VAT Registration for Businesses

As an economic driver, every business in KSA must know if they fall under the VAT registration threshold. VAT impacts every business industry in KSA, and understanding when a company must register for it and the rules they must abide by for registration is vitally important. This keeps your business operations running without any legal stumbling blocks. If a company fails to keep up with all the VAT registration implications, ZATCA initiates an inquiry or imposes penalties that influence their business operations, reputations, and even financials. Every business in KSA, whether they are just starting up or expanding their services, must not neglect VAT registration in Saudi Arabia.

How Does Value Added Tax Work?

Value Added Tax in Saudi Arabia is not directly imposed on businesses; it is actually an indirect type of tax that is levied on the supply of goods and services. VAT is subtracted at different stages of the supply chain from production to the last customer who purchases these goods and services. At the end, the final consumer has to bear the VAT expense; however, the company actually collects it and submits it to the ZATCA.

Businesses also have to pay the VAT on the goods and services; however, for some of the eligible VAT purchases, they can reclaim it, which is also known as input VAT. The VAT rate for most of the services in KSA is around 15%. That being said, many transactions are zero-rated, exempt, or outside the VAT scope depending on the nature of the transaction and applicable regulations.

Which Businesses Must Register for VAT in Saudi Arabia?

Not every business is required to register for VAT in Saudi Arabia; it depends on their annual taxable supplies value. So, VAT registration is divided into three categories, including:

1.    Mandatory VAT Registration

Any resident business whose taxable supplies exceed the amount of SAR 375,000 during the last 12 months or is expected to exceed SAR 375,000 in the following 12 months is required to register for VAT. Certain exempt supplies, out-of-scope supplies, and proceeds from the sale of assets are mostly not counted as taxable supplies and can be excluded while calculating the threshold.

2.    Voluntary VAT Registration

Many companies that do not surpass the mandatory threshold value can register for VAT voluntarily. However, their taxable supplies must still exceed SAR 187,500 worth during the previous 12 months. Businesses mostly register voluntarily since it benefits them to reclaim their input VAT on purchases and also boost their credibility across the legal bodies and stakeholders.

3.    Non-Eligible Businesses

Companies that have taxable supplies below SAR 187,000 do not qualify to register for VAT in KSA. They should keep a check on their taxable turnover if they are willing to register voluntarily.

The Registration Procedure of VAT in Saudi Arabia

The process of VAT registration in Saudi Arabia is completed digitally through ZATCA’s e-portal. As per the guidelines set by ZATCA, businesses can register using their website by following these steps:

1. Log in to the website: To log in to ZATCA’s website, you have to create a taxpayer’s account by providing your business details.
2. Select the VAT Registration Option: Find out the VAT registration service and pick the option of VAT registration.
3. Complete the Registration Form: After finding the form, provide all important details, including your official business name, economic activities, and other relevant data and supporting documentation
4. Submit your application: Review everything thoroughly and double-check every detail. Any incomplete or incorrect information may lead to legal consequences later; therefore, make sure that all the submitted information is correct and accounting records are accurate.
5. Get your VAT Certificate: Once you have completed all the registration steps and submitted your application, ZATCA will issue you a notification along with a VAT certificate and a VAT account number.

What Information Should Businesses Prepare?

Before starting the process of business registration in Saudi Arabia, companies have to get themselves ready by managing all their important documentation. This documentation generally covers the:

• Details of business registration and identifications
• All the information related to economic activities of a company
• Details of their current and expected taxable supplies
• Data related to accounting, banking, and contact information
• Any supporting documentation related to industry-specific guidelines

ZATCA may ask for any other legal documentation as well before presenting the VAT certificate. Hence, companies must have all the data archived to guard from any hindrance in the VAT registration process in Saudi Arabia.

