and the tax due -whether payable or refundable- relating to the total periods under adjustment is less than 5% for tax returns relating to monthly tax periods, or less than 15% for tax returns relating to quarterly tax periods. The penalty shall be reduced by 10% where the taxable person settles the difference between the assessed and payable tax within 30 days from the date of the assessment decision issued by the Authority. The penalty shall be reduced by 15% where the taxable person is classified as a micro- enterprise. For the purposes of these rules, a micro-enterprise is one whose annual taxable revenues do not exceed three million Saudi riyals during the twelve months preceding the tax period subject to audit and assessment. No more than one factor may be combined from among the mitigating factors listed above, except for the factors relating to the settlement of payable tax as provided under these rules. By way of exception to the provisions of this Section (Secondly), no reduction of the penalty shall apply where the error in the return is linked to a case of tax evasion for which a decision has been issued by the Authority. Third: Criteria for Determining Taxable Person Compliance The Authority determines the level of compliance of a taxable person based on the number of errors found in their previous tax returns concerning the timely submission of returns or the timely payment of tax due, as follows: A taxable person's compliance is considered good if there have been no violations within the last twelve months. A taxable person's compliance is considered poor for those who submit monthly returns if they have committed more than two but up to six violations within the last twelve months. For a taxable person who submits quarterly returns, compliance is considered poor if they have committed one or two violations within the last twelve months. A taxable person's compliance is considered very poor for those who submit monthly returns if they have committed more than six violations within the last twelve months. For a taxable person who submits quarterly returns, compliance is considered very poor if they have committed more than two violations within the last twelve months. Fourth: Non-Imposition of Penalty for Errors in the Tax Return No penalty shall be imposed for errors in the tax return in the following cases: Where the taxable person corrects the return in accordance with Article 63 of the Implementing Regulations of the VAT Law, provided that such correction is made prior to being notified of the start of audit and inspection procedures by the Authority. Where the difference between the tax calculated and the tax due is less than SAR 5,000.