Tax return - definition, importance, and its applications.

A tax return is one of the essential elements of the modern tax system, as it represents the means through which taxpayers disclose their income or commercial and tax activities to the government. In Saudi Arabia, the tax return has become an integral part of the obligations of companies and individuals registered in the VAT system and other applicable taxes.

What is a tax return?
A tax return is an official document submitted by a taxpayer (person or establishment registered in the tax system) to the Zakat, Tax and Customs Authority, which includes details of financial transactions related to the tax due. This return is submitted periodically, according to the type of tax and the size of the business.

The importance of tax return

· Achieving Tax Compliance: A tax return helps ensure that companies and individuals comply with the applicable tax laws in the Kingdom.

· Protection of commercial activity: Submitting the declaration correctly and on time avoids fines and penalties.

·  Supporting the national economy: Taxes collected through tax returns contribute to the financing of public services and infrastructure.

·Increase transparency: Tax returns enhance trust between the government and the private sector by providing accurate financial data.

Types of tax returns in Saudi Arabia

· VAT Return: Registered companies must submit a periodic return showing the amount of tax collected from customers and the amounts that can be deducted.

· withholding tax return: relates to taxes withheld from payments to residents or non-residents.

· Zakat Declaration: It is submitted by companies and individuals who are subject to the Zakat system.

· Other declarations: include excise taxes and corporate taxes in some special cases.

How to file a tax return in the Kingdom

· Registration in the tax system: Eligible companies and individuals must register with the Zakat, Tax and Customs Authority.

· Collection of financial information: This includes tax invoices, expenses, and tax inputs and outputs.

· Preparing the tax return: This is done through the Authority's electronic portal, where the electronic forms designated for each type of tax are filled.

· Review and submit the declaration: Before submission, you must ensure that the data is correct to avoid errors and delays.

· Payment of dues: If there are taxes due, they must be paid within the deadline to avoid fines.

 

Example of a tax return
Suppose that Al Noor Trading is registered in the VAT system and provided taxable services during January 2024. The details are as follows:

· Total taxable sales: SAR 100,000.

· Tax collected from customers (15%): SAR 15,000.

· Total taxable purchases: SAR 50,000.

· Tax paid on purchases (15%): SAR 7,500.

Calculation of tax due: Output tax - input tax = 15,000 - 7,500 = 7,500 riyals.
In this case, the company is required to submit the tax return through the Zakat, Tax and Customs Authority portal and pay SAR 7,500 as due tax.

Penalties and risks associated with non-filing of tax return

· Financial Penalties: The Authority imposes fines for late submission of the declaration or providing incorrect information.

· Stop a business: Some businesses may have licenses suspended if they don't comply.

· Legal proceedings: Establishments can face legal penalties up to seizure of assets.


Tips for filing your tax return correctly

· Maintain accurate financial records to facilitate the return preparation process.

· Using modern accounting systems to track revenues and expenditures.

· Use a chartered accountant or tax expert to ensure full compliance.

· Check deadlines to avoid delays in submission.

Tax return is an important legal obligation that contributes to regulating the national economy and ensuring tax justice. The obligation to submit tax returns on time and correctly helps individuals and companies avoid penalties and take advantage of available tax rights. Therefore, it is essential that every taxpayer is aware of the requirements and procedures related to tax returns in the Kingdom of Saudi Arabia.