Value Added Tax (VAT) was introduced in Saudi Arabia on 1 January 2018 at a rate of 5%. The standard rate increased to 15% from 1 July 2020. For most businesses in the Kingdom, VAT is now one of the most frequent compliance obligations they manage.
This article covers when registration is required, when voluntary registration is available, and how returns work once you are registered.
Mandatory registration
A business must register for VAT when the value of its taxable supplies in the Kingdom exceeds SAR 375,000 over a 12-month period, or is expected to exceed that amount in the next 12 months. The application should be made within 30 days of the obligation arising.
Taxable supplies include both standard-rated and zero-rated supplies. Exempt supplies, such as certain financial services and residential rent, do not count towards the threshold.
Voluntary registration
A business may choose to register voluntarily if its taxable supplies, or its taxable expenses, exceed SAR 187,500 over a 12-month period. Voluntary registration can make sense for businesses that pay significant input VAT, for example during a start-up phase, because registration allows that VAT to be recovered.
Filing frequency and deadlines
Monthly returns apply to businesses with annual taxable supplies above SAR 40 million.
Quarterly returns apply to other registered businesses, although they may choose to file monthly.
Returns and payment are due by the last day of the month following the end of the tax period.
Record keeping
Registered businesses must keep their invoices, accounting records and supporting documents for at least six years, with longer periods applying to some assets such as real estate. Since the introduction of e-invoicing, invoices must also be generated and stored electronically. Our guide to ZATCA e-invoicing explains those requirements.
Common VAT mistakes
Registering late. Businesses that grow quickly often cross the SAR 375,000 threshold without noticing. Monitor taxable supplies every month.
Confusing zero-rated and exempt supplies. Both carry no output VAT, but they affect input VAT recovery differently.
Claiming input VAT without a valid tax invoice. Input VAT is only recoverable with proper documentation from a VAT registered supplier.
Not checking supplier VAT numbers. Paying VAT to a supplier who is not registered creates a cost you cannot recover.
Ignoring imported services. Services bought from overseas suppliers may require you to account for VAT under the reverse charge mechanism.
How Zento can help
Zento Solutions helps businesses register for VAT, prepare and review returns, and set up processes that keep them compliant as they grow. Learn more about our VAT and ZATCA services or get in touch.
This article is general guidance and not tax advice. Confirm the current rules with ZATCA or a qualified adviser before acting.
