Following the approval of Unified VAT Agreement and its consequent implementation in January 2018, the Kingdom of Saudi Arabia (KSA) has revised the VAT rate to 15% on July 1, 2020 (General Authority of Zakat and Tax, 2020; Zakat, Tax and Customs Authority, 2021).

2. Basics of VAT in KSA

2.0 How does VAT work?

Figure 1: VAT collection process - ZATCA

Value Added Tax (VAT) is an indirect tax imposed at every stage in the supply chain, including the supplying of goods and services and their importation. The image above is an example of the process of VAT collection in the Kingdom of Saudi Arabia.

Taxable persons are expected to do the following:

· Collect VAT from their clients (equivalent to the specified percentage of each tax eligible sale)

· Pay VAT their suppliers (equivalent to the specified percentage of each tax eligible purchase)

2.1 VAT Rates

Goods and services have different VAT rates and treatments, which are as follows:

· Standard Rate: The standard VAT rate is 15% in the Kingdom of Saudi Arabia

· Zero-Rated: Specific goods and services are subject to a 0% VAT rate

· Exempt: Some goods and services are exempt from VAT

· Out of scope items: Supplies are kept out of the scope of VAT

2.1.0 Examples

Figure 2: VAT Rates in KSA

For more information refer to VAT Rules and Regulations Page on ZATCA’s website

3. VAT Registration in KSA

3.0 Mandatory

If the total sales of a resident during a 12-month period exceeds SAR 375,000, the mandatory registration threshold, that person must register for VAT.

3.1 Voluntary

If the total sales of a resident during a 12-month period exceeds SAR 187,500, the optional registration threshold, that person must register for VAT. Individuals may voluntarily choose to register for VAT to allow them to claim a refund of VAT charged on their supplies.

For more information refer to the VAT Grouping Guideline or to ZATCA’s website

4. VAT Return in KSA

4.0 What is VAT return?

VAT return is a document detailing the transactions (Input VAT) and purchases (Output VAT) of businesses (General Authority of Zakat and Tax, 2020).

Refer to Figure 1 for an example.

4.1 When should VAT returns be filed?

The annual taxable supplies of any particular business determine the time period and frequency of the filings.

Figure 3: VAT Return Frequency - ZATCA

4.1.0 Quarterly Filing Periods

· April to June (Deadline: 31^st July)

· July to September (Deadline: 31^st October)

· October to November (Deadline: 31^st January)

4.1.1 Monthly Filing Periods

The monthly filing period will begin on January 1^st, with a deadline on the last day of February. Then, the second filing period will commence on February 1^st, with a deadline on the last day of March. Subsequent months will follow the same structure, resulting in a total of 12 filings per year (General Authority of Zakat and Tax, 2020).

4.2 How are forms completed?

The forms are filed on the GAZT e-portal (See the image below).

Figure 4: VAT Return form - ZATCA

For more information refer to Simplified VAT Filing Guidelines

5. Penalties of VAT offences in the Kingdom of Saudi Arabia

Figure 5: VAT Offences

For more information refer to Rules and Regulations Page on ZATCA’s website

6. Tax Invoice

6.0 What is E-invoicing (Fatoorah)?

It is a procedure that allows for paper invoices and notes to be issued electronically permitting the exchange and processing of invoices, credit notes, and debit notes in a structured electronic format between a vendor and a consumer through an integrated electronic solution (Zakat, Tax and Customs Authority, n.d.).

6.1 What is an electronic invoice?

A tax invoice created through electronic means in a structured electronic format. A paper invoice converted through scanning or copying into an electronic format is not considered an electronic invoice (Zakat, Tax and Customs Authority, n.d.).

6.2 Key definitions

· Tax Invoice: Usually issued by a Business to another Business (B2B) and it contains all tax invoice elements

· Simplified Tax Invoice: Usually issued by a Business to a Consumer (B2C) and it contains all simplified tax invoice elements

6.3 E-invoicing Systems Examples

· Online cash registers

· E-invoicing software installed on a phone, tablet, or computer

· Cloud-based solutions

6.4 How does E-invoicing (Fatoorah) work?

E-invoicing was rolled-out in two phases in KSA. The details are as follows:

1. Phase 1:

· Enforcement Date: December 4^th, 2021

· Details: It was for all taxpayers, excluding parties issuing tax invoices on behalf of suppliers subject to VAT and non-residents. The issuance of tax invoices closely resembles invoices generated before this date. Additionally, it is issued through a compliant electronic solution and it includes additional fields depending on transaction type (Zakat, Tax and Customs Authority, n.d.).

2. Phase 2:

· Enforcement Date: January 1^st, 2023

· Details: The electronic solution requires integration with ZATCA’s systems and e-invoice has to be generated in the required format (Zakat, Tax and Customs Authority, n.d.).

6.5 Tax Invoice Example

Figure 6: Tax Invoice Example

6.6 Simplified Tax Invoice Example

Figure 7: Simplified Tax Invoice

For more information refer to the E-invoicing Page on ZATCA’s website

7. Index

1. Fatoorah

· The Arabic word referring to electronic invoices in the Kingdom of Saudi Arabia

8. References

1. General Authority of Zakat and Tax (2020). Simplified VAT Filing Guidelines. [online] Available at: https://zatca.gov.sa/en/HelpCenter/guidelines/Documents/Simplified%20VAT%20Filing%20Guidelines.pdf.

2. Zakat, Tax and Customs Authority (2021). Guideline VAT Grouping. [online] Available at: https://zatca.gov.sa/en/HelpCenter/guidelines/Documents/VAT%20Grouping%20Guideline.pdf.

3. Zakat, Tax and Customs Authority (n.d.). Value Added Tax (VAT). [online] Available at: https://zatca.gov.sa/en/RulesRegulations/VAT/Pages/default1.aspx.

4. Zakat, Tax and Customs Authority (n.d.). What is e-invoicing? [online] Available at: https://zatca.gov.sa/en/E-Invoicing/Introduction/Pages/What-is-e-invoicing.aspx.