Value Added Tax has now become a part of Saudi Arabia’s business landscape. Hence, every businessoperating in the country needs to learn its basics and understand how it works to stay on the right side of the law. The first step to following this tax regime is VAT registration in Saudi Arabia. This gives businesses the power to charge VAT to the customers and recover VAT on certain business expenses, thus giving them a more reliable image in the market. Hence, knowing the need and process to register can make a big difference.
Understanding VAT in Saudi Arabia
VAT or Value Added Tax is an indirect tax levied on most goods, services, and imports. When a product or service is sold, VAT is added to it at the applicable rate. The business then collects this tax money and remits it to the government.
VAT Rate in the Kingdom of Saudi Arabia:
- Standard Rate: 15% applied to most goods and services.
- Zero-Rated: 0% applied to exports, international transport, and qualifying medical goods.
- Exempt: No VAT is charged on residential real estate rentals and specific financial services.
Initially, VAT was introduced in KSA at a rate of 5% in January 2018. However, it was increased to 15% in July 2020 to address the economic impact of the global pandemic and maintain consistent top-line growth.
VAT registration in Saudi Arabia: Who needs to register?
The Zakat, Tax and Customs Authority (ZATCA) has set specific revenue thresholds for businesses to determine whether they need to register for VAT or not. This decision solely depends on the annual value of their taxable supplies.
1. Mandatory VAT Registration:
- If the taxable supplies of the business exceed SAR 375,000 in the past 12 months or are expected to exceed this threshold in the coming 12 months.
- The business has a 30-day window to complete the registration process.
2. Sector-Specific Mandates:
The VAT registration is compulsory for specific sectors in Saudi Arabia –
- Suppliers of designated goods and services
- Companies importing goods into Saudi Arabia
- Businesses paying VAT on goods or services received from another entity
3. Voluntary VAT Registration:
- If the taxable supplies are between SAR 187,500 and SAR 375,000 in the previous 12 months.
- Beneficial for smaller businesses, allowing them to claim input-VAT on purchases, improve credibility, and prepare for future growth.
4. Exemptions/Special Cases/When Registration Is Not Needed:
Businesses that exclusively make “Exempt Supplies”, such as -
- Rental or sale of residential property
- Margin-based financial products, such as interest on loans, life insurance policies, etc.
- Government bodies
Note: If the business makes both taxable and exempt supplies and their portion exceeds the SAR 375,000 threshold, they need to register for VAT in Saudi Arabia.
5. Group VAT Registration:
Only related businesses qualify to form a VAT group. For instance,
- Two or more legal entities that are Saudi residents.
- Operating under common control.
At least one group member must meet the eligibility criteria for VAT registration in Saudi Arabia.
6. Benefits of forming a tax group:
- The group can file one consolidated VAT return.
- No VAT is charged on intra-group transactions, which helps improve cash flow.
- Once registered as a group, they will be treated as one taxable person for VAT purposes.
Documents required for VAT registration in Saudi Arabia
Businesses must submit a few basic business and identity documents to complete VAT registration through the ZATCA portal –
- Commercial Registration (CR) Certificate
- National ID (for citizens) or Iqama & Passport (for expats)
- Bank Account Details
- Address Proof / National Address Registration
- Description of Business Activities
- Financial Records of the past 12 months detailing the revenue or expected annual turnover
- Zakat or Income Tax Registration Details
- Authorized Signatory Details
- Import/Export License
- Additional Documents requested by ZATCA
VAT registration in Saudi Arabia: How to register?
Here’s an overview of completing VAT registration in Saudi Arabia -
Step 1: Create an Account on the ZATCA Portal
Start by creating a business account on the official ZATCA website by providing your Commercial Registration (CR) number, a valid mobile number, and an email address. Once these details are submitted, receive a verification code to activate the account.
Step 2: Log In and Select VAT Registration
Log in to your ZATCA account and visit the Tax Services section. Choose the correct type of VAT Registration form based on your business turnover.
Step 3: Enter Business Information
Enter the complete business details in the form, including:
- Legal business name
- Commercial Registration details
- Business address and National Address
- Nature of business activity
- Date of business commencement
- Estimated or actual annual revenue
Step 4: Provide Owner and Authorized Person Details
Provide details of the business owner or authorized signatory, including the National ID (for Saudis) or Iqama & Passport (for expatriates), Contact number and email address, and the applicant’s position in the company.
Step 5: Enter Financial & Bank Details
Enter the details of the business bank account, including the name of the bank, IBAN, and the name of the account holder. Declare the taxable sales, taxable expenses, and the appropriate category of supplies (standard-rated, zero-rated, or exempt). standard-rated, zero-rated, or exempt, assess the VAT obligations of the company correctly.
Step 6: Upload Required Documents
Upload clear copies of all required documents, including the Commercial Registration Certificate, National ID / Iqama & Passport, national address, bank account document, and additional documents based on the business activity.
Step 7: Review and Submit the Application
Before final submission, make sure to review every section carefully for any mistakes. Once everything is sorted out correctly, submit the application through the portal.
Step 8: Application Review by ZATCA
ZATCA reviews the application and verifies the uploaded documents. It may also request any additional details or document resubmission if required.
Step 9: Receive VAT Registration Certificate
Once the application is approved, ZATCA will issue the VAT Registration Certificate for the business containing the VAT Registration Number (VAT ID).
Once registered, businesses can legally charge VAT on taxable supplies, issue VAT-compliant invoices, and file VAT returns.
Post-registration responsibilities
Businesses registered for VAT in Saudi Arabia need to follow several ongoing compliance rules set by ZATCA to keep their business running smoothly -
- Issue VAT-Compliant Invoices: Businesses must issue proper VAT invoices mentioning the VAT registration number, the VAT charged, the date, and full details of the buyer and seller.
- Charging and Collecting VAT: Businesses are required to charge 15% VAT on applicable goods and services, collect it from customers, and pay it to ZATCA.
- Filing VAT Returns on Time: All VAT-registered businesses are required to file VAT returns monthly or quarterly, depending on their turnover, covering details like total sales, VAT collected, VAT paid on business expenses, net VAT payable, or refundable.
- Paying VAT to ZATCA: If the VAT return includes a payable amount, businesses must pay it within the deadline to prevent fines and additional penalties.
- Maintaining Proper Records: All VAT-related records, such as sales invoices, purchase invoices, bank statements, and VAT returns, must be maintained for at least 6 years.
- Updating Business Details on the ZATCA Portal: Businesses must update any changes in their address, activity, authorized signatory, or bank account on the ZATCA portal without delay.
Simplify your VAT registration with our support
If you want to avoid the hassle of dealing with the complex paperwork and technical steps on your own, connect with our experts who offer complete taxation services across the Middle East and can make your tax registration journey quick and easy. They will handle each step meticulously and lawfully so you can focus on your core business objectives.
Get in touch with our tax advisors today.
