Tax and Customs Disputes in Saudi Arabia: 7 Mistakes That Could Cost Companies Millions of Saudi Riyals

Introduction: Can a Tax Assessment Turn into a Financial Crisis for a Company?

A company operating in the Saudi market may receive a notice revising a tax return, a demand to pay a penalty, or a customs decision concerning the value, classification, or documentation of imported goods. In some cases, the company may discover that the amount demanded exceeds its expectations or that discrepancies exist between its accounting records and the information relied upon by the competent authority when issuing the decision.

This is where tax and customs disputes in Saudi Arabia become particularly important, especially for companies engaged in importing and exporting, businesses handling large volumes of invoices and transactions, and organizations operating in sectors that require strict compliance with tax and customs regulations.

The problem does not always end with the original amount claimed. Certain violations may result in penalties or additional liabilities. Procedural mistakes or delays in filing an objection may also weaken a company’s position in a dispute.

However, receiving a claim or decision does not necessarily mean that a company has lost its right to seek a review or file an objection. Depending on the type of tax, the decision involved, and the applicable legal framework, specific procedures may be available to challenge the decision, request reconsideration, and pursue further remedies before the competent authorities or committees, where the applicable requirements are satisfied.

This article examines seven mistakes companies should avoid when dealing with tax and customs disputes in Saudi Arabia and explains how documentation, deadlines, and legal procedures can help protect a company’s financial interests.

1. What Are Tax and Customs Disputes in Saudi Arabia?

Tax disputes arise when disagreements occur between a taxpayer and the competent authority regarding a tax liability or a related decision. The disagreement may concern the amount of tax payable, the outcome of a reassessment, the imposition of a penalty, the interpretation of a legal provision, or whether the requirements for a particular tax treatment have been satisfied.

Customs disputes concern disagreements arising from the application of customs regulations to goods and commercial transactions. They may involve the classification of goods, customs valuation, country of origin, supporting documentation, customs duties and related obligations, or objections to a customs decision or procedure.

The Zakat, Tax and Customs Authority (ZATCA) plays a central role in zakat, tax, and customs matters. However, the procedures for objecting to decisions and resolving disputes depend on the type of decision and the rules applicable to it.

Not all disputes should be handled in the same way. An objection to a VAT reassessment, for example, may involve different procedures from an objection to a customs penalty or a decision concerning the classification of imported goods.

The first step is therefore to identify the nature of the decision, the authority that issued it, the legal basis on which it relies, and the procedure available for reviewing it.

2. Mistake One: Ignoring Notification Dates and Objection Deadlines

One of the most consequential mistakes a company can make is treating a notice of assessment or payment demand as a document that can be challenged at any time.

In tax disputes, the admissibility of an objection may depend on a specific statutory deadline calculated from the date of notification or another date prescribed by the applicable rules or notice. ZATCA’s guidance on objections to certain zakat and tax decisions identifies statutory objection periods, including a 60-day period for applicable assessment objections.

However, companies should not assume that the same deadline automatically applies to every tax or customs decision. The relevant decision, governing regulations, and notification must be reviewed individually.

How Can a Company Avoid This Mistake?

• • Record the date on which the decision was received or officially notified.

• • Keep a complete copy of the decision and all related notifications.

• • Identify the applicable deadline and schedule the necessary action.

• • Assign a responsible employee to monitor deadlines and coordinate with the legal adviser and accountant when necessary.

• • Begin preparing the objection promptly rather than waiting for all internal discussions to conclude.

Collecting documents and analyzing the authority’s reasoning can take considerable time. If the decision contains instructions concerning the objection procedure or supporting requirements, these should be reviewed carefully rather than focusing solely on the final amount demanded.

3. Mistake Two: Filing a General Objection Without Clear Grounds

A company may submit an objection stating that it disagrees with a claim or considers a penalty excessive, without identifying the specific errors in the decision or providing supporting evidence.

This approach may be insufficient because an effective objection should explain the nature of the disagreement, the relevant facts, and the legal or accounting grounds supporting the taxpayer’s position.

