Perhaps one of the biggest reasons Filipinos and other expats choose to work and live in the kingdom, is its tax-free system, which was in full effect up until 2018. However, the government decided that the system can no longer support the nation the way it did for several decades already. And so, Saudi Arabia along with other Gulf countries have decided to adopt the value added tax (VAT), starting at 5%.
In this post, we’ll share everything there is to know about Saudi’s relatively new tax system. Keep on reading to learn more.
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Things to Know about Saudi Value Added Tax
A tremendous number of natural resources, including oil, gold, and natural gas, are found in the Kingdom of Saudi Arabia, which makes it a wealthy country. Its economic development has been linked to the availability of these natural resources in the country.
Foreign investors are still welcome in Saudi Arabia, despite the fact that it is an Islamic country. It will continue to support worldwide talent and investors, regardless of their religious or ethnic background.
Foreign investors can obtain the essential permits to establish their company in Saudi Arabia without the assistance of a local partner. They can also own a wholly owned subsidiary of the corporation.
As amazing as it may seem, there is a lot to learn about establishing a business in Saudi Arabia, and one of the most important things to understand is the concept of taxation, specifically the value added tax (VAT) system.
What is VAT?
Aside from being the first mandatory tax introduced in the country, value-added tax (VAT) is a type of tax that is levied on the sale of certain products and services. In every country, it is a vital component of the economy.
Despite the fact that VAT is a tax levied by the government on the sale of goods and services, it is also an indirect tax levied on consumers by the manufacturers of these goods and services.
This form of tax is levied at various stages of the manufacturing process of a product or the provision of a service. It is frequently used to describe both native and foreign goods. VAT registration is necessary for those who provide products and services to the public.
How Does the VAT System Work in Saudi Arabia?
A 5 percent VAT must be added to the selling price of any raw materials purchased by a Saudi Arabian-registered company. The merchant collects this additional tax and sends it to the government.
A VAT of 5% is added on the selling price of a product when it is purchased from a registered firm by a consumer or client.
What are the New VAT Rules in Saudi Arabia?
Mandatory – Corporations that made more than 375,000 SAR in taxable sales in the previous year must register and collect tax. Individuals with annual sales of more than one million Saudi Arabian Riyals (SAR) are required to submit VAT returns.
Optional – VAT registration is optional for companies with taxable sales between 187,500 and 375,000 SAR in the previous year. However, it only generates deliveries that are scored at zero.
VAT Rate in Saudi Arabia
Most products and services in Saudi Arabia are subject to the country’s standard VAT rate of 15%. This latest rate was imposed starting July 1, 2020. Here are some examples of taxed goods and services:
- Food and beverages – fast foods, dining out, basic groceries, etc.
- Public transportation
- Private healthcare services
- All types of insurance except life insurance
- Education services
Registering for VAT in Saudi Arabia
In order to be qualified for VAT in Saudi Arabia, a business owner must fill out a VAT application form. To register for VAT, follow these procedures.
1. Acquire a Tax Identification Number (TIN).
To obtain your TIN, you must submit the required information online to the tax authorities (GAZT). The following details must be provided:
- Name
- Physical address or place of business
- Email address
- Existing electronic identification number issued by the GAZT
- Commercial Registration number
- Value of annual supplies or annual expenses
- The effective date of registration
Once the GAZT officials have confirmed your registration, you will be issued a certificate of registration.
2. Access the GAZT website by logging in.
After you have obtained your TIN, you can complete the VAT registration process by connecting to the GAZT website.
Create a user account for yourself.
Then, from the Zakat and Tax Services card, select Entities Registration as the next step.
Click on the Continue button once you have finished completing the registration process. After that, you will be brought to a pop-up window where you can read the terms and conditions in further detail.
If you already have a TIN, you can select it from the drop-down menu on the following page. You can then enter the specifics of your TIN, such as its ID number, date of birth, and verification code, into the appropriate fields on the page. Afterwards, move on to the subsequent stage.
3. Provide business information and supporting documentation. 3. Provide business information and supporting documentation.
Before you can complete the registration procedure, you must first supply GAZT with the relevant information. This includes your company’s financial details, such as:
- Taxpayer details – Enter your tax ID (TIN), company registration number (CR), and business address. You must specify if your business exports or imports goods and services, as well as the IBAN and the date your business, became VAT-eligible.
- Financial details – Declare your company’s financial situation, as well as the actual value of taxable sales and costs from the previous year and estimated taxable sales and expenses for the next year. As proof, you must include supporting documents such as income statements, balance sheets, and custom reports.
- A financial representative for non-resident – Saudi citizens are exempt from this step. This section is just for non-KSA residents. In Saudi Arabia, a non-resident must provide details about their designated tax representative. Non-KSA businesses must provide the following information regarding their tax representatives: TIN (if applicable), ID number (such as a Saudi, Iqama, or GCC ID), contact number, and email address.
4. Complete the declarations.
Following the submission of business information, business owners must verify and confirm that all of the information and documents submitted are true and correct.
After you’ve double-checked the information, enter your name, ID number, and company title in the appropriate fields.
By using the submit button, you will send the form to the server.
The acknowledgement letter will be available for download, and you will be issued an application number as well.
Finally, the VAT registration process for your company has been completed! Congratulations on successfully completing the treatment.
Summary
While the introduction of VAT in Saudi Arabia has had a favorable impact, businesses must still take the required steps to prepare for the new tax regime. The purpose of this guide is to assist businesses in navigating the new legislation and making educated business decisions, and informing the general public, especially expats and overseas Filipino workers on what they can expect from Saudi’s taxation system.
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