Optimizing Tax Processes in Saudi Arabia: Ensuring Compliance & Maximizing Efficiency

This article has been researched and written by the Tax & Compliance Team at Creation Business Consultants. AI has not been used in generating this article.

Tax process optimisation in Saudi Arabia (KSA) can be very helpful, as taxes come with many rules. To start, the tax regulations must be understood, the compliance requirements to each type of tax regulation (domestic or international) must be fully documented as they relate to the business of the entity, and eventually standard operating procedures must be developed to ensure compliance with the tax regulations on time, and with accurate reporting on all tax obligations. Let’s talk more about tax process optimisation.

TAX COMPLIANCE REQUIREMENTS IN SAUDI ARABIA

Before we practise developing tax processes and tax process optimisation, it is prudent to keep in mind the compliance requirements of a general category company that they must execute to make sure future obligations do not arise out of non-compliance. Every taxpayer has three categories of tax regulations for regular compliance to ensure timely and accurate compliance. The major compliance requirements under each of these tax laws are:

COMPLIANCE OBLIGATIONS UNDER CORPORATE TAX LAW:

• The obligation to register for corporate tax with ZATCA and obligations of taxpayers arising from changes in the taxpayer’s particulars.
• The obligation for withholding tax deduction, withholding tax payment, and filing a withholding tax statement.
• Calculating the proper tax base of the company, calculating annual taxable income and tax:
  • Annual income tax return submission.
  • Payment of annual income tax liability.
• To fulfil obligations to make sure they have complied with notices sent by the tax authority during the tax audit process, which will include notices of producing financial records and documents.

COMPLIANCE OBLIGATIONS UNDER ZAKAT REGULATIONS:     

• The obligations of Zakat taxpayers (GCC nationals, GCC-owned companies, and companies owned by GCC nationals) to register with ZATCA for Zakat purposes.
• Payment of zakat, which includes:
  • Calculating the Zakat amount by or on behalf of the taxpayer.
  • Paying Zakat and submitting the Zakat report to the authority or agency.
  • Complying with the Zakat audit process undertaken by the authority.

COMPLIANCE OBLIGATIONS UNDER VAT REGULATIONS:

• To register for VAT purposes as soon as the taxpayer moves over the VAT registration threshold (the mandatory registration threshold is SAR375,000)
• To account for the supply of goods and services purchased and supplied during the relevant tax period. The relevant tax period for the majority of taxpayers is quarterly unless they are one of the rare group of taxpayers who have annual supplies exceeding SAR 40 million, in which case their tax period is monthly.
• To submit the VAT declaration to ZATCA and pay the tax.
• Complying with tax audit requirements and providing the records and documents required by the tax authority.

Moreover, there are customs and excise laws that cover, you need to comply with. In addition, sector regulations are enforced in KSA by ZATCA too.

CONSEQUENCES OF NON-COMPLIANCE

Non-compliance with tax laws can have a range of consequences for businesses, including:

FINANCIAL PENALTIES:

Tax authorities can assess financial penalties for non-compliance, including various fines, interest, and penalties based on unpaid amounts or the nature of the violation. These compliance violations often carry a considerable financial burden on the company that is assessed. To illustrate the serious nature of non-compliance, set forth below are some of the more significant penalties which can be assessed under the laws.

There are also other fines and penalties in the customs, excise, and Zakat laws.

LEGAL CONSEQUENCES:

Non-compliant tax laws can lead to legal action taken by the tax workforce against the company, including audits and investigations, and litigation. This process can lead to covered legal expenses, reputation, and potentially criminal charges if a charging decision is made under abuse of discretion for an intentional or aggravated manner.

LOSS OF REPUTATION:

Tax non-compliance can impact the company’s reputation due to non-compliance. This situation can raise trust issues from customers, suppliers, investors, and potential investors. Similarly, the company may experience negative media reporting and a damaged brand, establishing negative connections with business relationships and lasting brand positioning.

DISRUPTION TO OPERATIONS:

Being audited, investigated or involved in legal proceedings with the taxing authorities can result in costs that may be very disruptive to normal business operations. Dealing with a tax audit can distract management’s attention away from its core business, waste valuable resources, and result in productivity losses.

