Saudi Arabia’s tax landscape has transformed significantly since the introduction of the excise tax in June 2017. Today, businesses operating in the food and beverage, tobacco, and related sectors face an increasingly strict regulatory environment administered by the Zakat, Tax and Customs Authority (ZATCA). Despite years of implementation, many businesses still make avoidable errors that result in heavy fines, audit scrutiny, and reputational damage.
At MFD Services, we work closely with businesses navigating excise tax Saudi Arabia obligations. This blog outlines the most common mistakes companies make and how to avoid them.
What Is Excise Tax in Saudi Arabia?
Excise tax Saudi Arabia is an indirect tax levied on specific goods deemed harmful to public health or the environment. It was introduced under the GCC Unified Excise Tax Agreement and is administered by ZATCA. The tax is levied at the point of production or importation, with the cost ultimately borne by consumers through higher prices.
The current taxable goods and their rates are:
- Tobacco and tobacco products: 100% of the retail selling price
- Energy drinks: 100% of the retail selling price
- Carbonated soft drinks: 50% of the retail selling price (note: carbonated beverages were removed from scope under the January 2026 amendments; businesses should verify current classification)
- Sweetened beverages: now calculated under a new tiered sugar-content model effective January 1, 2026, replacing the previous flat 50% rate
- Electronic smoking devices and liquids: 100% of the retail selling price
Businesses that produce, import, or release excise goods for consumption are required to register with ZATCA, submit excise tax returns on a bimonthly basis, maintain warehousing compliance, and keep thorough records. Despite these well-defined requirements, violations remain widespread.
Common Mistakes Businesses Make With Excise Tax Saudi Arabia
1. Failing to Register With ZATCA on Time
One of the most frequent and costly mistakes is delayed or missed registration. Any business that produces, acquires, or imports excisable goods and has annual turnover exceeding SAR 375,000 is required to register for excise tax compliance before commencing operations involving those goods.
Businesses that fail to register and comply with ZATCA guidelines are treated as tax evaders and are subject to penalties. Registration must be completed through the ZATCA portal, and businesses must also separately register their individual excise goods before releasing them for consumption. Many companies, especially new importers or those adding excisable products to their portfolio, overlook this product-level registration requirement, triggering compliance issues at the customs stage.
How to avoid it: Register with ZATCA before you begin importing or producing excisable goods. Do not wait until you are already trading. Engage a tax professional like MFD Services to ensure both entity-level and product-level registration is complete.
2. Misclassifying Products
Product misclassification is a persistent issue in excise tax Saudi Arabia compliance. The tax categories are more nuanced than many businesses assume. For example, certain beverages may appear to fall under the sweetened beverage category but are actually exempt, such as 100% natural fruit or vegetable juices (with no added sugars or sweeteners), baby formula, milk-based beverages with at least 75% milk content, and beverages prepared at restaurants for direct consumption.
Equally, with the 2026 amendments, sweetened beverages are now classified into four sugar-content tiers under a volumetric model, replacing the previous ad-valorem approach. Businesses that apply old tax rates or incorrect tier classifications will face ZATCA assessments and disputes.
How to avoid it: Conduct a thorough product classification review aligned with the latest ZATCA guidelines. If your product range includes beverages, obtain laboratory testing reports to accurately determine sugar content per 100ml, as required under the new framework.
3. Late or Incorrect Excise Tax Return Filing
Missing filing deadlines is one of the most direct ways to trigger excise tax penalties Saudi Arabia. ZATCA requires businesses subject to excise tax to submit their excise tax return on a bimonthly basis. Returns must be submitted by the end of the month following the relevant two-month tax period.
ZATCA has made clear that failure to meet deadlines results in fines ranging from a minimum of 5% to a maximum of 25% of the tax due. In addition, a late payment penalty of 5% of the unpaid tax applies for each month or part thereof that the payment remains outstanding.
What makes this mistake particularly costly is that even businesses with zero tax liability in a period must file a nil return. Many smaller businesses incorrectly assume that if they have no taxable activity in a period, no filing is needed. This is wrong and can trigger penalties.
How to avoid it: Set up automated reminders for each bimonthly filing deadline. Use the ZATCA digital portal for submissions and ensure Excise Tax Filing is completed accurately, even if the liability is zero. MFD Services can manage your filing calendar to eliminate missed deadlines.
4. Incorrect Retail Selling Price (RSP) Declarations
The excise tax Saudi Arabia calculation for most categories (except the new volumetric sugar tiers) is based on the retail selling price. Many businesses understate or incorrectly declare their RSP, either through genuine error or misunderstanding of what constitutes the correct price.
Under the 2026 amendments, ZATCA now has the explicit authority to reject a declared RSP and apply a Reference RSP if it considers the declared price inaccurate or inconsistent with market data. This creates significant back-tax exposure for businesses whose pricing declarations are not well supported.
How to avoid it: Ensure your declared RSP is accurate, consistent, and supported by documentation. Review pricing data regularly and benchmark against comparable market products to anticipate how ZATCA may apply a Reference RSP if it audits your filings.
5. Poor Record-Keeping and Documentation
Maintaining proper records is a foundational requirement of excise tax compliance, yet it is one of the most commonly neglected areas. ZATCA requires businesses to retain all relevant documentation for a minimum of six years from the date of the transaction. This includes import declarations, customs documents, product registration details, excise tax returns, and payment records.
