Value Added Tax (VAT) is one of the most prominent tax Laws implemented in the Kingdom of Saudi Arabia, and it is a key concern for both individuals and Companies. Many ask: Is VAT imposed in Saudi Arabia, and how should it be applied?
In this article, we outline the most important details related to VAT, including its definition, application mechanism, exemptions, penalties, and the role of law firms in assisting clients with compliance.

What is Value Added Tax (VAT)?
Value Added Tax (VAT) is an indirect tax imposed at a rate of 15% on most goods and services that are supplied or imported within the Kingdom.

This tax is characterized by its application at every stage of the supply chain, starting from production, through distribution, and up to the final sale of the goods or services.

The tax applies to:

• Companies and commercial, industrial, agricultural, professional, and service establishments.
• Individuals who engage in economic activities with the intention of generating income.

Certain cases, as specified in the law and explicitly detailed in the regulations, are exempt from VAT.

Legal Basis for VAT Implementation

The Saudi VAT Law is governed by clear regulations that ensure transparency and fairness. Key principles include:

1. Taxpayers must calculate, collect, and remit VAT to the Zakat, Tax and Customs Authority (ZATCA).
2. Mandatory registration before charging or collecting VAT.
3. VAT applies fairly to every stage of production or distribution.
4. Input tax already paid can be reclaimed under specific conditions.
5. Compliance with tax neutrality to preserve fair competition.
6. All goods and services are subject to VAT unless officially exempted.

Steps for VAT Registration
Registration can be completed electronically through the official website of the Zakat, Tax, and Customs Authority for both establishments and individuals by following the steps below:

For Establishments:

• Log in to the Authority’s website and access the Beneficiary Account.
• Navigate to the “General Services” tab.
• Select the “VAT Registration” option.
• Complete the registration form.
• A notification and the VAT certificate will be sent upon completion of the application.

For Individuals:

• Registration is optional for those whose annual revenues exceed SAR 187,500 but are less than SAR 375,000.
• Log in to the Authority’s online portal.
• Go to the “E-Services” section.
• Select the “Value Added Tax” tab.
• Choose to register as a natural person for VAT.
• Complete the registration form.
• A notification and the VAT certificate will be sent upon completion of the application.

How VAT is Calculated

• Between companies: VAT is added to the selling price, collected by the supplier, and the purchasing company can reclaim it as input tax in its VAT return.
• For the final consumer: VAT is added directly to the final price, and the consumer bears the full cost with no refund option.

Supplies Exempt from Value Added Tax (VAT):
According to Article 29 of the Executive Regulations of the VAT Law, the following supplies are exempt from VAT:

• Supplies of financial services.
• Supplies related to the lease of a residential property or the license to occupy it.
• Supplies related to real estate transactions.
• Supplies subject to the zero rate.

Tax Declaration
Taxpayers or their authorized representatives must submit a tax declaration to the Authority no later than the last day of the month following the end of the tax period to which the declaration relates. The Authority will perform a tax assessment for that tax period, and such declaration shall be considered an estimated declaration. In all cases, the Authority has the right to issue an assessment based on the best estimate of the correctly due tax for the relevant tax period in cases where the taxpayer is unable to submit the tax declaration, while the taxpayer remains obligated to submit the current tax declaration.

In addition to the information required under Article 40 of the Executive Regulations of the VAT Law, the Authority may request the approved taxpayer to disclose the following information related to the relevant tax period:

1. The total value of all supplies of goods and services subject to the standard rate and the zero rate made by the taxpayer, and the total output tax on such supplies.
2. The total value of all goods and services received by the taxpayer and the total deductible input tax.
3. The total value of all deemed supplies of goods and services.
4. The total value of all supplies of goods and services to the taxpayer for which tax is due under the reverse charge mechanism.
5. The total value of intercompany supplies made by the taxpayer.
6. The total value of tax due on imports declared by the taxpayer in their tax declaration, and the total input tax related to all goods imported by the taxpayer.
7. The total value of exempt supplies made by the taxpayer.
8. The value of any other supplies made by the taxpayer.
9. The value of any adjustments made to input tax in accordance with Articles 51 and 52 of the Executive Regulations of the VAT Law during that tax period.
10. Any corrections made to previous tax declarations through this tax declaration in accordance with paragraph 2 of Article 63 of the Executive Regulations of the VAT Law.

Penalties for Violations and Tax Evasion
The Saudi regulator has emphasized strict penalties to ensure compliance, including:

• A fine of up to three times the value of the goods or services involved in the evasion.
• A fine equal to 50% of the difference between the calculated and due tax when submitting an incorrect tax declaration, amending a tax declaration after submission, or submitting any document to the Authority related to the tax due that results in an underestimation of the tax amount.
• A fine ranging from 5% to 25% of the tax that should have been declared in case of late submission of the tax declaration.
• A fine of 5% of the unpaid tax for each month or part thereof for which the tax remains unpaid.
• A fine of up to SAR 100,000 for issuing a tax invoice without registration.
• A fine of up to SAR 50,000 for failing to retain tax invoices, books, records, and accounting documents during the period specified in the regulations. The fine applies to each tax period. The same fine applies in cases of preventing or obstructing the Authority’s employees or any of its staff from performing their official duties, or for violating any other provision of the VAT Law or its Executive Regulations.
• Doubling of the fine in case of repetition of any of the above violations within three years from the date the previous penalty decision became final.

The Role of Alsoaib & Partners in VAT Compliance

Dealing with VAT requires legal and accounting awareness to avoid errors or violations.
At Alsoaib & Partners Law Firm, we provide professional legal support through:

• Specialized tax advisory services.
• Assisting clients with registration and accurate VAT return filing.
• Reviewing invoices and records to ensure full compliance.
• Legal representation before authorities in case of disputes or violations.

 Conclusion:

Complying with VAT in Saudi Arabia is not optional but a legal obligation. Proper handling protects individuals and companies from penalties while fostering a stable business environment aligned with Saudi Laws