If the dispute concerns the classification of imported goods, the company should identify the classification adopted by the authority, explain why it challenges that classification, and provide relevant technical and commercial documents where required and admissible.

If the dispute concerns a tax reassessment, the company should identify the disputed items and compare the figures in the decision against the relevant accounting records, tax returns, and invoices.

What Should an Objection Include?

• • The company’s details and identification of the challenged decision.

• • A clear description of the claims or items being disputed.

• • An organized presentation of the relevant facts.

• • Specific grounds of objection for each disputed issue.

• • Supporting documents, with an explanation of how each document relates to the objection.

• • A clear statement of the relief or outcome requested.

The volume of supporting documents is not what matters most. The documents must be directly relevant to the dispute and help explain why the company disagrees with the decision.

4. Mistake Three: Neglecting Accounting and Commercial Documentation

Tax and customs disputes frequently depend on numerical details and documentary evidence. A company may have a reasonable explanation for its position but be unable to substantiate it adequately because invoices are missing, records are inconsistent, or transaction-related documents have not been retained.

In tax disputes, relevant documents may include tax invoices, contracts, tax returns, sales and purchase records, credit and debit notes, payment confirmations, and correspondence relating to the transaction.

In customs disputes, important documents may include commercial invoices, packing lists, certificates of origin, technical specifications, shipping documents, customs declarations, and relevant contracts.

The required documentation varies according to the nature of the case. Companies should therefore avoid relying on a single fixed checklist for every dispute.

How Can a Company Build a Strong Documentary Record?

Create a separate file for each decision containing:

• • A copy of the decision.

• • Related notifications and correspondence.

• • Documents relied upon by the authority.

• • Records and documents supporting the company’s position.

• • Any relevant technical or accounting analysis.

The company should also verify consistency across its accounting systems, invoices, tax returns, and commercial documentation. If discrepancies exist, their causes should be identified and documented rather than ignored.

Where technical or accounting issues are complex, engaging a qualified specialist may help verify the evidence and prepare a clear explanation of the transaction.

5. Mistake Four: Confusing the Tax Principal, Penalties, and the Total Claim

A financial claim may include several components, such as the original tax liability, an additional amount resulting from a reassessment, a penalty for a specific violation, or other amounts imposed under the applicable rules.

A common mistake is treating the entire amount as a single item without identifying the basis of each component.

The objection may concern the underlying assessment, a particular penalty, or both. Each situation may involve different requirements and procedures.

Certain objection services offered by ZATCA emphasize the need to identify the grounds of objection. Depending on the applicable procedure, requirements may also concern undisputed amounts or guarantees relating to disputed liabilities.

Companies should verify the requirements applicable to the specific decision before taking action.

Why Is It Important to Separate the Amounts?

Separating the components of a claim helps the company identify:

• • The amount it accepts as correctly assessed.

• • The amount it disputes.

• • The legal or accounting grounds for each disputed component.

This distinction also makes it easier to prepare a clear objection memorandum and avoid confusing arithmetic errors with substantive legal or procedural disagreements.

A company should not assume that challenging a penalty automatically reopens the underlying assessment. Nor should it assume that filing an objection automatically suspends every payment obligation or enforcement measure. The effect of an objection must be assessed under the rules applicable to the specific decision.

6. Mistake Five: Misunderstanding Customs Classification, Valuation, and Country of Origin

Some customs disputes arise when a company disagrees with the competent authority regarding the classification of goods, their customs value, or their country of origin.

An inaccurate commercial description, missing technical information, or inconsistencies between documents may create uncertainty about the appropriate customs treatment.

For example, a commercial invoice may describe a product using a broad or generic name, while determining its customs classification requires more detailed technical information, such as its components, function, or intended use.

In other cases, the dispute may concern the declared value or the documents explaining the transaction and its associated costs.

How Should a Company Handle These Disputes?

