VAT Services in Saudi Arabia – A Complete Guide for Businesses

Value Added Tax (VAT) has become a significant component of the tax landscape in Saudi Arabia, impacting how businesses operate and ensuring government revenue stability. As the Kingdom continues to diversify its economy under Vision 2030, understanding VAT becomes crucial for all commercial entities.

This blog aims to provide a comprehensive overview of VAT services in Saudi Arabia, helping businesses and entrepreneurs understand their obligations, registration requirements, and the professional services available to assist with compliance.

What is VAT in Saudi Arabia?

VAT is a consumption tax imposed on the value added at each stage of the supply chain. In Saudi Arabia, it is applied to the majority of goods and services, with businesses responsible for collecting VAT from customers and remitting it to the tax authorities. The tax system is designed to be neutral for businesses, allowing them to reclaim the VAT they incur on their inputs, thus only taxing the final consumer.

VAT services in Saudi Arabia introduced on January 1, 2018, as part of its effort to diversify revenue sources away from oil dependence. Initially set at 5%, VAT was introduced following a series of reforms aimed at broadening the tax base and enhancing the transparency and efficiency of tax collection. In a significant development, the VAT rate was increased from 5% to 15% effective July 1, 2020, marking the first major revision since its inception. These adjustments aim to support Saudi Arabia’s fiscal objectives and public service funding.

Who Needs to Register for VAT?

Businesses must register for VAT once their annual taxable supplies exceed SAR 375,000, or if they expect to exceed that threshold in the next 12 months. This includes both local sales and imported goods/services that reach the threshold. Entities below the threshold can opt for voluntary registration, which may be beneficial for reclaiming VAT on inputs or enhancing business credibility. Certain small businesses, religious, or charitable organizations may also be exempt or opt for simplified schemes.

Resident taxpayers are generally businesses physically established within Saudi Arabia, while non-resident taxpayers may include foreign entities supplying goods or services within the country. Different registration and compliance obligations apply to these groups, with specific rules governing non-resident VAT registration in saudi arabia.

How VAT is Calculated in KSA? 

Value Added Tax (VAT) is a type of tax that is added to the price of goods and services in Saudi Arabia. The standard VAT rate in KSA is 15%, and it's collected by businesses and paid to the government.

Let’s break down how VAT is calculated in an easy way:

Two Ways to Calculate VAT

There are two methods used to calculate VAT in KSA:

Adding VAT to a Price (VAT Exclusive)

This method is used when the sale price does not include VAT. You need to add VAT to find the final amount the customer should pay.

Formula:

• VAT Amount = Sale Price × (15 ÷ 100)
• Total Price Including VAT = Sale Price × 1.15

Example:

• If a product costs SAR 1,000 (excluding VAT):
• VAT = 1,000 × 15% = SAR 150Total = 1,000 + 150 = SAR 1,150

Removing VAT from a Price (VAT Inclusive)

This method is used when the price already includes VAT. You want to find out how much VAT is included and what the original price was before tax.

Formula:

• VAT Amount = Price × (15 ÷ 115)
• Net Price (Before VAT) = Price × (100 ÷ 115)

Example:

If the total price is SAR 1,150 (including VAT):

• VAT = 1,150 × (15 ÷ 115) = SAR 150
• Net = 1,150 − 150 = SAR 1,000
   

Timeline for Registration Application

• VAT registration must be filed within 30 days of meeting the mandatory registration threshold (SAR 375,000).
• Timely registration is critical to avoid penalties and enable VAT compliance.

Effective Date of Registration

• The effective date is generally the date when the business exceeds the registration threshold or chooses to register voluntarily.
• VAT collection and input deductions become effective from this date.
   

Key VAT Services in Saudi Arabia

• VAT Registration Support: Assistance with registration process and compliance.
• VAT Return Filing & Reporting : Preparing and submitting VAT returns electronically via ZATCA.
• VAT Accounting Services: Proper recording of VAT in financial statements.
• ZATCA Representation and Audit Support : Handling audits and official communication with ZATCA.
• VAT Health Check Services: Reviewing existing processes for VAT compliance.
• VAT Reclaim and Refund Assistance : Helping recover VAT on eligible expenses.
• VAT Consultancy : Strategic advice on VAT planning and compliance.
• Group VAT Registration: Registering multiple entities as a group for VAT purposes.
• VAT De-registration Support: Assisting in the process of deregistration when required.
• E-invoicing Integration: Implementing electronic invoicing systems aligned with ZATCA requirements.

