6 Rules related to Value Added Tax (VAT) every Saudi resident should know

The six nations of Gulf Cooperation councils (GCC) have imposed a 5 % Value Added Tax (VAT) on almost all the goods and services. The GCC countries have agreed to impose VAT on IMF recommendations to boost the regional growth and to be less vulnerable to oil price shocks.

The Value-Added Tax (VAT) has been levied in Saudi Arabia from 1st of January, 2018.  This has eventually ended the prolonged tax-free living in the Kingdom.  Here are some things you need to know about VAT!

1-Does one have to pay VAT on every purchase of Grocery? Well, no. There are certain items that are VAT free. According to the Undersecretary at Ministry of Finance, GCC countries have excluded 94 products from the implementation of VAT.

2-Do we have to pay VAT on airplane tickets? 5% VAT has been imposed on domestic tickets. However, international tickets are exempt from value-added tax in Saudi Arabia and all other Gulf countries.

3-Has VAT imposition increased the cost of living? Well with a 5 % tax imposition, things have got expensive. However, only VAT is not the contributor to the hike in prices. On Jan 01, 2018 the Saudi Government increased the Petrol Price by 100%.

Moreover, Electricity Tariff Rate was also increased by around 300% on that date. The story does not end here, the Ministry of Labor doubled the work permit levy fee of Iqama holders from SR 2,400 to SR 4,800.

All these factors contributed to overall inflation and increase in the cost of living in Saudi Arabia.

4-Are tourists liable to pay VAT? Well yes, tourist will not be exempted from Value added tax in the Kingdom. The goods purchased by them shall be not excluded from VAT zone.

However, if they purchase something to take it out of Saudi Arabia, pilgrims can take refund of VAT paid on the Airport. For example, if they buy Gold or electronic items to use it in their home countries, they will be able to claim a refund at the Airport.

5-Would other taxes be levied in the Kingdom of Saudi Arabia? One can and cannot expect other forms of taxes in near future to be imposed in Saudi Arabia. The UAE is exploring other tax options to collect more revenues.

However, the Ministry of Finance has assured that presently Suadi Arabia is not aiming at levying a Personal income tax. Other possible tax avenues are being analyzed and considered, but it is unlikely that they will be imposed in near future.

6-VAT on Rent: It has been declared by the official Value Added Tax (VAT) Twitter account that there will be no VAT on the House Rent. However, 5% VAT is imposed on commercial rent.

In order to avoid any problem afterward, they shall be equipped with technology and people capable of implementing the new tax structure. It should be kept in mind that the new tax policy is not a financial issue only. It is linked to all the departments of an organization.

When a company itself gets a good or service, it shall pay VAT for it. So, in order to demand the refunds, it should have all documents dealing with the VAT payment.

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Steve has been living in Saudi Arabia since 2013 and writing about Saudi rules, regulations, guides, and procedures since then.