Advance Tax Payments Under Saudi CIT:The Quarterly Payment Mechanism

The advance payment obligation kicks in once a CIT taxpayer has earned income during a tax year and has a prior year CIT return from which the payment base can be calculated. A company in its first year of operations makes no advance payments — there is no prior year return. From year two, the clock starts.

Under Article 64 of the Implementing Regulations, advance payments are defined as payments made by the taxpayer during the tax year at prescribed early dates. Two conditions must be met for the obligation to arise: the taxpayer has earned income during the current tax year, and there is a prior year return from which the advance payment base is calculated.

The purpose of advance payments is straightforward: it accelerates tax collection during the year, reducing the gap between earning income and paying tax on it. For Saudi Arabia’s tax authorities, it improves revenue predictability. For taxpayers, it creates a mid-year cash outflow that must be built into treasury planning from the outset of operations.

The advance payment calculation has a specific formula. Start with the taxpayer’s CIT liability from the prior year’s return. Subtract the WHT that was withheld at source on the taxpayer’s income in that prior year (because that WHT already represents tax paid). The result is the prior year net tax liability. Each of the three advance payments is 25% of that figure.

In total, the three advance payments represent 75% of the prior year net CIT liability. The remaining balance — adjusted for actual current-year performance — is settled with the annual return filing within 120 days of the fiscal year-end.

The three advance payments are due on the last day of the sixth, ninth, and twelfth months of the taxpayer’s fiscal year. For calendar-year entities, this means 30 June, 30 September, and 31 December. For entities operating on a non-calendar fiscal year, the dates shift accordingly.

These are hard deadlines. A delay of even one day beyond the due date triggers the 1% per 30-day delay penalty on the overdue payment amount. The delay penalty begins to accrue on day one of the delay and accumulates for each full 30-day period. Delays of less than 30 days do not attract the penalty — but anything beyond 30 days from the due date does.

The advance payment mechanism creates a potential cash flow mismatch when a company’s current-year income is significantly lower than the prior year. A company that earned SAR 10 million in Year 1 but expects SAR 2 million in Year 2 faces advance payments based on the Year 1 liability — dramatically overstating the expected Year 2 tax.

ZATCA provides a formal reduction mechanism. Under Article 64(2)–(3) of the Implementing Regulations, ZATCA may reduce advance payments if it is satisfied that the current-year income will be at least 30% lower than the prior year. To request a reduction, the taxpayer must:

• Submit a written request to ZATCA explaining the reasons for the reduction
• Attach supporting documents demonstrating the income decline
• Have already made the first advance payment in full and on time — a reduction cannot be requested before the first payment is made

ZATCA must respond to a reduction request within 30 working days of receipt. If ZATCA approves the reduction, the remaining advance payments are adjusted accordingly. If ZATCA does not respond within 30 days, the taxpayer should follow up formally — the absence of a response is not a deemed approval.

The 30% income decline threshold is important — a modest dip in profitability does not automatically justify a reduction request. The expectation must be a meaningful, documentable decline.

When the annual return is filed and a balance is due, companies facing genuine cash difficulties can request payment in installments. This is a separate mechanism from advance payment reduction — it applies to the balance due at the time of filing the annual return (or any ZATCA assessment).

Under Article 65, an installment request must include: the amount of tax liability, the relevant financial period, reasons for inability to pay on time, supporting documentation, and a specific installment plan proposal showing the number of instalments, amounts, and any upfront payment. ZATCA has 30 days to respond.

Two important conditions apply to installment arrangements. The installment period cannot exceed the number of years for which the accumulated tax is due. And if the taxpayer misses two consecutive instalments, or if the arrangement becomes a risk to the Treasury, ZATCA can revoke the installment approval and demand immediate full payment of the remaining balance.

The 1% per 30-day delay penalty continues to accrue on the outstanding installed amount — installment approval reduces the pressure of immediate full payment but does not eliminate the financial cost of delayed payment.

If the prior year generated a tax loss — and therefore a zero CIT liability — the advance payment base is zero. No advance payments are required in a year following a loss year. This provides natural relief for companies in early operational phases or following a difficult trading year.

The mechanism is self-adjusting: the prior year return is always the base. A profitable Year 2 following a loss Year 1 means no advance payments in Year 2. But when Year 2 itself becomes profitable, the Year 3 advance payments will be based on Year 2’s liability — often a significant step up for companies that have turned the corner from early losses to steady profitability.

Do I need to make advance payments in my first year of operations?

No. The advance payment obligation requires a prior year return from which the payment base is calculated. In the first year of operations, there is no prior year return, so no advance payments are due. All CIT for year one is paid at the annual return deadline — within 120 days of the fiscal year-end. Advance payments commence from year two onward.

What happens if I make advance payments but then have an overpayment at year-end?

If advance payments exceed the actual CIT liability for the year, the taxpayer has an overpayment. A refund request can be submitted to ZATCA within five years of the relevant year. ZATCA must process the refund within 30 days of receiving the request. If ZATCA is late, the taxpayer is entitled to compensation at 1% per 30 days from the 30th day after submission. Refund requests cannot be processed if the taxpayer has unfiled returns outstanding.

What is the penalty for missing an advance payment deadline?

A 1% delay penalty applies on the overdue advance payment amount for each 30-day period of delay, starting from the due date. The penalty does not apply if the delay is less than 30 days. Beyond 30 days, the penalty accrues on the full overdue amount for each 30-day period until payment is made.

Can WHT credits reduce my advance payment calculations?

Yes. The advance payment base is calculated as the prior year CIT liability minus the WHT that was withheld on the taxpayer’s income in that prior year. This means that WHT credits already reduce the advance payment base — the advance payments are calculated on the net liability remaining after WHT credits, not on the gross CIT liability.

If ZATCA reduces my advance payments, am I protected from penalties if I end up underpaying?

A ZATCA-approved reduction of advance payments protects you from the advance payment delay penalty on the reduced amounts. However, if the actual year-end CIT liability turns out to be higher than the reduced advance payments suggested, the balance due at the annual return filing date is still subject to the standard delay penalty if not paid on time.