🧾 VAT Misclassification in KSA: What to Do When an “Export” Was Actually a Local Supply (Discovered After 1 Year)

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In Saudi Arabia, VAT compliance is governed by the Zakat, Tax and Customs Authority (ZATCA), and businesses are expected to maintain accuracy in their tax filings. But what happens when you realize—after more than a year—that a transaction you declared as a zero-rated export was actually a local supply?

This blog post outlines the compliant solution under ZATCA’s regulations, including practical steps and legal references.

🚨 The Scenario

  • You filed a VAT return over a year ago.
  • You classified a transaction as a zero-rated export.
  • You now discover that the goods were delivered within the Kingdom of Saudi Arabia, not exported.
  • This means the transaction should have been taxed at the standard 15% VAT rate.

📌 ZATCA’s Regulatory Position

According to ZATCA’s VAT Implementing Regulations and recent updates:

  • Zero-rating applies only when goods are physically exported outside KSA and supported by customs documentation.
  • Misclassification of a local supply as an export results in underreported VAT liability.
  • ZATCA requires taxpayers to correct errors, even if discovered after one year.
  • Direct amendments to VAT returns are not allowed after 12 months; instead, a Voluntary Disclosure must be filed.

✅ Final  Compliant Solution

Here’s the step-by-step process to resolve the issue in full compliance with ZATCA:

1. Do Not Issue a Credit Note

  • Credit notes are only valid for cancellations, returns, or price adjustments—not for correcting VAT classification errors.
  • Issuing a credit note in this case would be non-compliant.

2. File a Voluntary Disclosure

  • Use ZATCA’s Voluntary Disclosure Portal.
  • Select the relevant VAT period and transaction.
  • Clearly explain the error: “Transaction was incorrectly classified as an export; goods were delivered locally.”
  • Recalculate VAT at 15% on the transaction value and include it in the disclosure.

3. Pay the Additional VAT and Penalties

  • ZATCA will assess the additional VAT due.
  • Penalties may apply for late payment and incorrect filing, but voluntary disclosure can reduce penalties significantly.

4. Maintain Supporting Documentation

  • Keep delivery notes, invoices, and correspondence showing local delivery.
  • This will support your disclosure and protect against future audits.

5. Update Internal Controls

  • Review your VAT classification procedures.
  • Train staff to verify export documentation before applying zero-rating.

🛡️ Why This Is the Only Correct Path

  • Amending the original VAT return is not allowed after 12 months.
  • Credit notes are not applicable for classification errors.
  • Voluntary Disclosure is the only ZATCA-approved method for correcting historical errors of this nature.

🏁 Final Thoughts

Discovering a VAT misclassification after one year may feel daunting, but ZATCA provides a clear and compliant path forward. By filing a voluntary disclosure, paying the correct VAT, and documenting the correction, you demonstrate integrity and maintain your business’s reputation with the tax authority.


Let’s make compliance your strength—not your stress.

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