Post Registration Requirements

To stay compliant with VAT, the process doesn’t just end at registration. Once the company is registered, the next thing to work on is staying compliant with the ongoing responsibilities. Which we will cover below:

1.    Start charging VAT on the Taxable Supplies

After the registration, businesses should start to charge VAT on their taxable supplies and services at the mandated rate. This is mostly fixed at a standard rate of 15%, which must be reflected in their routine invoices and must be integrated into their accounting systems correctly.

2.    Issue Compliant Tax Invoices

All VAT-registered businesses must issue their invoices for taxable transactions. If they fall under the mandatory e-invoicing category, they should integrate the ZATCA-compliant systems to generate and store e-invoices.

3.    Maintain Proper Records

VAT compliance doesn’t just limit to submitting compliant invoices, but it also requires proper documentation, maintenance, and archiving. Such as the data related to sales, purchases, input VAT, output VAT, tax invoices, credit, debit notes, etc. These documents also support any inquiries or external audits performed by the ZATCA.

4.    Filing VAT returns

VAT-registered companies have to file their VAT returns on time to ZATCA as per their filing frequency. Such as a business that have annual taxable supplies below SAR 40 million are generally asked to file their VAT returns every quarter. It’s important to verify with ZATCA about their assigned filing period and their deadline to stay lawful.

5.    Make the VAT Payments on Time

To make sure that you are performing law-abiding operations, it’s important to proactively prepare by calculating the accurate amount of taxes and not wait until the last minute. It’s important to make the VAT payments on time to avoid any unnecessary issues or fines.

Why You Must Register for Value Added Tax?

Registration for VAT in Saudi Arabia is more than just a regulatory need; it also benefits businesses in getting better control over their financials and improving their credibility. Likewise, it helps businesses in:

• Improved Tax Compliance to meet all the obligations of VAT laws and lower the chances of any non-compliance
• Better Control on Financials, which helps companies to have records maintained related to sales, purchase, and tax data.
• Improved Business Relationships with the clients and shareholders, as they can have a clear overview of compliant business operations and documentation
• Getting their Input VAT recovered on the applicable VAT transactions they make on their business expenses.

What are some VAT registration Mistakes that Businesses Make?

Although the VAT registration process in Saudi Arabia is not difficult, many small mistakes often lead to major problems in the future.  Such as:

• Waiting until the eleventh hour to get registered even if they know that they are about to approach SAR 375,000 in annual taxable supplies.
• Not accurately calculating the revenue by considering their total revenue as their taxable revenue. It’s important to consider which supplies fall under the taxable category for the right calculation.
• Not emphasizing future expectations if the company is about to exceed the threshold in the following 12-month period
• Considering every input VAT as recoverable, which is not the case, as only the listed supplies under the VAT recovery rules are considered as input VAT
• Not managing the invoice and financial data correctly, which results in incorrect calculations and incomplete invoices and also creates problems in actual record keeping.

What Businesses Must Do to Ensure Accurate VAT Registration in Saudi Arabia?

Businesses must make sure to take some optimal strategies and professional help while registering for VAT to avoid any legal mistakes. If you want to know if you are eligible to register for VAT, it’s important to:

• Calculate your previous year’s taxable supplies and estimate tax supplies for the coming year.
• Find out if the mandatory threshold of SAR 375,000 applies; you may also consider voluntary registration if your taxable supplies are below the threshold but above SAR 187,500
• Make sure that you have all the business information available, including legal paperwork and sector-specific files.
• If you are eligible to implement e-invoicing, it’s important not to ignore it as it is mandatory for all VAT-registered companies in KSA
• Watch out for the payment deadlines and start preparing early to prevent any last-minute hassle.

SS&Co Professional Guidance in VAT Registration Process

VAT registration is an important compliance necessity for Saudi Businesses. Many businesses find it demanding to manage all their documentation, calculate their VAT precisely, and apply for the registration process. SS&Co. VAT compliance services cover everything from the registration to staying compliant with applicable laws and the current changes. We also help you maintain the necessary records, facilitate you during the audits, and to correctly compute your VAT taxes.