INCREASED SCRUTINY:

Non-compliance always invites more scrutiny by the taxing authorities, and non-compliance commonly means more audits, investigations, and compliance oversight by the regulatory and taxing authorities. This puts more administrative burdens on the company that may create additional costs of compliance and may burden the company with increased monitoring and oversight in the future.

LOSS OF TAX BENEFITS:

Failing to comply with specific tax regulations may also trigger the loss of tax benefits, credits, deductions, and incentives the company could claim. Failure to comply with regulations can lead to the loss of tax efficiency and increased tax liability.

CIVIL AND CRIMINAL PENALTIES:

In extreme cases, non-compliance may result in the taxing authority pursuing civil and/or criminal remedies against the company or individuals accountable within the company. Civil penalties can include fines, seizure of assets, while individuals may receive jail time. A key example is for tax evasion or fraud.

BENEFITS OF TAX PROCESS OPTIMIZATION

Tax process optimisation is crucial for a company for several reasons:

COST EFFICIENCY:

Not only do efficient tax processes contribute to making sure a company pays as little tax as possible, but getting tax processes working properly ensures that the company always takes advantage of all available tax credits, allowing deductions and tax incentives. This can result in significant cost savings for the company.

COMPLIANCE:

Tax laws and legislation are complex and continuously evolving. Optimised tax processes can put a company in a position of risk by making sure that it is optimally compliant with tax laws and regulations, reducing the likelihood of penalties, fines and legal complications.

RESOURCE ALLOCATION:

Optimising tax processes allows a company to better utilise and allocate its workforce and employees by freeing valuable time away from tax processes, and enabling those employees to contribute to the growth and success of the company’s core business activities, rather than spending inordinate amounts of time or resources on tax processes.

RISK MANAGEMENT:

Optimising tax processes also means integrating the process of risk assessment and effectively evaluating and mitigating those risks, which can help a company proactively consider and address tax-related risks before they become a problem.

DECISION MAKING:

Optimised tax processes can provide information about the tax impact of decisions within the organisation that is easy to interpret and issued timely manner. Such information can provide better decision-making at every level of the organisation, with annual budget planning, investment considerations, or allocation of resources.

ENHANCED REPUTATION:

A properly utilised tax function can better enhance the company’s reputation with its shareholders (including investors, customers, and regulators) by showing strong governance and financial accountability.

COMPETITIVE ADVANTAGE:

Companies with optimised tax processes may have a competitive advantage when compared to their peers by being efficient, reducing costs, maximising profit, and doing it in the shortest amount of time.

METHODOLOGIES TO IMPLEMENT TAX PROCESSES OPTIMIZATION STRATEGY IN SAUDI ARABIA

In Saudi Arabia (KSA), optimising tax processes includes getting an understanding of local tax legislation, implementing an efficient tax planning strategy, using technology for compliance, and maintaining a solid communication process with local tax jurisdictions. Here is a very general plan:

STAY UPDATED WITH TAX REGULATIONS:

• Keep up to date with changes from ZATCA, the Saudi Arabian tax authorities.
• Staying informed about changes in laws regarding taxation allows you to ensure compliance and act on available options.

EFFICIENT TAX PLANNING:

Prepare a plan for options that reduce tax, while remaining compliant with local laws and obligations.

IMPLEMENT TECHNOLOGY SOLUTIONS:

Take advantage of applicable tax technology and software to help productively manage tax practices, be accurate, and remain compliant. Automated processes will benefit the management of your tax calculation, reporting, and filing requirements.

ENSURE DOCUMENTATION COMPLIANCE:

Implement records that document best practices for all transactions, deductions, exemptions, and other functional components of tax compliance. The intention is to make the information accessible whenever tax audits are conducted.

TRAIN EMPLOYEES:

Train staff involved in tax compliance as to what their respective roles and functions are based on relevant tax laws, reporting obligations, and operational requirements to demonstrate compliance.

ENGAGE TAX ADVISORS:

Consult with tax advisors or consultants to understand how best to navigate Saudi Arabian tax laws and regulations. They will be best positioned to provide tax compliance advice, tax plan development, and tax process optimisation and compliance data.

REGULAR INTERNAL AUDITS:

Assess your procedural controls regarding all tax functions and assess based on the goal and objective completion every year. Acknowledge discrepancies for all non-compliance matters and avoid non-compliance penalties going forward.

