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VAT Basics - KSA


VAT Basics - KSA

The Kingdom of Saudi Arabia introduced Value Added Tax (VAT) on January 1, 2018. VAT is an indirect tax imposed on all goods and services. This guide is meant to educate readers about VAT in KSA and familiarise business owners and consumers with the concepts involved.

This section will cover the following topics

What is VAT?

Value Added Tax is imposed on supplies of goods and services made inside the country, with a few exceptions. VAT is applied at different stages of the supply of a product or service. The General Authority of Zakat & Tax (GAZT) has a standard VAT rate of 5% for the supplies of most goods and services.

How the VAT mechanism works

A registered business in the KSA that procures raw materials for manufacturing a product will pay an extra 5% of VAT on top of the selling price. The seller will collect this 5% VAT and will account for it later to the government. 

Then the registered business will sell this manufactured product to a consumer, who’ll pay an additional 5% of VAT on top of the finished item’s selling price.

Let us look at an example.

At every step of the supply, VAT is imposed and the registered businesses receive refunds or tax credit for the VAT paid in the previous step. 

Businesses eligible for VAT

All businesses exceeding a revenue of 375,000 SAR through taxable sales in the past twelve months (or expected taxable sales in the next twelve months) must register, collect tax, and file returns for VAT. In 2018, businesses exceeding a revenue of 1,000,000 SAR through taxable sales in the past twelve months (or expected taxable sales in the next twelve months) should register, collect tax, and file returns for VAT.

Businesses with a revenue between 187,500 - 375,000 SAR through taxable sales in the past twelve months (or expected taxable sales in the next twelve months) can choose not to register for VAT. If a business has a revenue exceeding 375,000 SAR, but makes only zero-rated supplies, then VAT registration is optional.

VAT registration

Taxable and non-taxable supplies

Standard-rated supplies: All supplies of products or services made inside the KSA are eligible for the standard VAT of 5% unless they are marked as exempt or zero-rated. Some examples of standard-rated supplies include:

Exempt supplies: Goods and services that are specified as exempt are not subject to VAT. The supplier of exempt goods or services should not register for VAT, collect, tax or remit it.  Examples of exempt goods and services include:

Zero-rated supplies: Zero-rated supplies are taxed at VAT rate of 0% and include:

Check out our guide to VAT rates of goods and services to learn more.

Records and bookkeeping

Registered businesses and individuals in KSA should maintain their relevant records, bills, invoices, and all other documents related to a transaction for at least 6 years after the tax period in which the transaction occurred. The records should be stored inside the country as physical or electronic documents. This rule applies to non-resident taxpayers too.

Invoices

An invoice is a non-negotiable document which a business issues to its customers containing the details of the supply. In the KSA, VAT-registered business owners must issue their invoices by the fifteenth of the month following the month when the actual supply was made. 

Check out our VAT invoicing guide to learn more.

Credit notes

A credit note is a document sent by a business to its customer, informing them that they are eligible for credit. Credit notes can be issued:

Debit notes

A debit note is a document issued by a business to its customer, informing them that they owe additional money. Debit notes can be issued:

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