How to do VAT filing in KSA?

Value Added Tax is a type of tax that is applied to every product throughout its journey, from the factory floor to your front door. It’s not a tax you pay once but it’s the one that shows up every time value is added, no matter if something’s being made, packaged, or sold. Businesses act like tax messengers, collecting it from customers and paying it to the government on time with accurate calculations.

In KSA VAT was introduced on January 1, 2018, as part of the Gulf Cooperation Council (GCC) framework agreement. The main idea behind VAT implementation was economic growth while reducing dependence on oil. It was one of the major shifts that was made under Vision 2030 initiatives. Businesses that are registered for VAT are obliged to file VAT returns and require strict compliance to prevent any legal penalties. It is mandatory to have a thorough understanding of how VAT filling in Saudi Arabia is done to productively continue with business activities without running into legal troubles.

Understanding VAT filling in Saudi Arabia

Initially the VAT rate was 5% which was increased to 15% on 1^st July 2020, due to the economic impact of Covid-19. The implementation of VAT is looked after by the Zakat, Tax and Customs Authority (ZATCA), formerly known as the General Authority of Zakat and Tax (GAZT). Businesses operating in Saudi Arabia are mandated to comply their VAT obligation for smooth operations in KSA. That brings us to an important point: who should be VAT-registered? The answer is simple; it depends on business taxable turnover such as:

• Compulsory Registration: Any business whose annual taxable turnover exceeds SAR 375,000 must mandatorily register for VAT.
• Voluntary Registration: Any Business with Taxable turnover SAR 187,500 to SAR 375,000 can voluntarily register and claim VAT credits, this also fosters their trust among clients and stakeholders.
• Non-Resident Suppliers: Any entities that are not the residents of KSA and provide taxable goods or services in the region are also required to register for VAT regardless of their turnover and must appoint a tax representative.

After the registration, some of the critical steps included in filing VAT returns is to know the important deadlines, types of returns, compliance policies and how to make adjustments if something goes wrong. Professional guidance is needed during this entire process; businesses can hire expert accountants or partner with tax accounting services providers.

VAT Registration Process

To register your Business for VAT filing in Saudi Arabia, online registration platform through the ZATCA electronic portal is being used. You can complete this by taking the steps below,

1. Visit the website gov.sa
2. Sign up on ZATCA portal and use credentials to log in
3. Move to “Register for VAT” section
4. Provide all the necessary details like Commercial registration number (CR), Financial year-end, estimated taxable sales and purchases, Bank account details (IBAN) and Contact information (authorized signatory, address, phone, email)
5. Also upload the supporting and optional documents such as National ID of the authorized person, Commercial registration certificate and Company’s articles of association
6. Before submitting the application review it thoroughly to reassure that there are no mistakes.

After the approval of your registration, you receive a VAT certificate from ZATCA that includes your unique Tax Identification Number (TIN). This TIN number is essential for any further tax activity, and you must display your VAT certificate prominently at your place of business.

Legal Steps for VAT Filing in Saudi Arabia

For more efficient and accurate VAT filling it is important to take a step by step methodology by breaking down the entire process into small achievable actions.

1.     Collection and Organization of Financial Records

Before the filing process it is important to compile all the required documents such as sales invoices, purchase invoices, import and export documents, credit and debit notes, and custom goods declaration. These documents are compulsory for accurate reporting and to prevent legal hurdles.

2.     Correct Classification of Transactions

Each transaction should be categorized as per their eligible tax rate. Which is 15% standard rate for most of the goods and services, and zero percent for specific items such as exports, international transport, and medicines. However, Financial services, residential rentals, and certain education and healthcare services are exempt from VAT obligations. Transactions like salaries are not subject to any VAT.

3.     Accurate Calculation of VAT Payable and Refundable

Precise calculation of VAT is mandatory to safeguard from legal hurdles and capital losses; VAT is calculated through the following method:

Output VAT: VAT collected on taxable sales

Input VAT: VAT paid on purchases and expenses

VAT Payable = Output VAT – Input VAT

If Input VAT is more than Output VAT, businesses are eligible for a refund or carry forward the credit to future periods.

4.     Filing of VAT through the ZATCA portal

After the calculation of VAT, login to ZATCA portal through your created account, pick the VAT return section and choose the right Tax Method. Now fill in the necessary fields and review it to assure that all the filled spaces are accurate as per records. Now is the time to click and submit your return. You will receive a reference number after submission.

5.     Making the Payment

For payable VAT you have to generate a SADAD bill via the portal using the reference number. Payment can be made through online banking applications. Once your payment is made, keep the record safe for any future requirements.

VAT Filing Frequency and Deadlines

Timing is everything when it comes to VAT filing, and it depends on your business turnover. Businesses need to either file monthly or quarterly VAT returns at the given deadlines to stay compliant with ZATCA (Zakat, Tax and Customs Authority) regulations.

• Monthly VAT Returns – For High Turnover Businesses

Any business who earns more than SAR 40 million annually should file for VAT returns monthly, with higher revenues comes higher volumes of transaction data. This data should be analyzed thoroughly and organized with automation tools to accurately calculate the VAT. With monthly filings ZATCA stays updated with your legal tax records and keeps your financials in check. The deadline for monthly Tax return starts at the end of the month following the tax period. Such as for March’s VAT, filing should be done between April 1st and April 30th.

• Quarterly VAT Returns – For Smaller Businesses

Businesses with a turnover of less than SAR 40 million annually need to file VAT returns quarterly. It removes the constant reporting burdens on SMEs offering them more time to structure their financial data to ensure full compliance. Deadline usually starts by the end of the month after the quarter ends. Such as for Q4 (October–December), filing should be done between January 1st and January 31st.

Why Do Deadlines Matter?

No matter if you are filling monthly or quarterly it is crucial to not neglect the deadlines, in case of late filing, ZATCA takes legal actions like imposing hefty fines for up to SAR 50,000 and even cancelling business license in more critical cases. Therefore, to maintain a positive compliance record, business should not just emphasize accuracy but also on the last dates.

Common Mistakes to Avoid

ZATCA enforces strict legal penalties for miss calculation or late compliance, for example a fine of SAR 1,000 is imposed for failure to register on time, similarly 5% of unpaid tax is imposed for each month of late payment. To avoid these damages, businesses must not neglect these common mistakes.

• Late Filing: Skipping the deadline which results in automatic penalties.
• Inaccurate Data Entry: Incorrect number entrance can trigger audits and fines.
• Misclassification: Mixing up exempt and taxable supplies can mis-present your calculations.
• Failure to Retain Documents: Not keeping proper records makes audits complex
• Improper Handling of Imports: Import VAT must be reported accurately.

Hiring Outsourced Tax Consultants for VAT filing

Most of the times legal VAT complications occur because of less skilled teams who are not fully aware of VAT calculations, registration or filing process. To protect your company from all these problems, hiring an outsourced Tax consultant can be highly beneficial since they facilitate businesses with full and accurate compliance by keeping their accountants updated on the ever-changing VAT laws. Likewise, they have professional teams who have industry specific experience to more effectively calculate the right amount of tax. They also represent in front of tax authorities in case of any audits and hurdles.  Therefore, external accountants become an ideal choice for growing businesses with limited teams.

At SSCOKSA, we offer tax accounting services in KSA, where we understand your unique industry needs and assist you in registering, calculating and filing VAT with accuracy and on time. When you partner with SS&CO you unlock progressive planning that guard your assets and encourage your financial goals. Contact us today to learn how we can assist your business achieve sustained compliance and secure footing for your financial future.