What is VAT in KSA?
Value Added Tax (VAT) is an indirect tax applied to most goods and services in the Kingdom of Saudi Arabia (KSA). The standard rate is **15%**. It is collected by businesses on behalf of the Zakat, Tax and Customs Authority (ZATCA).
VAT Registration Thresholds
Registration for VAT depends on your company's annual turnover.
Mandatory Registration:
Businesses resident in KSA must register for VAT if their total annual revenue from taxable supplies exceeds **SAR 375,000**.
Voluntary Registration:
Businesses can opt for voluntary registration if their annual revenue exceeds **SAR 187,500**. This allows them to reclaim VAT on their purchases.
The Mechanism of VAT
As a VAT-registered business, you will charge 15% VAT (Output VAT) on your sales. You will also pay 15% VAT on your business purchases and expenses (Input VAT).
You are required to file a VAT return (usually quarterly) with ZATCA. In this return, you will pay the difference between the Output VAT you've collected and the Input VAT you've paid. If you've paid more Input VAT than you've collected, you can claim a refund.
E-invoicing (Fatoorah)
A critical aspect of KSA VAT compliance is the mandatory e-invoicing system (Fatoorah). All VAT-registered businesses must issue and store electronic invoices that meet specific technical requirements set by ZATCA.
Phase 2 of the e-invoicing project requires integration of your invoicing system with ZATCA's platform. This is a complex technical requirement that must be addressed from day one.
Final Thoughts
VAT compliance in Saudi Arabia, especially with the e-invoicing mandate, is a serious obligation. Failure to comply can result in significant penalties. Using a compliant accounting system and seeking professional advice is essential for any business operating in the Kingdom.