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KSA Guide: What is Impact of VAT on Trading Sector in Saudi Arabia

VAT in KSA
What Is The VAT Impact On Trading Sector In Saudi Arabia

Saudi Arabia is primarily an oil-based economy that relies largely on the country’s huge oil reserves. However, the International Monetary Fund had been asking them for a while to diversify their income a bit. On 1stJanuary 2018, the country witnessed the introduction of VAT in Saudi Arabia for the first time. This came particularly at a time when the oil prices were falling.

The implications of VAT for trading sector in Saudi Arabia

The implementation of a major tax like VAT in Saudi Arabia naturally left its impact across every sector. The trading sector witnessed the effects too. Much of the effects were directly on the import and export of goods. Regarding imports and exports, the VAT law stated the following:

  • While importing any goods in Saudi Arabia, a taxable person must pay the VAT, customs duty and other applicable taxes to the Saudi Customs. Although non-taxable persons have to pay VAT as well, there are a few exceptions.
  • Special taxation systems would be applicable for goods that are exported from Saudi Arabia for repairs or the completion of manufacturing and then re-imported. In this case, the VAT in Saudi Arabia would be based upon the value added to the goods.
  • While exporting goods to territory outside the GCC, the exporter would be able to enjoy a zero-rate.
  • In order to avail the zero-rated VAT benefits, the supplier must produce all the relevant documentation as evidence. These include transportation documentation, commercial documentation and export documentation.
  • A reverse charge mechanism would be implemented to charge VAT for trading sector in Saudi Arabia when a taxable person in the Kingdom receives services from a person who resides outside the GCC.
  • According to the place of supply rules, the VAT would apply to services taking place in Saudi Arabia.

What goods and services are exempt from the VAT for trading sector in Saudi Arabia?

Several imports and exports have also been exempted. Some of these are:

  • The import of gifts and personal items that travellers carry, as long as their value remains within the limits that the customs department would set.
  • Goods that would be utilised for military or diplomatic purposes
  • Returned goods
  • Household appliances that a person might be moving to KSA
  • Export of any goods and services

These exceptions would ensure that individuals or businesses would not be charged VAT in Saudi Arabia in an unfair manner. For instance, people moving to the KSA would not have to pay VAT for moving their belongings. The exemption for exports would act as an incentive for businesses to keep exporting items to other countries as it boosts the economy.

Which goods are standard rated under the VAT for trading sector in Saudi Arabia?

Other than the goods that have been specified as exempted or zero-rated, the standard VAT rate would be applicable. Some of the standard-rated goods and services under VAT in Saudi Arabia are:

  • Private educational and healthcare services
  • Food and beverages
  • Residential building sales
  • The sale and rent of commercial buildings
  • Local transportation

The VAT for trading sector in Saudi Arabia would act as a good way for the economy to keep earning revenues without burdening the people unnecessarily.
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