Saudi VAT: How to Calculate VAT in KSA

Worried about compliance with Saudi VAT? The best accountants and tax professionals have got you covered!

KSA is a part of Gulf Cooperation Council (GCC). GCC countries agreed upon the introduction of VAT on the basis of common framework legislation. Therefore, VAT was implemented in KSA in 2018.

What is Value Added Tax VAT?

Value Added Tax (VAT) is an indirect tax levied on the supply and import of goods and services, with certain exemptions. It is implemented in over 160 countries worldwide.

VAT is a consumption tax that is collected at each stage of the supply chain—from the manufacturer purchasing raw materials to the retailer selling the finished product to the consumer.

In the Kingdom of Saudi Arabia (KSA), VAT was introduced in 2018 at a rate of 5% on taxable supplies and imports. However, in response to the economic challenges posed by the COVID-19 pandemic, the KSA government increased the VAT rate to 15%, effective from July 1, 2020.

Zero-Rate and Exempted Goods and Services

The standard VAT rate in Saudi Arabia is 15%. However, certain goods and services are subject to a reduced rate of 0%.

Zero-rated supplies include:

• Exports of goods or services outside the GCC (Gulf Cooperation Council) region, provided there is evidence of the movement of goods or services. Additionally, for specific reasons, exports to GCC member states may also be taxed at 0% for a transitional period.
• Services provided to non-GCC residents.
• Transportation services for goods or passengers outside Saudi Arabia, along with related transportation supplies.
• Supplies of investment metals.

There are also certain VAT exemptions, which come with no input VAT deduction rights. These exempt supplies include:

Exempt supplies are outside the scope of Saudi Arabia’s VAT law and are not subject to VAT. Businesses involved in exempt supplies do not collect VAT on sales, nor can they claim input VAT on purchases. The following supplies are exempt under KSA VAT:

• Issuance or transfer of money or securities
• Credit services
• Operation of current, deposit, and savings accounts
• Financial instruments
• Shariah-compliant Islamic finance products
• Interest on loans, credit, or debt securities
• Life insurance
• Leases of residential real estate (excluding hotel or similar short-term rentals)

Transitional Provisions for Applying 15% VAT

Following the VAT rate change in Saudi Arabia, there was potential for confusion regarding the correct tax rates for contracts and tax invoices issued before May 11th and completed during or after the transitional period. That’s why ZATCA issued transitional provisions.

VAT Calculation

In Saudi Arabia, there are two methods for calculating VAT: adding VAT to the sale price and excluding VAT from the sale price. Let’s explore each method:

1. Adding VAT to the Sale Price:

This method is used when the sale price does not include VAT. The following formulas can be used to calculate the VAT:

• VAT Amount = Sale price × (VAT rate / 100)
• Gross Amount = Sale price × (1 + VAT rate) / 100

2. Excluding VAT from the Sale Price:

This method is used when the sale price includes VAT. The formulas for excluding VAT are as follows:

• VAT Amount = Sale price × (VAT rate / (100 + VAT rate))
• Net Sale Amount = Sale price × 100 / (100 + VAT rate)

VAT Calculators

A VAT calculator is a tool that automatically adds or subtracts VAT from any sale amount, eliminating the need to manually apply the formulas for including or excluding VAT. Each VAT calculator has its guide on how to use it available online.

Benefits of a VAT Calculator:

VAT calculators are life savers. Among numerous benefits of VAT calculators, few are listed below,

• VAT calculators save time and effort. Manual calculation is no longer required to calculate VAT. You just have to input the price, and the VAT calculators instantly calculate the amount.
• Manual calculations are prone to more risks and errors. VAT calculators reduce the risks of errors and ensure accuracy.
• VAT calculators are designed to enhance transparency as they provide a clear breakdown between the original price and the VAT portion.
• VAT calculators are crucial for budgeting as they allow you to factor VAT into the budgeting either during planning of purchases or while setting prices for business.
• As mentioned before, VAT is calculated by two methods i.e. inclusive and exclusive. VAT calculators are capable of handling both scenarios—calculating VAT from a price excluding VAT or determining the original price before VAT from a price that includes it.

Outcome

While Saudi Arabia’s tax system has seen significant changes, ensuring VAT compliance doesn’t need to be a challenge. VAT calculators provide a straightforward and efficient solution for both businesses and individuals. These tools save valuable time and ensure precise calculations, minimizing the risk of errors that could result in penalties. Whether you’re a business owner calculating the final price with VAT for your products or a consumer planning a purchase, VAT calculators offer transparency and help you make informed decisions. As Saudi Arabia’s tax landscape continues to evolve, using VAT calculators is a smart way to maintain smooth operations and stay compliant.

SSCo KSA.

If you want to outrank your competitors in Saudi Arabia, it is crucial to opt for the best tax compliance and advisory services. At SSCO KSA, we help companies navigate the complex taxation landscape in Saudi Arabia. With the help of top accountants, we provide the best tax compliance and advisory services in Saudi Arabia.

To streamline the financial operations of your company, you should choose the top tax compliance and advisory services. As KSA continues to make its market competitive and inviting for companies, it is essential to be aware of tax compliance and advisory services. Note that there are no regional or local government taxes in KSA. On the other hand, if you are a foreign-owned entity in KSA, you must pay competitive tax. That’s why you must consult a tax compliance firm in Riyadh to simplify the taxation issues.