The process should begin with a review of the customs decision to identify the specific issue giving rise to the disagreement. The company should then collect the relevant technical and commercial documents and verify their consistency with the information submitted for the transaction.

A technical report or specialist opinion may be useful when the dispute depends on the characteristics of the product or its classification, subject to the applicable evidentiary and procedural requirements.

The company should not rely solely on the argument that the same classification was accepted in previous transactions. The circumstances, documentation, or applicable rules may differ between transactions.

Similarly, the commercial description of goods or the country from which they were shipped does not, by itself, necessarily establish their country of origin or the correct customs treatment. These issues must be assessed under the relevant rules and supporting documentation.

7. Mistake Six: Failing to Coordinate Accounting and Legal Procedures

The finance department may treat a claim as a purely accounting issue, while the legal department views it as a procedural dispute. Without coordination between these functions, gaps may arise that weaken the quality of the objection.

Accountants can help review accounting entries, invoices, tax returns, and numerical discrepancies. Legal specialists can analyze the decision, identify grounds for objection, and review applicable procedures, deadlines, and requested remedies.

Ideally, both teams should work from a single case file that clearly connects the facts, financial figures, and relevant legal provisions.

Practical Steps to Improve Coordination

• • Appoint an internal person responsible for managing the dispute.

• • Collect the decision and supporting documents in one organized location.

• • Prepare a schedule identifying each disputed amount and the reason for the disagreement.

• • Reconcile the figures against tax returns, invoices, and accounting records.

• • Identify the legal and accounting questions requiring further analysis.

• • Review the objection memorandum before submission.

• • Retain a copy of the application, attachments, and proof of submission.

This approach helps reduce errors and improves case management, particularly when the company is dealing with multiple claims simultaneously.

8. Mistake Seven: Failing to Plan for the Stages Following an Objection

A company may focus on submitting its initial objection without preparing for the possibility that the objection will be rejected, some requests will not be accepted, or the dispute will proceed to another stage.

It is important to understand the available procedural route for the specific decision. In zakat and tax disputes, further review or proceedings before competent committees may be available under the applicable rules. Customs disputes may follow a different route depending on the nature of the decision, the alleged violation, and the competent authority.

Not all decisions follow the same sequence of procedures, and the requirements for moving to the next stage may differ.

How Can a Company Prepare?

The company should maintain a complete case file from the beginning, including:

• • The original decision.

• • The objection memorandum.

• • Supporting evidence and documents.

• • Relevant correspondence.

• • Any subsequent responses or decisions.

The company should also monitor new notifications, record their dates, and verify the deadlines and requirements for each subsequent step.

Where a dispute involves a substantial financial amount or complex technical issues, the available options should be assessed early rather than waiting until an important procedural deadline approaches.

9. When Does a Company Need a Lawyer for Tax and Customs Disputes?

Not every claim requires the same level of professional intervention. A straightforward accounting correction may be manageable through the available procedures, while disputes involving substantial amounts or complex legal issues may require specialized review.

Situations in which a company may benefit from a lawyer or specialist adviser include:

• • A substantial disagreement over the interpretation or application of regulations.

• • A decision involving significant financial liabilities or penalties.

• • An approaching objection deadline.

• • A dispute concerning product classification, customs valuation, or country of origin.

• • The rejection of a previous objection or an unexpected decision.

• • Multiple decisions or disputes involving several transactions.

• • The need to prepare a legal memorandum or pursue proceedings before the competent authority.

A specialist can review the decision and supporting documents, identify strengths and weaknesses, and explain available procedures and potential risks.

However, filing an objection does not guarantee that a claim will be cancelled or reduced. The outcome depends on the facts, available evidence, and applicable legal framework.

10. How Can Companies Reduce the Risk of Tax and Customs Disputes Before They Arise?

Preventive measures cannot eliminate every potential dispute, but they can help companies identify errors early and reduce their impact.

1. Review Tax Returns Before Submission

Verify the accuracy of the information and its consistency with accounting records, invoices, and supporting documents. Investigate unusual discrepancies before approving the return.