During an audit, ZATCA may request full documentation going back years. Businesses that cannot produce complete records face penalties and may have tax liabilities assessed based on estimated figures, which are rarely favorable.
How to avoid it: Implement a structured document management system from day one. Digitize records and store them securely. Excise Tax Management is not only about timely filing it is equally about being audit-ready at any point.
6. Ignoring Regulatory Changes
Saudi Arabia’s excise tax framework is not static. The January 2026 amendments to the Executive Regulations of the Excise Tax Law introduced major changes, including the removal of carbonated beverages from the excise tax scope, the introduction of a new sugar-content tiered methodology for sweetened beverages, and new mandatory tax stamp requirements for tobacco and energy drinks. Businesses that fail to track and adapt to such changes will inadvertently apply wrong tax rates, leading to either underpayment (creating a liability) or overpayment (losing money unnecessarily).
How to avoid it: Subscribe to ZATCA’s official communications, monitor regulatory updates, and work with a compliance partner like MFD Services that stays current with all ZATCA announcements and translates them into practical action for your business.
7. Not Using the ZATCA Penalty Exemption Initiative
ZATCA has extended its Cancellation of Fines and Exemption of Financial Penalties initiative through June 30, 2026. Businesses with outstanding excise tax penalties, late filing fines, or delayed payment charges may qualify for full exemption from those fines provided they register, file all outstanding returns, and pay the principal tax due (or arrange an approved installment plan).
Many businesses with historic compliance gaps are unaware of this initiative or assume they do not qualify. Not taking advantage of this window leaves money on the table and leaves outstanding penalties compounding.
How to avoid it: Conduct an immediate review of any outstanding tax obligations. If you have past compliance gaps, contact MFD Services to assess your eligibility and guide you through the ZATCA portal process before June 30, 2026.
Why ZATCA Excise Tax Compliance Matters More Than Ever
ZATCA has significantly strengthened its enforcement capabilities in recent years. The authority now uses data analytics, digital tax stamps on tobacco and energy drink products, and cross-referenced declarations to identify non-compliant businesses. Audits have increased in frequency, and ZATCA’s intelligence-led approach means that inconsistencies between customs declarations, product registrations, and tax returns are quickly flagged.
Beyond financial penalties, serious non-compliance including deliberate underreporting or smuggling of excise goods, can attract criminal penalties, including imprisonment. The reputational damage of a ZATCA enforcement action can also impact supplier relationships, import licenses, and business continuity.
For businesses in the food, beverage, tobacco, and electronic cigarette sectors, Excise Tax Governance is not a back-office function; it is a strategic priority.
How MFD Services Can Help
At MFD Services, we offer end-to-end ZATCA excise tax compliance support, including:
- Entity and product registration with ZATCA
- Bimonthly excise tax return filing and deadline management
- Product classification reviews and sugar-content tier analysis
- RSP documentation and pricing support
- Record-keeping system setup and audit preparation
- Penalty exemption initiative eligibility assessment
- Ongoing monitoring of regulatory changes
Whether you are a manufacturer, importer, or distributor of excisable goods, our team helps you stay fully compliant and avoid the costly mistakes that continue to affect businesses across the Kingdom.
Conclusion
Excise tax Saudi Arabia is a compliance area where errors carry significant financial and legal consequences. From late registration and product misclassification to incorrect RSP declarations and poor record-keeping, the most common mistakes are largely avoidable with the right systems and expertise in place. As ZATCA continues to strengthen enforcement and the regulatory framework evolves, particularly with the 2026 amendments to sweetened beverage taxation, businesses cannot afford to treat excise tax compliance as an afterthought.
MFD Services is committed to helping businesses in Saudi Arabia navigate ZATCA excise tax requirements with confidence. Proactive compliance is not just about avoiding penalties it is about building a business that operates with transparency, credibility, and long-term resilience in one of the world’s most dynamic economies. For expert support with excise tax compliance, contact MFD Services today.
Frequently Asked Questions
- Who must register for excise tax in Saudi Arabia?
Any business that manufactures, imports, stores, or releases excisable goods for consumption in Saudi Arabia must register with ZATCA. This includes businesses dealing in tobacco products, energy drinks, sweetened beverages, and electronic smoking devices and liquids. Registration becomes mandatory when annual turnover from these activities exceeds SAR 375,000. - What are the penalties for late excise tax return filing?
Late filing may result in penalties ranging from 5% to 25% of the unpaid tax amount. Businesses may also incur an additional 5% monthly late payment penalty for each month or part of a month that tax remains unpaid, increasing the overall financial burden. - How frequently are excise tax returns submitted?
Excise tax returns are filed every two months. Businesses must submit returns and complete payment by the end of the month following the reporting period. For example, returns for January–February must be filed by March 31. - Which products are subject to excise tax and at what rates?
As of 2026, excise tax applies to tobacco products (100%), energy drinks (100%), electronic smoking devices and liquids (100%), and sweetened beverages under a sugar-based volumetric model at SAR 0.79/litre or SAR 1.09/litre. Carbonated beverages were removed from the excise tax scope. - Can businesses receive relief from excise tax penalties?
Yes. Eligible businesses may benefit from ZATCA’s penalty relief initiative, which offers exemption from certain fines if they register, submit outstanding returns, and pay tax dues or follow an approved installment plan. Tax evasion penalties and already-paid fines are not covered.