VAT Registration Threshold Calculation in Saudi Arabia

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Yarab A, Feb-03-2020

In KSA VAT, the businesses having annual value of supplies exceeding SAR 375,000 should mandatorily apply for VAT registration within the prescribed deadline. Those businesses with an annual value of supplies/expenses/purchases exceeding SAR 187,500 but within SAR 375,500 can seek a voluntary registration. To know more on the Mandatory and Voluntary registration, please read 'Who should register under KSA VAT'.

While the guidelines on who should register under Saudi VAT is clear, it will be possible only after calculating the value of annual supplies made during the period. This is crucial because, not all supplies made during the period are considered in determining the annual value which should be considered for VAT registration.

From the viewpoint of a business, supplies can be primarily classified into the following:

  • Domestic supplies:Sales and purchase made within the KSA

  • Exports: Supply of goods and services outside KSA

  • Imports: Purchase of goods and service from outside KSA

For the purpose of levy of the VAT, the supplies in KSA VAT law are classified into the following:

  • Taxable supplies: Supplies on which standard rate of 5% VAT is levied and Input VAT recovery is allowed

  • Zero-rated supplies: Zero-rated supplies are taxable supplies on which VAT is levied at '0' percent and Input VAT recovery is allowed

  • Reverse charge supplies: Reverse charge supplies are those notified supplies on which the recipient or the buyer is required to pay the VAT to the government unlike forward charge, where the supplier will collect VAT from the buyer and pay to the tax authorities

  • Exempted supplies:Notified supplies which are exempted from the VAT, meaning 'NO' VAT will be levied and subsequently Input VAT recovery is also blocked

From 1st January, 2018 onwards, supplies made by the business need to be classified into any of the above-listed categories. The table below will help you to map your business supplies with the VAT supplies classification:

Type of VAT supplies

Type of Business Transactions

Taxable Supplies

All Domestic Sales and Purchases

Zero-rated Supplies

Exports and other notified supplies

Reverse Charge Supplies

Imports and other notified supplies

Exempt Supplies

All type supplies mentioned above can be exempted if it is notified as exempt in LAW and regulations

VAT Registration Threshold Calculation as per Saudi VAT Law

With the above understanding, let us understand the type of supplies which needs to be considered for calculating the VAT registration threshold.

Type of VAT supplies

Included or Excluded from VAT Registration Threshold Calculation

Taxable Supplies

Included but excluding Capital assets purchase

Zero-rated Supplies

Included

Reverse Charge Supplies

Included

Exempt Supplies

Excluded

From the above table, it is clear that except exempt supplies and taxable purchase of capital assets, the value of all other supplies should be considered in calculating the annual supplies value for VAT registration in Saudi Arabia.

Let us understand how to calculate the VAT turnover with an example.

Farhan Electronics is an electronic store in Riyadh, Saudi Arabia. They are engaged in supply of all types of electronic products. They also import certain products from other countries and supply it to the customers in KSA as well as export it to other countries. The following are the different types of supplies made by Farhan Electronics:

Type of Supplies

Amount in SAR

Taxable Supplies (Sale in KSA)

575,000

Exports (Zero-Rated Supplies )

100,000

Exempt Supplies

25,000

Imports

150,000

Reverse Charge Supplies

15,000

To determine Farhan Electronics eligibility for registration in KSA VAT, taxable supplies + exports (zero-rated supplies) + imports + reverse charge supplies should be considered. Exempt supplies will not be considered in arriving at the registration threshold. The registration threshold calculation for Farhan Electronics Trader is given below:

Type of Supplies

Amount in SAR

Taxable Supplies (Sale in UAE)

575,000

Exports (Zero-Rated Supplies )

100,000

Imports

150,000

Reverse Charge Supplies

15,000

Turnover for VAT Registration

840,000

The turnover of Farhan Electronics for VAT registration is SAR 840,000 which has exceeded the mandatory registration threshold of SAR 375,000. Thus, Farhan Electronics is required to register under Saudi VAT.