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The Kingdom of Saudi Arabia (KSA) is one among the 2 member States of GCC to implement VAT on 1st January, 2018. With the implementation of VAT, the businesses in KSA are expected to be VAT compliant by following the guidelines as prescribed in the Saudi Arabia VAT Law and the implementing regulations. The first step towards being VAT compliant is to register under VAT. This is because, only the registered businesses are allowed to charge VAT on their supplies, collect and remit it to the government.
Being VAT registered not only empowers the businesses to collect VAT but also enables them to recover the Input VAT (VAT paid on purchase/expenses) before remitting the VAT payment. However, this comes with an additional responsibility of ensuring compliance right from the recording of transactions till reporting of periodic statement to the authorities.
In Saudi VAT, not all businesses who are operating in Kingdom are required to register. The KSA VAT implementing regulations defines a threshold for VAT registration. The VAT registration threshold defined is on the basis of the annual value of supplies made or expected to be made by the business. Based on the threshold, VAT registration is classified as below:
Let us understand these in detail.
All the businesses who have a place of residence in the Kingdom and the value of taxable supplies exceeds SAR 375,000 in the preceding 12 months, should mandatorily register under Saudi VAT. Also, registration is mandatory for those businesses who anticipate that annual value of supplies to be made in the next 12 months exceeds the threshold of SAR 375,000.
Those businesses, who do not have a place of residence (Non-resident) in the state of KSA, will have to compulsorily register under VAT irrespective of the registration threshold, as soon as they make any supply for which they are liable to charge VAT. A Non-Resident should appoint a Tax Representative established in Saudi Arabia who is approved by GAZT.
Voluntary Registration is an optional registration for certain classes of businesses in the Kingdom. All those businesses who have a place of residence in the KSA and the value of taxable supplies exceeds SAR 187,500 but not exceeding SAR 375,000 in the preceding 12 months or anticipates it to exceed in next 12 months, are allowed to register under VAT. A business can seek voluntary registration not only on the basis of supplies it makes (outward supplies) but can also register, if the annual value of expenses/purchases exceeds the threshold mentioned above.
Here, the registration is optional for businesses and it is required, only if they choose to do so. However, being registered under Saudi VAT provides significant benefits for the businesses since it allows the deduction of input tax.
Businesses whose value of annual supplies made in the Kingdom exceeds the mandatory registration threshold but are exclusively engaged in zero-rated supplies, are exempted from the requirement of mandatory registration under VAT. However, they may choose to register voluntarily.
For businesses who are yet to register under VAT, at the end of every month should calculate the taxable value of supplies in preceding 12 months or estimate the value of supplies to be made in the next 12 months, so as to determine the registration eligibility. For the purpose of mandatory registration deadlines, the businesses are classified into 2 different category basis of the annual value of supplies. To know the last date for VAT registration in Saudi Arabia, please read ‘VAT Registration Deadlines’.