VAT

According to ZATCA, Value Added Tax (VAT) is an indirect tax imposed on all goods and services that are bought and sold by businesses, with a few exceptions. VAT is imposed at each stage of the supply chain from the production and distribution to the final sale of the good or service. Saudi Arabia imposed VAT on January 1, 2018. VAT was introduced at a standard rate of 5%.

VAT in Vendors

You can configure the tax treatment for your vendors in Zoho Procurement. While adding vendors, you need to select the appropriate VAT treatment for each of them. To configure the tax treatment for your vendors:

• Go to Vendors on the left sidebar.
• If you’re creating a new vendor, click + New in the top right corner.
• To add the tax treatment for existing vendors, select the required vendor and click the Edit icon.
• Go to the Other Details section.
• Fill in the following details:
  • Tax Treatment
  • Tax Registration Number (TRN)
  • Source of Supply
  • Currency

Tax Treatment:

Tax Registration Number (TRN): The TRN is a unique 15-digit number assigned to a VAT registered vendor in Saudi Arabia. It will be displayed on all the transactions once you enter it here.

Source of Supply: The source of supply is where a transaction is considered to have occurred for VAT purposes. Source of supply is determined differently for goods and for services. For a vendor in Saudi Arabia, the source of supply will always be Saudi Arabia. For a vendor in the GCC, the source of supply can be any one of the following member states:

• Bahrain
• Kuwait
• Oman
• Qatar
• United Arab Emirates

Currency: If the vendor is dealing with a currency other than SAR, you can select their currency as well. The tax treatment of your vendors will affect your transactions in Zoho Procurement.

Profit Margin Scheme

The Profit Margin Scheme is a VAT calculation method for second-hand goods that prevents double taxation. Under this scheme, when you buy second-hand goods from an unregistered seller (vendor), you only pay VAT on the profit made from the resale.

Zoho Procurement helps you record transactions under the Profit Margin Scheme by applying VAT correctly on second-hand goods.

Eligibility: Under the Profit Margin Scheme, you can calculate VAT only on specific goods that meet certain conditions.

Enable Profit Margin Scheme

To record transactions under the Profit Margin Scheme, you must first enable it in your Zoho Procurement organization. To do this:

• Go to Settings in the top right corner of the page.
• Click Taxes under Taxes & Compliance.
• In the Taxes pane, click Tax Preferences.
• Check the Enable Profit Margin Scheme option.
• Click Save. Now, you can create transactions under this scheme in your Zoho Procurement organization.

Record Transactions Under Profit Margin Scheme

You can record the following transactions under the Profit Margin Scheme in your Zoho Procurement organization:

• Self Billed Invoices
• Bills
• Vendor Credits

You can record purchase transactions under the Profit Margin Scheme in two ways:

If your vendor is not registered for VAT: Create a self-billed invoice for the items you want to sell under the Profit Margin Scheme and include it in your invoice.

If your vendor is registered for VAT: Create a bill for the items you want to sell under the Profit Margin Scheme and include the same line item in an invoice.

To create a self-billed invoice:

• Go to Payables in the left sidebar and select Bills.
• Click the + New dropdown in the top right corner and select Create Self-billed Invoice.
• Enter the required details.
• In the Item Table, check the Eligible for Profit Margin Scheme option in the Tax column. Note that the tax for the line item will be Exempt.

• Click Save as Draft or Save as Open. The bill is now created under the Profit Margin Scheme. Similarly, you can also create Bills and Vendor Credits under the Profit Margin Scheme.

VAT in Transactions

Zoho Procurement has a wide range of purchase transactions. Each of these transactions are VAT-compliant, i.e. different VAT treatments can be applied on items while creating transactions for them.

• Purchase Orders
• Bills
• Recurring Bills
• Vendor Credits

Once you have set up the taxes, vendors, and items in your Zoho Procurement organization, you can start creating transactions. Purchase transactions in Zoho Procurement are affected by the:

• Location from where your business is operating
• Source of supply
• Vendor’s tax treatment

If you are a VAT registered person, here’s how your purchase transactions will incur VAT:

Case 1:

Let’s say you buy goods or services from a VAT-registered vendor in Saudi Arabia. The supply takes place within Saudi Arabia. In this case, the supply of goods or services can have any one of the following taxes:

• 15%
• 0%
• Exempt

Case 2:

Let’s say you buy goods or services from a vendor who is in Saudi Arabia and is not registered for VAT. The supply takes place within Saudi Arabia. In this case, the supply of goods or services is out of the scope of VAT.

Case 3:

Let’s say you buy goods or services from a vendor who is registered for VAT in any one of the GCC member countries other than Saudi Arabia. The supply takes place within Saudi Arabia. In this case, the supply of goods, goods associated with services / services associated with goods are out of the scope of VAT.

For services, reverse charge would be applicable along with the standard rate (15%).

Case 4:

Let’s say you buy goods or services from a vendor who is registered for VAT in any one of the GCC member countries other than Saudi Arabia. The supply takes place within the GCC. In this case, the supply of goods or services is exempted from tax. However, if you want to apply tax on the supply, you would need to create a new tax in Zoho Procurement for the relevant GCC member country and apply it in the appropriate transaction.

Case 5:

Let’s say you buy goods or services from a vendor who is in any one of the GCC member countries other than Saudi Arabia and is not registered for VAT in that particular country. The supply takes place within Saudi Arabia. In this case, the supply of goods, goods associated with services / services associated with goods are out of the scope of VAT.

For services, reverse charge would be applicable along with the standard rate (15%).

Case 6:

Let’s say you buy goods or services from a vendor who is in any one of the GCC member countries other than Saudi Arabia and is not registered for VAT in that particular country. The supply takes place within the GCC. In this case, the supply of goods or services are out of the scope of VAT.

Case 7:

Let’s say you buy goods or services from a vendor who is outside any of the GCC member countries. In this case, the supply of goods, goods associated with services / services associated with goods are out of the scope of VAT.

For services, reverse charge would be applicable along with the standard rate (15%).