List of Goods & Services – VAT Applicability

Sectors Subject to VAT

• Transport (public and freight)
• Real estate (development, leasing)
• Education (schools, universities)
• Healthcare (hospitals, clinics)
• Oil & Gas (upstream and downstream activities)

Zero-rated vs Exempt Supplies

• Zero-rated Supplies (0% VAT): Exports, international transportation, certain healthcare and educational services, and specific food items.
• Exempt Supplies: Financial services, insurance, and residential real estate (not subject to VAT but no input tax recovery).

List of Goods/Services at 0% VAT

• Exported goods and services
• International transportation
• Certain goods and services in the healthcare and educational sectors
• Basic food commodities
   

VAT Filing Frequency and Deadlines

VAT filing frequency in Saudi Arabia depends on the turnover of the business. VAT return filing frequency is determined by ZATCA based on business size and turnover specifics should be verified with current ZATCA rules as thresholds vary. The VAT return process is conducted electronically through ZATCA’s online portal, where businesses report their total sales, purchases, input tax recoveries, and VAT liabilities or refunds. Deadlines for submitting VAT returns are generally within 28 days after the end of each taxable period. Timely filing is crucial, as non-compliance can lead to penalties, including fines of up to SAR 50,000 for late submissions or non-registration. Additional penalties may apply for deliberate evasion or failure to meet obligations, emphasizing the importance of maintaining accurate and prompt VAT reporting.

VAT Invoice Requirements

In Saudi Arabia, VAT invoices are classified into standard and simplified formats based on the type of transaction and the customer involved.

• Standard VAT Invoice must include:
   
  • Supplier’s and customer’s name
  • VAT registration numbers
  • Invoice number and date
  • Description of goods or services
  • Subtotal
  • VAT amount
  • Total payable amount
     
• Simplified VAT Invoice is used for smaller transactions, but still requires:
   
  • Date of the invoice
  • Supplier’s name
  • Total amount (including VAT)

Saudi Arabia is also moving towards full e-invoicing in phases. Businesses must now follow digital invoicing rules, which include:

• Initial registration with ZATCA
• System integration
• Regular compliance checks

VAT Audit by ZATCA

ZATCA conducts VAT audits to verify compliance, assess accuracy of submitted returns, and prevent tax evasion. These audits can be triggered randomly, through risk assessment, or following suspicious activities. The assessment period can extend anywhere from 5 to 20 years, depending on the nature of the irregularities and legal provisions. Common reasons for audits include mismatched input and output tax declarations, inconsistent accounting records, or failure to comply with registration and reporting requirements. To prepare effectively, businesses should maintain accurate records, adhere to filing deadlines, and implement proper VAT procedures. Best practices for audit readiness involve regular internal reviews and consulting with VAT experts to ensure compliance.

VAT Deregistration

Businesses may apply for voluntary deregistration if their annual taxable supplies are below SAR 187,500, and they meet other deregistration conditions. Voluntary deregistration is often pursued by companies that no longer meet the registration criteria or wish to simplify compliance. When a business stops participating in taxable operations or doesn't comply with legal criteria, mandatory deregistration takes place. The process involves submitting the deregistration application through ZATCA, accompanied by supporting documents. Timelines vary, but businesses must complete the deregistration process promptly once the conditions are met to avoid penalties for continued registration.
 

Why Hire Professional VAT Consultants in KSA

Engaging professional VAT consultants helps businesses avoid costly errors and penalties associated with non-compliance. These experts stay up-to-date with constantly evolving regulations and ensure companies meet all legal obligations. Tailored VAT advice suited to specific sectors or business models can significantly optimize VAT recovery and reduce risks. Consultants also support businesses during audits, assist with complex transactions, and implement systems like e-invoicing, ensuring seamless compliance. Overall, professional VAT advisors are invaluable in navigating Saudi Arabia’s regulatory landscape and maintaining efficient fiscal practices.
 

Conclusion

Dealing with VAT services in Saudi Arabia can be tricky if you don't know what you're doing. You have to get invoicing right, prep for audits, handle deregistration, and make sure your reports are spot-on all the time. It's easy to mess up if you're not careful. That's where Reyson Badger comes into play.

Reyson Badger is a VAT consulting company that helps businesses like yours stay on top of things without risking penalties. We give you the help you need to keep your business running smoothly with the VAT rules in Saudi Arabia.