Value Added TAX (VAT)
Value aaded tax is a tax percentage that will be added to a product and services prices. It is charged on value added at every stage of the supply chain, from production and distribution to the final sale of the product or service to the consumer.
How does VAT work in Saudi Arabia? VAT is an indirect tax targeting the final consumer of goods and services.
Companies registered in the Kingdom of Saudi Arabia must collect value-added tax on sales of goods and services and then remit it to the Zakat, Tax and Customs Authority after deducting the tax they paid on purchases of goods and services. The tax rate in the Kingdom of Saudi Arabia is 15%. The tax paid to the seller resulting from the purchase of raw materials is known as input VAT. Once the company sells the finished product, the customer will pay an additional 15% VAT on top of the selling price of the product. The tax paid by the customer is known as input VAT.
What will be the rate of VAT?
VAT will be applied at the rate of 15% to most goods and services. The rate structure under VAT will broadly be as follows:
Taxable @ 15%
Most goods and services, such as food and beverages, commercial sale and rent of property, etc.
Taxable @ 0%
Includes supply of medicines and medical equipment specified by the Ministry of Health and the Saudi Food and Drug Authority (SFDA), supply of gold and silver for investment purposes provided they are at least 99 percent pure and tradable in global markets, exports outside the Gulf Cooperation Council (GCC)
Includes financial services such as dealing in money or securities, providing credit or credit guarantee for customers, and life insurance and reinsurance contracts, renting of residential property
Out of scope
Services provided by government agencies as public authorities, such as the issuance and renewal of passports and driving licenses, public education, public healthcare, etc.
How frequently should VAT returns be filed?
Type of business
Frequency of Return filing
Sales & supplies exceeding SAR 40 million
Sales & supplies Less Than SAR 40 million
the Filing of VAT return and payment of tax will be due within a month after the end of a month/quarter .
For businesses in Saudi Arabia, this is the time to step up and get familiar with the provisions of VAT and prepare accordingly. From 1st January, 2018, beginning from the task of maintenance of transaction records as per VAT rules to issue of VAT compliant invoices and filing of accurate returns by the due date, everything has to be compliant with VAT rules and regulations. Businesses that have, till now, maintained manual records of their transactions will find it very difficult to continue the same under VAT.
Let us list down, broadly, the activities that every business has to perform under VAT:
- Ensure books of accounts until 1st January, 2018 are up to date, as registration under VAT is applicable based on businesses' annual taxable supplies
- Educate employees, vendors, and customers about VAT and its impact on each of these stakeholders
- Review business processes and policies with respect to pricing, procurement, invoicing, logistics, etc. to align with VAT rules and regulations
- Maintain accounts and records and issue invoices in the prescribed manner and format
- Furnish information for the filing of returns in an accurate manner on a monthly/quarterly basis (as applicable)
- Correct calculation of tax due and an input tax deduction and payment of tax due on a monthly/quarterly basis (as applicable)
Businesses eligible for VAT in Saudi Arabia
Any business with operations in Saudi Arabia, and the value of taxable supplies surpassing SAR 187,500 but not surpassing SAR 375,000 in the initial 12 months or expect it to surpass in the next 12 months, are eligible for VAT registration.
VAT registration in Saudi Arabia
To registers a business in Saudi Arabia, follow the below mentioned process:
- Register for Tax Identification Number (TIN)
- Login to the GAZT portal
- Select the option VAT registration from the dashboard
- Provide the details and documents for finishing VAT registration.
What are Taxable and non-taxable supplies under KSA VAT Saudi Arabia
Standard-rated supplies: All products or services delivered in Saudi Arabia are eligible for 5% VAT unless they are marked as exempt or zero-rated. Some instances of standard-rated supplies contain:
- Food and beverages
- Private healthcare and educational services
- Local transportation
- Rent and sale of commercial buildings
- Sale of residential buildings
Exempt supplies: Goods and services that are specified as exempt will not have to pay VAT. Some of the examples of exempt goods and services are:
- Residential rent (leasing and renting of the residential property)
- Specific financial services
Zero-rated supplies: Zero-rated supplies consist of a 0% VAT rate and include:
- Non-GCC exports
- International transport
- Medicines and medical goods
- Investment in certain metals like gold, silver or platinum
Keeping track of each compliance activity, preparation of records, returns, paying taxes on time, etc. will require a considerable investment of time, employees and energy to do these tasks manually. It is, hence, very important for businesses to evaluate the various software available and select an appropriate software that will ease the compliance activities and leave you with enough time and resources to focus on your business.
For tax practitioners also, this is a crucial period to learn, understand and prepare for VAT and the compliance activities which will arise with the implementation of VAT. It is important for them to prepare themselves, their teams as well as their clients for VAT.
While history is being made in Saudi Arabia with the implementation of VAT, this is the opportunity for businesses to capitalise on the new business environment under VAT through adequate preparation and planning.
What is the deadline for registration under VAT in Saudi Arabia?
The deadline for registration under VAT is 20th December '17.
How does VAT work in Saudi Arabia?
VAT in Saudi Arabia refers to the indirect tax that consumers pay on specific goods and services. When a VAT registered business sells a product or service, consumer need to pay 5% VAT.
From when will VAT be applicable in Saudi Arabia?
VAT will be applicable from 1st January, 2018.
Who is exempt from VAT in Saudi Arabia?
The following are exempted from VAT:
- Residential rent (leasing and renting of residential property)
- Specific financial services