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:

Rate structure

Applicable for

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

Monthly returns

Sales &  supplies Less Than SAR 40 million

Quarterly returns

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:

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: 

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