ZATCA has released significant updates to VAT and Zakat rules affecting foreign-owned entities. A practical compliance guide with filing deadlines and the new penalty schedule.
The Zakat, Tax and Customs Authority (ZATCA) has issued its 2025 compliance circular, introducing significant changes to VAT filing obligations, e-invoicing requirements, and Zakat assessment methodology for foreign-owned entities. Non-compliance penalties have also been substantially increased.
Compliance Alert
E-invoicing Phase 3 (FATOORA integration) is now mandatory for all VAT-registered entities with annual turnover above SAR 3 million. Deadline: October 1, 2025.
VAT Update: Key Changes for 2025
- Newly zero-rated: Healthcare equipment imports, renewable energy components, STEM education materials
- Newly exempt: Digital services provided exclusively to government entities
- Reclassified as standard (15%): Certain financial services previously treated as exempt
- New input tax credit rules: Full credit allowed for EV company cars (previously 50%)
Mandatory E-Invoicing (FATOORA) — Phase 3
- All B2B invoices must be generated through ZATCA-certified software and transmitted in real-time
- Invoice format: JSON or XML with QR code, buyer/seller TIN, and UUID
- Non-compliant invoices: Void for tax purposes + SAR 1,000 per invoice penalty
- Certified software list available at zatca.gov.sa/en/eInvoicing
Zakat for Foreign-Owned Entities: 2025 Changes
For 100% Foreign-Owned Companies
No Zakat applies — only 20% corporate income tax on taxable profit. Annual tax return due June 30. ZATCA now conducts automated risk scoring of all returns.
Updated Penalty Schedule (2025)
- Late VAT filing: 5% of tax due per month (was 2% previously)
- E-invoicing non-compliance: SAR 1,000 per non-compliant invoice
- Failure to register for VAT: 10% of taxable revenue for the uncovered period
- False declarations: Up to 100% of evaded tax + criminal referral
- Late Zakat filing: SAR 1,000 per month delay
Practical Action Plan
- 1Audit your invoice software: Is it FATOORA Phase 3 certified? Switch if not
- 2Review your VAT filing schedule: Monthly filing mandatory if annual turnover > SAR 40M
- 3Verify your Zakat base calculation using the new digital self-assessment tool on zatca.gov.sa
- 4Ensure your General Ledger is maintained in Arabic (ZATCA audit requirement)
- 5Engage a SOCPA-certified auditor for your annual tax return
"ZATCA's enforcement capacity has been massively enhanced with AI-driven audit targeting. Companies that relied on 'no one will notice' are now getting automated assessment notices. Get compliant proactively."
— BZNX Audit & Tax Team
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