We all see in our receipts an item of VAT in KSA (or VAT receipt), for example, when you fill up your car with fuel; But if you own your own business, are just starting out, or are considering starting a new business, do you understand VAT, and does it apply to you and your business? Here I put together a simple guide that explains what you need to know and how to start.
VAT definition
VAT is a tax on most goods or services provided in Saudi Arabia by businesses already registered for VAT.
In addition to businesses providing goods and services in the KSA, It may apply to certain goods and services that imported from countries outside the KSA and brought into the KSA.
To be able to charge this tax, you have to be VAT registered. value added tax registered means that you have told and signed up with HM Revenue & Customs and your business has been given its own VAT registration number.
The VAT registered, it means that when your business sells either a product or a service you will need to charge your customer
VAT at the current applicable rate (see later explanations about the applicable rate), whether your customer value added tax registered or not.
VAT register
The VAT register business, you can also get a refund of any value added tax charged when your business purchases a product or service.
If you registered for value added tax, you collect value added tax from your customers on the goods or services. You provide and recover the value added tax that your company pays when they buy any product or service.
You have to account for your value added tax to HM Revenue & Customs, usually on a quarterly basis, and it is the difference between your the VAT you have charged to your customers and the VAT your business is entitled to reclaim which determines. If you have a VAT liability.
If you are not registered for VAT, you will not recover the value added tax you pay for your business goods or services.
There are restrictions and rules that you have to comply with when reclaiming the value added tax on your purchases.
VAT Understanding
How do you know how much VAT to charge your customers?
value added tax rates set by the Government and there are currently (at the time of writing) three rates of VAT. The first being the standard rate (currently 15%). The second a reduced rate of VAT (currently 5%) and a zero rate of VAT .
Majority of goods and services charged at the standard rate of VAT. But there are some exceptions to this and some goods and services where you allowed to charge either the reduced rate of value added tax.
Such as domestic fuel and power, children’s car seats, installing energy saving materials and sanitary hygiene products or the zero rate of value added tax such as certain food products purchased (not eating out), books and newspapers public transport and children’s clothes and shoes.
Goods And Services Which Are Exempt From VAT
There are also some goods and services which exempt from value added tax or outside the KSA VAT system. Such as insurance, providing credit, membership subscriptions, services from doctors and dentists and some education and training items.
When you are starting out in business or your business is only small, you can choose whether you want to register your business for VAT.
You may need to consider any advantages and disadvantages of value added tax registered, such as the increase on your pricing.
How this may affect your customers and sales, as well as the amount of value added tax your business will reclaim to ensure that it is financially viable.
Additional bookkeeping
You may also need to consider the additional bookkeeping and accounting procedures which you will need to put in place to ensure that you comply and are able to submit your value added tax returns in a timely manner.
However, when your business has a turnover in the previous 12 months to go over a specific limit which set by the Government called the value added tax threshold or you think your turnover will go over this limit.
Turnover defined as your revenue or income that a company receives from its normal business activities. Usually from the sale of goods and services to customers and in the KSA revenue is referring to as turnover, so turnover is referring to your sales.
If you decide to register for value added tax, or have to register for value added tax you will need complete regular value added tax returns.
When completing your value added tax return you need to show the amount of value added tax charged on your sales/income which is knowing as output tax as well as the value added tax. You should pay on the business purchases which is knowing as the input tax.
If the amount of your output tax (value added tax charged on sales) is higher than your input tax (VAT paid on purchases) then you have to pay over the difference towns.
If the amount of your output tax (value added tax charged on sales/income) is lower than your input tax (VAT paid on purchases) then you can claim a VAT repayment on your return.
Conclusion
As well as the standard VAT accounting there also some special value added tax accounting schemes which offer a different way to account for value added tax that can save your business, time and money but these need to consider carefully.
As you would expect, your business will need to keep all sales invoices and business receipts and show an audit trail of its income as well as all value added tax receipts to support all your value added tax returns.
HMRC can at any time decide that they want to look at your supporting records and carry out an inspection in order for them to satisfy that your returns are correct.
VAT rules are quite complex and you may find that for individual cases you may need to seek further advice or clarification so go to PROTAX-KSA.
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