Value-added tax (VAT) affects nearly every sale made in Saudi Arabia, from local transactions to cross-border services. The country has a standard VAT rate of 15%, strict registration thresholds, and digital compliance rules.

Below, we’ll explain how the Saudi Arabia VAT rate works, including taxable goods and services, registration requirements, compliance obligations, refunds, and calculation.

What’s in this article?

• What is the Saudi Arabia VAT rate?
  
• Which goods and services are subject to VAT in Saudi Arabia?
  
• Which businesses are required to register for VAT in Saudi Arabia?
  
• How does VAT compliance work in Saudi Arabia?
  
• Can businesses claim VAT refunds in Saudi Arabia?
  
• How do you calculate VAT in Saudi Arabia?
  
• How Stripe Tax can help
  

What is the Saudi Arabia VAT rate?

The standard VAT rate in Saudi Arabia is 15%. Unlike some countries, Saudi Arabia doesn’t apply multiple reduced rates for essentials or specific industries. Instead, all supplies are categorized as standard-rated, zero-rated, or exempt. If a product isn’t specifically identified as zero-rated or exempt under Saudi VAT law, it’s treated as standard-rated by default.

Which goods and services are subject to VAT in Saudi Arabia?

Saudi Arabia applies VAT broadly, which means most goods and services are taxable unless the law explicitly excludes them.

Supplies generally fall into the following categories:

Standard-rated supplies

This is the default category and covers the majority of economic activity. Examples include retail goods, food and beverages, electronics, fuel, utilities, hospitality, professional services, private healthcare, private education, and domestic transportation. When in doubt, a supply should be treated as standard-rated unless legislation states otherwise.

Zero-rated supplies

The customer doesn’t pay any VAT for zero-rated supplies, but the supplier can still recover VAT incurred on related costs. Common zero-rated supplies include exports of goods and services, international transportation, investment-grade precious metals, qualifying medicines and medical equipment approved by regulators, and certain cross-border services consumed outside Saudi Arabia.

Exempt supplies

Exempt supplies aren’t subject to VAT, and businesses generally cannot recover VAT incurred on related expenses. This category includes most financial services, life insurance, and residential property leasing. While the exemption reduces the VAT charged to customers, it often increases costs for businesses due to the inability to reclaim input VAT.

Mixed supplies

Many businesses provide a combination of standard-rated, zero-rated, and exempt supplies. They must apply VAT correctly to each transaction and apportion their costs so that they recover input VAT on only taxable activities.

Which businesses are required to register for VAT in Saudi Arabia?

​​VAT registration in Saudi Arabia depends on several factors, including turnover, business preference, and the nature of supplies made.

Here are the rules:

• Mandatory registration: Any business with taxable supplies that exceed 375,000 Saudi riyals (SAR) in a 12-month period must register for VAT. This applies to both businesses established in Saudi Arabia and foreign entities with taxable presences in the country.

• Voluntary registration: Companies with taxable supplies between 187,500 SAR and 375,000 SAR can register voluntarily. This is often beneficial for growing businesses that want to recover VAT on expenses before they exceed the mandatory threshold.

• Non-resident businesses: These companies must register for VAT in Saudi Arabia, if they sell goods or services there and their customer isn’t registered for VAT. This is common for cross-border service providers and digital businesses that supply Saudi customers.

• Businesses that make only exempt supplies: Companies generally don’t register when their activities are entirely VAT-exempt, as they neither charge VAT nor recover input tax.

• VAT groups: Entities under common ownership or control can apply to register as a single VAT group. Group registration treats the group as a single taxable person and disregards VAT on transactions between group members, which simplifies compliance.

How does VAT compliance work in Saudi Arabia?

Once a business is registered, VAT compliance involves filing VAT returns, invoicing correctly, making VAT payments, and keeping records.

Here’s what you need to know:

VAT return filing and payments

Businesses with annual taxable supplies above 40 million SAR file monthly VAT returns. Those below this threshold must file quarterly. Returns and any VAT due must be submitted by the last day of the month following the end of the tax period. If VAT collected from customers exceeds recoverable VAT on expenses, the difference must be paid by the filing deadline. Late payments result in automatic penalties and monthly interest so cash flow planning is important.

Invoicing requirements

VAT-registered businesses must issue invoices electronically using compliant systems. Larger taxpayers are also required to integrate their systems directly with the tax authority under the phased e-invoicing program.

All tax invoices must include the prescribed details, including the supplier’s VAT number, invoice date, unique invoice number, VAT rate, and VAT amount. Invoices must be issued in Arabic, although bilingual invoices are permitted. Companies can use simplified invoices for low-value transactions, particularly in retail and at points of sale, but VAT requirements still apply.

Recordkeeping and audits

VAT records, invoices, and supporting documents must be retained for at least six years. The tax authority can request records or conduct audits, and digital reporting makes discrepancies easier to identify.

Penalties

Penalties apply for late registration, late filing, incorrect returns, missing invoices, or noncompliance with e-invoicing rules. In serious cases, fines can substantially exceed the VAT originally due.

Can businesses claim VAT refunds in Saudi Arabia?

VAT is designed to be neutral for most businesses. If recoverable VAT on expenses exceeds VAT charged on sales in a filing period, the difference can be refunded or carried forward as a credit. Refund requests are submitted through the tax authority’s online portal and might be reviewed before approval.

Businesses that make zero-rated supplies, such as exporters, often generate VAT credits. These companies can usually recover VAT on related costs, provided all zero-rated conditions are met. Non-resident businesses that aren’t registered for VAT might be eligible for refunds of Saudi VAT incurred on local expenses under the foreign business refund scheme. Eligibility depends on reciprocity, documentation, and minimum claim thresholds.

Valid tax invoices and accurate records are necessary for refund claims. Reviews can take several months, and many businesses choose to offset credits against future VAT liabilities, unless the amount is substantial.

How do you calculate VAT in Saudi Arabia?

VAT calculation in Saudi Arabia is straightforward in principle, but errors compound quickly. This is particularly pertinent when volumes scale or when you operate across borders.

Here’s what to watch for:

• VAT on sales: You calculate VAT by applying the 15% rate to the net value of a taxable good or service.

• VAT-inclusive pricing: When the price includes VAT, the VAT portion is calculated by dividing the total price by 1.15 and multiplying the result by 0.15. This method is common in customer-facing pricing and retail settings.

• VAT payable or refundable: For each tax period, VAT collected on sales is offset against recoverable VAT on expenses. A positive balance is payable to the tax authority, while a negative balance is treated as a credit or refund.

• Imports and cross-border services: Import VAT is usually paid at customs and reclaimed through the VAT return. Certain services purchased from abroad might require self-accounting under reverse charge VAT rules.

• Mixed activities: Businesses that sell both taxable and exempt supplies must carefully allocate input VAT. Only VAT attributed to taxable activities is recoverable, so you will need to accurately track expenses.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a sales tax registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, VAT, and goods and services tax (GST) on both physical and digital goods and services—in all US states and in more than 100 countries.

Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.