RELATIONSHIP MANAGEMENT WITH TAX AUTHORITIES:

Open and maintain channels of communication with ZATCA and other local authorities. Examples of communication may include answering questions, getting clarification regarding taxes, and getting ahead of compliance issues.

CONSIDER TAX INCENTIVES:

Identify tax incentives and other benefits offered by the Saudi Arabian government. By identifying and acting on available incentives, this can lead to reduced tax liabilities and profit maximisation in any business.

MONITOR GLOBAL TAX TRENDS:

Keep apprised of international tax developments that could have an impact on tax in Saudi Arabia. This may include changes to international tax treatment, treaties, and other agreements that will change or can affect cross-border transactions and planning options.

By engaging with the above practices regularly, a business can optimise its tax processes in Saudi Arabia and remain compliant with local requirements.

ROLE OF BUSINESS TAX COMPLIANCE CONSULTANT

Tax compliance consultants can have a role in the ongoing optimisation of tax processes by bringing together experience and competency to help firms navigate complex arrangements with the local tax law and applicable regulations. The following are ways tax consultants can assist with tax process optimisation:

EXPERTISE AND KNOWLEDGE:

The tax consultants possess extensive expertise, together with superior knowledge regarding tax regulations and industry best practices. The specialists track tax modifications while they analyse the effects these changes would have on operational business functions. Their expertise allows them to discover tax-saving opportunities, which they develop custom optimisation strategies suited to their business environment.

STRATEGIC PLANNING:

Tax consultants work with a company to directly develop important tax strategies that are closely aligned with the business’s goals and objectives. They consider the profitability of the business, related industry, and tax liabilities in order to understand the opportunities for tax optimisation, such as maximising deductions, credits and other incentives, whilst minimising the tax liabilities.

COMPLIANCE ASSISTANCE:

Consultants will help ensure companies remain compliant with all tax laws and regulations applicable to them. They also help prepare them for a tax planning, preparation or completion event to ensure accuracy and timeliness. They are continually keeping abreast of regulatory change and reporting requirements, which helps ensure a mitigated level of non-compliance and limits potential penalties.

TAX RISK MANAGEMENT:

Tax consultants will assess the tax risks and vulnerabilities facing the company and develop solutions to mitigate those risks. They will help identify potential areas of tax exposure, such as uncertain tax positions or aggressive tax planning strategies, and help you put controls and procedures in place to work within the determined limits.

OPTIMIZATION OF PROCESSES AND SYSTEMS:

The tax processes and controls evaluation by tax consultants enables them to unveil performance gaps and other areas for improvement. The company will get recommendations from the consultants to enhance its processes. Simultaneously, automation options and technological tools and strategies which optimise tax workflows will be offered. They will help minimise manual mistakes and boost operational efficiency.

AUDIT SUPPORT:

Tax consultants serve as an official agent who acts to support a company throughout audits or examinations by tax authorities. Tax consultants help companies respond correctly to documentation requirements and requests for information from the audit/review so that optimal results may be achieved during the audit/review process.

EDUCATION AND TRAINING:

Employees get education and training on tax issues provided by tax consultants. An organisation develops improved internal capacity and awareness of tax issues, and a compliance culture by employing tax consultants for training and education.

Business tax compliance consultants have a critical role in assisting organisations in understanding tax laws and regulations to reduce tax risk and obtain optimal tax efficiency. Those professionals are invaluable in maintaining an organisation’s financial health and compliance with tax regulations while preserving the transactional value of tax compliance in a changing tax environment.

FINAL THOUGHTS ON TAX PROCESS OPTIMIZATION

The area of taxation is continually changing, especially for companies with shareholders or multi-national companies. Countries around the world are adopting OECD frameworks to deal with issues like tax evasion, base erosion, and hidden crimes. Initiatives like Country-by-Country Reporting (CBC) will likely be crucial for individuals and businesses that operate globally.

As tax exposure becomes increasingly difficult to avoid, tax compliance will be a competitive advantage for organisations. In the changing regulatory environment, tax advisors and compliance consultants will be essential for companies to be sustainable in competitive and regulatory environments.

Contact us today for information on how Creation can provide assistance with tax services!

Email: [email protected] | UAE: +971 4 878 6240 | Saudi Arabia: +966 56 865 2329

Scott Cairns,
Managing Director