The major transformations in the tax systems in the Kingdom of Saudi Arabia over recent years have made tax compliance a cornerstone for business sustainability.
With the increasing complexity of commercial transactions, tax disputes may sometimes arise between taxpayers and the Zakat, Tax, and Customs Authority (ZATCA). At Ithraa Al-Sharq Accounting & Auditing, we believe that understanding how to handle these disputes is the first step in protecting your investments. Here, we highlight the concept of tax disputes and how to manage them effectively.
What Are Tax Disputes?
Tax disputes in Saudi Arabia arise when a taxpayer (company or entity) disagrees with the Authority’s assessments regarding tax obligations, whether related to VAT, withholding tax, or income and Zakat taxes.
Disagreements may stem from different interpretations of legal texts, missing supporting documents, or calculation errors.
Difference Between Tax Disputes and Tax Conflicts
The two terms are often confused, but there is a procedural distinction:
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Tax Conflicts (Tax Disputes): This is the early stage, occurring when there is a difference in opinion between the taxpayer and the Authority regarding certain items in the return or audit. At this stage, discussion and submission of clarifying documents are still possible, which may resolve the issue before a final assessment is issued.
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Tax Litigation/Conflicts (Tax Disputes/Conflicts): This begins when the disagreement escalates to a formal legal procedure; i.e., after the issuance of the tax assessment and the taxpayer’s official objection. The matter then moves from accounting discussion to a legal dispute, requiring intervention by dispute resolution committees or competent judicial bodies.
Types of Tax Disputes
Disputes can vary depending on the type of obligation or procedure involved, including:
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VAT disputes: Usually related to the right to deduct input tax or the application of zero-rated and exempt supplies.
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Withholding tax disputes: Related to payments to non-resident parties and classification of services provided.
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Audit-related disputes: Arising from discrepancies identified during the Authority’s audit of records.
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Penalties and fines disputes: Involving objections to fines imposed due to delays or errors in reporting.
Causes of Tax Disputes in Saudi Arabia
Factors leading to disputes between businesses and tax authorities include:
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Different interpretations of tax laws: Complex financial transactions may allow multiple legal interpretations, creating gaps between the taxpayer’s estimate and the Authority’s view.
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Errors in tax returns: Accounting mistakes or misplacement of data often lead to VAT errors requiring correction.
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Tax estimates by ZATCA: The Authority may apply estimates when the provided information is insufficient or unclear.
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Failure to meet deadlines: Late submission of returns or payments can trigger legal disputes over fines and penalties.
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Weak accounting documentation: Incomplete record-keeping or missing invoices and financial evidence makes it difficult to prove the taxpayer’s position.
After understanding the causes and types of disputes, it is important to know the official procedures set by Saudi law for objection and appeal.
Stages of Tax Objections and Appeals
The Saudi tax system has established a clear process to ensure fairness and transparency:
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Objection to the Authority
The process starts with submitting a formal objection to ZATCA within 60 days from the date of the tax assessment notice. Strong supporting documents are essential. -
Dispute Resolution Committees
If a settlement is not reached with the Authority, the case is escalated to the Dispute Resolution Committees, which are independent judicial bodies reviewing tax appeals. These committees include:-
Primary Committees: Examine the original dispute.
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Appellate Committees: The final stage issuing conclusive rulings.
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How to Prevent Tax Disputes
Prevention is better than cure. Expert advice from Ithraa Al-Sharq includes:
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Accurate documentation: Keep all invoices, contracts, and financial documents organized according to Authority requirements.
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Periodic review: Conduct internal tax audits to ensure accuracy before filing.
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Use of a tax advisor: Partnering with a specialized accounting firm ensures correct interpretation of the laws and avoids common errors.
When Do You Need a Specialized Tax Dispute Consultant?
While some businesses may consider dealings with the Authority routine, critical situations require expert intervention to protect company rights:
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Receiving a substantial tax assessment notice exceeding expectations.
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Undergoing a field audit where a consultant can prevent misinterpretation of information leading to additional fines.
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Desire to escalate the dispute to the Dispute Resolution Committees, requiring legal and accounting expertise.
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Cross-border transactions involving withholding tax, where local laws intersect with international agreements.
Role of Ithraa Al-Sharq Accounting in Resolving Disputes
At Ithraa Al-Sharq, we efficiently represent clients before tax authorities by:
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Analyzing tax assessment files to identify strengths and weaknesses.
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Preparing legal and accounting objection documents supported by evidence.
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Representing businesses in hearings before tax committees.
Successfully handling tax disputes requires a precise combination of legal expertise and deep accounting skills. Protecting your business from financial risks starts not when a dispute arises, but with continuous compliance and complete transparency in all transactions.
Do not let tax challenges hinder your company’s ambitions or drain its resources. We are here to be your trusted partner in compliance and growth.
Frequently Asked Questions About Tax Disputes
What is the objection period for tax assessments in Saudi Arabia?
Objections must be submitted within 60 days from the date of notification. Missing this deadline forfeits the taxpayer’s right to object, and the assessment becomes final.
Can the decision of the primary committee be appealed?
Yes, either the taxpayer or the Authority can appeal the primary committee’s decision to the appellate committee within 30 days of notification.
Does filing an objection stop payment of the disputed tax?
Generally, no. Objection does not halt payment unless an installment request is submitted, or acceptable bank guarantees are provided, or in specific cases defined by the law to avoid delay penalties during the dispute period.
How can a tax dispute be resolved amicably?
The Authority provides pathways for settlement and reconciliation before escalation to committees, allowing the taxpayer to submit additional clarifications or request a resolution to end the dispute faster and at lower cost.