2. Organize Document Retention

A well-organized electronic archive enables the company to retrieve documents quickly during an inspection, when responding to requests for clarification, or when a dispute arises.

3. Update Internal Procedures

Monitor regulatory requirements applicable to the business and update accounting and commercial procedures in response to relevant changes.

4. Review Customs Transactions

Verify the accuracy of goods descriptions, classifications, origin documents, and valuation records. Seek specialist assistance for complex products or unusual transactions.

5. Train Employees

Training finance, procurement, import, and export teams helps employees understand their responsibilities and avoid mistakes caused by incomplete information or poor coordination.

6. Establish a Risk Register

Maintain a register of anticipated tax and customs risks, their likelihood, the employees responsible for monitoring them, and the preventive measures required.

7. Respond Promptly to Notifications

Review notices as soon as they arrive, identify the required action and deadline, and assign responsibility to the appropriate department. Do not allow notices to accumulate without review.

11. How Do Tax and Customs Disputes Affect Business Stability?

Disputes can affect a company’s available cash flow, particularly when they involve substantial amounts or require extended periods to resolve. They may also consume management and employee time, complicate financial planning, and increase the need to review contracts and commercial operations.

For import-dependent businesses, inadequate preparation for customs requirements may delay certain procedures or increase administrative costs, depending on the circumstances and applicable procedures.

Tax and customs compliance should therefore not be treated as an administrative task separate from business management. It is an integral component of risk management and internal controls.

The more organized a company’s records and procedures are, and the more clearly responsibilities are assigned, the better positioned it will be to identify errors, address them, and respond effectively to decisions requiring an objection or review.

12. Initial Steps When Receiving a Tax or Customs Claim or Decision

If a company receives a decision with which it disagrees, the following practical steps can help clarify its position.

Step 1: Read the Entire Decision

Identify the issuing authority, the subject of the decision, the amount demanded, the stated reasons, and any procedural instructions.

Step 2: Identify the Disputed Issue

Determine whether the disagreement concerns the underlying tax liability, a penalty, goods classification, customs valuation, or missing documentation.

Step 3: Review the Relevant Records

Compare the information in the decision against the relevant returns, accounting records, invoices, and supporting documents.

Step 4: Verify Deadlines and Requirements

Check the applicable objection period, submission method, and any conditions concerning payment or guarantees that may apply to the particular decision.

Step 5: Prepare the Objection

Present the disagreement in an organized manner, explaining the grounds, requested outcome, and supporting evidence.

Step 6: Retain Proof of Submission

Keep a copy of the application and its attachments, together with evidence of submission. Monitor subsequent responses and notifications.

These steps are general guidance only and do not replace a review of the specific procedures applicable to the disputed decision.

Conclusion: Protecting Your Company’s Interests Starts with Understanding the Decision and Acting on Time

Tax and customs disputes in Saudi Arabia require careful attention to facts, documentation, deadlines, and procedures. Neglecting any of these elements may weaken a company’s position, even when it has legitimate grounds for challenging a decision.

The most significant mistakes include missing deadlines, submitting vague objections, failing to organize supporting documents, confusing the underlying liability with penalties, overlooking technical issues, failing to coordinate between finance and legal teams, and neglecting to prepare for subsequent stages of the dispute.

The most effective approach is to assess each decision individually, identify its legal basis, gather relevant evidence, verify the applicable procedure and deadline, and seek specialist assistance when necessary.

Businesses may benefit from specialized legal advice to understand their available options, assess potential risks, prepare objections, and manage proceedings in accordance with the applicable laws and regulations.

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Suleiman Al-Omari Law Office

Lawyers and Sharia and Legal Consultants

Contact Number: +966 53 777 8130

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Legal Disclaimer

This article is intended for educational purposes and provides general information about tax and customs disputes in Saudi Arabia. It does not constitute legal, tax, or customs advice tailored to any particular case and should not be treated as a substitute for reviewing applicable laws, regulations, and decisions or consulting a qualified specialist where necessary.