VAT rates of goods and services - KSA

• Taxable and Non-Taxable supply
  • Exempt supply
  • Zero-rated supply
  • Standard-rated supply
• Out-of-scope supply
• Paying VAT on imports
  • Taxable imports
  • Exempt imports

Taxable and Non-Taxable supply

The supply of goods and services in Saudi Arabia is divided into taxable supplies and exempt supplies. Taxable supplies are further divided into zero-rated and standard-rated supplies. All goods and services bought, sold, or imported into the Kingdom are taxable unless they are specified as exempt. 

Exempt supply

Exempt supplies are not subject to VAT. Business owners dealing with exempt supplies are not eligible to collect VAT in sales transactions, and they cannot deduct the input VAT paid to their suppliers. This is the main reason that business owners involved in exempt supply are not liable to register for VAT (even if their turnover is above 375,000 SAR).

The following goods/services are exempt:

• Residential rent (leasing and renting residential property)
• Certain financial services

Zero-rated supply

Zero-rated goods and services are legally taxable but are taxed at a VAT rate of 0%. There is an important distinction between zero-rated and exempt goods: businesses involved in supplies of zero-rated goods/services will not be entitled to claim tax on their sales, but they can deduct their input VAT and claim refunds for the tax paid on purchases. However, businesses involved in exempt supplies can neither collect VAT on sales nor claim refunds on the tax paid on purchases.

The zero VAT rate will apply to certain goods and services, including: 

• Non-GCC exports

When businesses are involved in exporting goods or services to a destination outside the GCC, or to non-GCC residents, those export transactions will be considered zero-rated.

Transfers within the GCC will be given the same treatment as exports made to countries outside the GCC until the integration of the Electronics Services System is complete.

• International transport

Zero-rated services in the international transport sector include:

• International transport of passengers and goods 
• Vehicles and equipment used for international transportation 
• Services provided in connection to international transportation

For example, if Saudi Arabian Airlines offers both international and domestic transport, supply related to international flights will be zero-rated, whereas supply related to domestic flights will be taxed at the standard VAT rate of 5%. 

• Investment metals

For a transaction involving qualifying investment metals like gold, silver, and platinum (of 99% purity or higher) to be zero-rated, they must belong to either one of these categories:

• A producer or refiner’s original sale of investment metal 
• Any further sale of gold, silver, and platinum where the purity level remains 99% or higher

For example, a producer sells an amount of gold to a refiner, who splits it into two batches with different purity levels and sells it to two different manufacturers. The gold at 99% purity level will be sold in a zero-rated transaction, and the gold at a lower purity level will be sold at the standard tax rate of 5%. 

• Medicines and medical goods

Certain medicines and medical goods will be classified by the Ministry of Health (MoH) as zero-rated and will be listed under the MoH’s formulary drug list.

Let’s suppose that a pharmacy purchases and re-sells two different shipments of medicines, only one of which is listed in the formulary. The medicine included in the formulary list will be zero-rated, while the other medicine will be taxed at the standard rate of 5%.

Standard-rated supply

Goods and services that are not included in zero-rated or exempted sector will be grouped under the standard tax rate of 5%. Here are some examples of standard-rated supply:

• Food and beverages
• Private healthcare and educational services
• Local transportation
• Rent and sale of commercial buildings
• Sale of residential buildings

According to a recent announcement from ZATCA on VAT rate increase from 5% to 15%, new transitional guidelines have been introduced. These guidelines have been effective since 1 July 2020 and will be applicable on contracts and tax invoices.

Out-of-scope supply

When an overseas supplier or a non-registered supplier sells goods or services to a customer who is also overseas, then it’s considered an out-of-scope supply and no VAT is charged.

For example, manufacturer A, located in Hong Kong, sells food products to retailer B, located in London.These food products are then shipped directly from A’s factory in Hong Kong to B’s branch in London. These goods do not pass through Saudi Arabia, though the distributor is located in Saudi Arabia, so the sale of these food products is considered an out-of-scope supply.

There are three main scenarios where a supply is considered outside the scope of VAT:

• When the supply is made by a non-taxable person 
• When the supply is made outside the KSA
• When the supply is not made in the course of an economic activity. This includes certain government activities or supplies made with no economic benefit, as well as providing goods or services to a different department within your own business.

Paying VAT on imports

Imports are always taxable unless the product is otherwise specified as exempt.

Taxable imports

Both VAT-registered and unregistered businesses are required to pay VAT on imports, as described below: 

• Registered business

If a business is registered for VAT and is importing goods from a non-GCC country (or within the GCC, if it cannot prove that it already paid VAT), then the business is liable to pay VAT to the Customs Department upon the arrival of the imported goods to the KSA. Net importers can apply to pay import VAT to ZATCA in the same tax return as their other VAT. ZATCA will primarily approve larger-volume importers for this option. 

• Unregistered business

If an unregistered business imports goods worth more than 10,000 SAR from another GCC country and cannot prove that it paid VAT in the nation of origin, it is required to pay VAT to the Customs Department of the KSA. 

For VAT purposes, the value of imported goods into the KSA includes the value of the goods themselves plus any of the following that apply:

• Customs duties 
• Excise duties 
• Insurance duties 
• Freight duties
• Any other fiscal charges (except for VAT itself) 
• Any services incidental to the import of the goods (which are not included in the dutiable value) 

Exempt imports

The following imports of goods, which are not subject to customs duties, are exempted from import VAT: 

• Goods for diplomatic and military use
• Import of personal effects and household appliances being moved into the KSA 
• Import of returned goods
• Low-value import of personal items and gifts carried in travelers’ personal luggage, within the limits set by the Customs Department for relief from customs duties collection