Value Added Tax (VAT) is crucial to performing business activities in Saudi Arabia, especially since its implementation in the Kingdom through the Vision 2030 programs for economic diversification to eliminate the single commodity dependence on oil as a source of income. For businesses in Saudi Arabia, the understanding of the regime and compliance with the VAT provision is not a matter of routine law compliance but has far-reaching implications for business continuation and avoidance of penalties. This blog will take you through the process for applying for VAT registration in Saudi Arabia, from determining your eligibility and step-by-step registration processes to finally providing some tips on managing your VAT efficiently.
Understanding VAT in Saudi Arabia
Value-added tax is a consumption tax levied on the value added at each stage along the supply chain, right from production to the final sale. In Saudi Arabia, the standard rate of VAT currently stands at 15%, increased from an initial 5%. Most goods and services are subject to VAT, with a few exemptions and zero-rated supplies that include some health, education, and international transportation services.
Registration for VAT applies to businesses whose turnover exceeds a certain threshold. The process involves registering for VAT collection, collecting value-added tax, and remitting the same to the General Authority of Zakat and Tax (GAZT), known today as the Zakat, Tax and Customs Authority (ZATCA).
In the case of Saudi Arabia, a business whose taxable supplies and imports exceeded, or are expected to exceed within the next 12 months, a level of SAR 375,000 must be compulsorily registered for VAT.
There is also voluntary registration for businesses that make and import taxable supplies over SAR 187,500. Smaller businesses can sometimes take some comfort from the fact that they will be able to reclaim VAT on purchases—i.e., it has a slight upside in terms of cash flow.
If your company attains or exceeds these thresholds, it becomes a legal requirement. Failure to register may lead to severe consequences, including fines or even closure of business.
Gatestone Group offers comprehensive support services to companies in Saudi Arabia, from VAT registration to VAT compliance.
VAT Registration Process
The standard VAT registration process identifies the taxable person by the general Tax Identification Number (“TIN”) issued by GAZT for all taxes. Taxpayers must have a valid TIN for VAT registration.
The following are the necessary documents that need to be gathered:
- Commercial registration certificate
- Articles of association
- National address certificate
- Bank accounts for the company
- Identification documents belonging to the company and its representatives
- Signed turnover declaration
Complete the Registration Form
Fill in the form with your business information, including the commercial registration number and national address.
Present the financial activities view of the expected turnover and the nature of your taxable supplies.
Attach supporting documents as part of your eligibility proof.
Before submitting the form, carefully review all your details. Upon the submission of this form, you will be provided with an acknowledgement of your application.
The VAT Registration Certificate
After reviewing the application, ZATCA shall issue a VAT registration certificate containing your VAT registration number. This number must be mentioned on all your invoices.
Post-Registration Compliance
Once registered, the businesses will have to observe several ongoing VAT compliances following obligations, inter alia, as mentioned below:
1. Issuing VAT-Compliant Invoices
Every supply is to be backed by a VAT-compliant invoice, having the VAT registration number mentioned and stating the amount of charging VAT along with other important details.
2. Filing VAT Returns
You must file VAT returns on both a quarterly and monthly basis, based on the approval received from ZATCA. It will contain your total sales, VAT collected, and VAT paid on purchases. The difference between VAT collected and VAT paid, the net VAT amount, must be paid to ZATCA.
3. Keeping Records
Businesses must retain records of all transactions for at least six years. These records are inclusive of invoices, receipts, and such documents related to a business’s tax responsibility.
The overall focus of Gatestone Group is to assist businesses in achieving VAT compliance. Our team, from recording your VAT return to managing payment, and any related correspondence, will offer tailored service in an efficient way regarding your VAT record returns and payment procedures.
Problems with VAT Registration
Among the many pitfalls to avoid during the registering for VAT, which might sometimes prove to be quite challenging to businesses not used to it. Some of these most common challenges include:
Exemptions and Zero-Rated Goods
Not all goods and services consume value-added tax. The common mistakes identified are to apply which items are zero-rated or are exempt.
Meeting Documentation Requirements
To be ready for VAT registration, all necessary documents need preparation and updating. When one has a complex business structure, this may take a considerable amount of time.
Timely Filing and Payment
Some penalties come with missing deadlines for filing VAT returns or paying the VAT liability. Therefore, it’s vital to have a proper mechanism for following the deadlines.
You can be confident handling these challenges through partnering with the Gatestone Group. Our crew will direct and assist with registration, meet regulatory requirements fully, and help avoid falling into common pitfalls.
The ZATCA considers and treats non-compliance with the VAT regulations seriously, under severe penalties. Such penalties include but are not limited to:
- Late Registration: SAR 10,000 for any business that fails to register for VAT as soon as it becomes eligible.
- Failure to submit the Tax Return: 5% – 25% of the value of the tax that would have had to be declared
- Failure to pay tax due: 5% of the value of the unpaid tax for each month or part thereof the Tax has not been paid
- Filing an incorrect tax return, amending a tax return, or filing any document resulting in a lower amount due: 50% of the value of the difference between the calculated tax and the tax due
Failure to Keep Records
Failure to keep records is subject to a fine of up to SAR 50,000.
Nonetheless, the key to averting these sorts of penalties is compliance, and the Gatestone Group will completely work for you when it comes to VAT services, helping ensure your business firm is fixated in the most compliant way concerning VAT.
Conclusion
VAT registration is the most vital part of doing business in Saudi Arabia, and compliance with the VAT regulation is essential for avoiding penalties and ensuring the smooth running of daily operations. Whether big corporations or not, the knowledge of VAT registration, how to meet continuous obligations, and solutions to typical problems become very important with the momentum in maintaining compliance.
You can, thus, make your way through the entire VAT registration process confidently with the help of this guide. But if the whole procedure starts to feel burdensome, reach out to organisations like the Gatestone Group. They offer tailored VAT solutions to help make the process easier with the confidence that your business will remain compliant and on the right track for growth.
FAQs
The mandatory VAT registration threshold is SAR 375,000 for taxable supplies and imports. Businesses with a value of taxable supplies and imports over SAR 187,500 may apply for voluntary registration.
It usually takes some days depending on how accurate the documents provided to ZATCA.
A fine may be imposed for not registering when the threshold requiring one to register has been crossed; this fine can pile up to SAR 10,000 for more serious and serial cases and substantial additional fines for non-compliance with other obligations stipulated under the VAT.
A taxable person must apply to deregister in the following circumstances:
- Cessation of carrying on of the economic activity
- Cessation of making taxable supplies
- If the value of the taxable person’s supplies falls below the voluntary registration threshold
