Value Added Tax (or VAT) is an indirect tax which is imposed on all goods and services that are bought and sold by businesses, with a few exceptions. VAT is used in more than 160 countries around the world as a reliable source of revenue for state budgets.
VAT was introduced in Saudi Arabia on January 1st 2018.
The unified VAT agreement for the GCC treaty for a unified framework agreement to introduce VAT came into application. In line with the framework, Saudi Arabia introduced Value Added Tax (VAT) on 1st January 2018.
The introduction of VAT is a key part of the Kingdom's broader plan to improve fiscal sustainability and diversify government revenues. VAT will provide a stable and sustainable source of funds to support the country’s ambitious programme of transformation, including investment in economic development, diversification and public services. This will have real benefits which will positively affect the public and businesses of all sizes across Saudi Arabia.
All goods and services are subject to VAT. However, some goods and services are exempt. For further information on exempted items please read the list of goods and services subject to VAT on the following link
The VAT rate is set at a standard rate of 5%. Some goods and services are zero rated. For further information on zero rated items please read the list of goods and services subject to VAT on the following link
They are separate regimes. IFRS is an accounting standard. VAT is a tax scheme.
Overall, businesses will not pay higher pre-tax prices for input goods and services. Costs should not change because businesses are able to deduct their input VAT from their output VAT. The end-consumer, however, will not collect or be able to deduct any VAT. Therefore, end-consumers will initially experience a 5% price increase, compared to before the tax was implemented.
The General Authority of Zakat & Tax (GAZT) is the authority in charge for the implementation and administration of VAT in KSA. GAZT is responsible for the registration and deregistration of taxable persons for VAT, to administer VAT return filing and VAT refunds as well as to undertake audits and VAT inspection visits. GAZT also has the power to levy penalties for non-compliance with stipulated VAT regulations.
Any unregistered company that falls above the mandatory registration threshold of SAR 375,000 will be subject to fines and potential prosecution. GAZT is conducting extensive audit and compliance activities to minimize non-compliance. Additionally, GAZT in coordination with MCI are conducting nationwide campaigns to penalize and register non-compliant businesses.
Businesses that register for VAT will not suffer from a competitive disadvantage against their industry competitors who haven’t registered for VAT. As a VAT registered business, you are paying input VAT to your supplier and you are required to charge 5% VAT on taxable supplies made to your customers. Unregistered businesses will also pay input VAT on their supplies; however, they will not be able to claim back VAT or charge it to the customers, which would increase their cost base and reduce their margin. In the long run, they will be incentivized to register in order to ensure recovery of input VAT through charging of output VAT.
Any cost advantage for clients to purchase supplies from unregistered businesses will disappear in the long run as VAT registration will increase due to compliance activities and market forces that will trickle registration across the value chain.
You are encouraged to continually engage with VAT resources in order to stay up to date with the latest details on VAT introduction. All information will be available on this website. If additional questions arise, these may be addressed with a VAT customer service agent on the VAT social media channels, or on the dedicated VAT hotline.
For further detailed information please refer to the detailed technical FAQ page on the following link
Please note that in the event of any conflict between the content of this page and the provisions of VAT Law and VAT draft Implementing Regulations, the Laws and Regulations shall prevail.