The VAT law was adopted in Saudi Arabia on 13 July 2017. The law is in line with the Unified VAT Agreement reached between six member nations of the GCC in January 2017. As per the agreement, each GCC Member Nation has to issue its own domestic legislation for the implementation of a VAT regime, provided that the common principles of the agreement are applied. All imports into and supplies of goods and services in Saudi Arabia are subject to VAT.

VAT has come into effect in Saudi Arabia from 1 January 2018. The Saudi Zakat, Tax, and Customs Authority (‘ZATCA’) has published several English-language guidelines as well as a general VAT guideline, which provides an overview of several areas of Saudi Arabia's new VAT regime. ZATCA has published a guideline on the definition and interpretation of economic activity, which is one of the fundamental and essential terms for the imposition of VAT in Saudi Arabia. Additional information can be found in Saudi Arabia's VAT website.

The standard VAT rate for the supply of goods and services is 5%.

Certain supplies are either zero-rated or exempt.

Zero-Rated Supplies Include:

Medications and medical equipment specified by the Ministry of Health and Saudi Food and Drug Authority;
Gold, silver, and platinum for investment purposes, which are at least 99% pure and tradable in the international market;
Exports, subject to certain exceptions (effective 18 July 2019) such as where the benefit of the service is directly received by the customer or any other person in the GCC region and the taxable person is not entitled to recover input tax on such supply;
Services supplied to non-GCC residents if the place of supply of services is in Saudi Arabia with certain exceptions;
International transport services of goods and people, the supply of qualified international transport vehicles, and related services, such as the supply of spare parts, maintenance, repair, etc.; and
Private education and healthcare services are partially zero-rated, i.e., service providers are required to issue invoices without VAT to Saudi customers and invoices, including 5% VAT to non-Saudi customers.

Effective 18 July 2019, any GCC country implementing VAT will not be treated as a GCC country for Saudi VAT purposes (i.e., intra GCC supplies are not considered as zero-rated) unless such a country implements an electronic services system.

Exempt Supplies Include:

Financial services, including:

interest or lending fees charged with an implicit margin, such as loans and credit cards, mortgages, and financial leasing;
transactions involving money and securities;
operation of current, deposit, and savings accounts; and
provision or transfer of a contract of life insurance or the reinsurance of a life insurance contract;

Rental of residential real estate;
Sale of residential, commercial, agricultural, or developed and undeveloped real estate property (effective 4 October 2020); and
Any activity exercised by a government body in its capacity as a public authority.

No VAT exemption is granted where consideration is payable in respect of the service by way of an explicit fee, commission, or commercial discount, including fees on money transfers.

Registration Threshold

All persons liable to register for VAT are required to register with the Zakat, Tax, and Customs Authority (‘ZATCA’) within 30 days from the date of issuing the law.

Companies including online store owners (whether activities are conducted via websites, social media platforms, messaging apps, etc.) are required to register for VAT if their annual taxable sales exceed SAR 375,000.

The tax code also permits voluntary VAT registration by companies (including online stores) having annual taxable sales between SAR 187,500 and SAR 375,000.

Group Registration

Two or more legal persons can register as a VAT group subject to the fulfillment of the following conditions:

Each group member conducts an economic activity and is a legal resident in Saudi Arabia;
50% or more of the capital of each legal person, or ownership or control of 50%, or more of the voting rights or value, in both or all of the group members, is held by the same person or group of persons, whether directly or indirectly (i.e., under common control); and
At least one of the group members independently meets the taxable sales threshold for VAT registration.

All members of a VAT group are jointly and severally liable for the VAT obligations of the VAT group arising during its registration.

Returns and Payments

Taxpayers registered for VAT including online store owners (whether activities are conducted via websites, social media platforms, messaging apps, etc.) are required to submit returns and make payments for each tax period by the last day of the month following the end of the tax period. The standard tax period is 3 months (quarterly). If the annual value of taxable supplies exceeds SAR 40 million during the previous 12 months or is expected to exceed the same threshold in the following 12 months, the filing and payment obligation becomes a monthly requirement.

Electronic Invoicing

On 4 December 2020, Saudi Arabia published regulations on the implementation of the e-invoicing (FATOORAH) process. The process aims at replacing the issuing of paper invoices, including other related documents, into an electronic process which allows preparation, exchange, processing of invoices in a structured electronic format. The e-invoicing regulations apply to resident taxpayers and third parties who are issuing tax invoices on behalf of resident taxpayers.

The first phase i.e., generation phase began from 4 December 2021, which includes e-invoice generation and storage requirements. The second phase i.e., integration phase, began on 1 January 2023, which is being rolled out in waves for targeted taxpayer groups and involves the introduction of technical and business requirements for electronic invoices and electronic solutions as well as the integration with tax system. The tax authorities have issued a simplified guide, FAQs, laws and regulations for e-invoicing which may be accessed here.

The 1^st wave of the integration phase began on 1 January 2023 for taxpayers with VAT taxable revenue that exceeded SAR 3 billion in 2021, with subsequent waves determined for taxpayers with progressively lower amounts of VAT taxable revenue. The integration phase is implemented as follows:

The 10^th wave is effective 1 October 2024 for taxpayers with VAT taxable revenue that exceeded SAR 25 million in 2022 or 2023;
The 11^th wave is effective 1 November 2024 for taxpayers with VAT taxable revenue that exceeded SAR 15 million in 2022 or 2023;
The 12^th wave is effective 1 December 2024 for taxpayers with VAT taxable revenue that exceeded SAR 10 million in 2022 or 2023;
The 13^th wave is effective 1 January 2025 for taxpayers with VAT taxable revenue that exceeded SAR 7 million in 2022 or 2023;
The 14^th wave is effective 1 February 2025 for taxpayers with VAT taxable revenue that exceeded SAR 5 million in 2022 or 2023;
The 15^th wave is effective 1 March 2025 for taxpayers with VAT taxable revenue that exceeded SAR 4 million in 2022 or 2023;
The 16^th wave is effective 1 April 2025 for taxpayers with VAT taxable revenue that exceeded SAR 3 million in 2022 or 2023 and
The 17^th wave is for taxpayers with VAT taxable revenue that exceeded SAR 2.5 million in 2022 or 2023. Such taxpayers are required to integrate their e-invoicing solutions with the FATOORA platform until 31 July 2025.

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