Value added tax in Saudi Arabia is charged at 15% and administered by the Zakat, Tax and Customs Authority (ZATCA). Most companies know the familiar side of it: tax added to sales and tax deducted on purchases. Where many of them stumble is the case in which no Saudi invoice arrives at all: buying a service from a supplier outside the Kingdom.
This article covers the basics briefly, then focuses on that case, because it is the one that causes the most confusion in practice.
How the tax works, in short
- A registered company charges VAT on its taxable sales. This is output tax.
- It deducts the VAT it paid on purchases related to its taxable activity. This is input tax.
- The difference is paid to ZATCA. If input tax exceeds output tax, the company holds a credit balance that it can ask to have refunded.
So, in principle, a registered company does not bear the cost of VAT; the burden passes to the final consumer. That rule changes in two cases covered below: exempt activities, and purchases whose VAT cannot be deducted.
When must your company register?
| Case | Threshold |
|---|---|
| Mandatory registration | Taxable supplies exceed SAR 375,000 over 12 months |
| Voluntary registration | Taxable supplies or taxable expenses exceed SAR 187,500 over 12 months |
The following are left out when testing the registration threshold: exempt supplies (such as certain financial services and exempt residential rent), supplies outside the scope of VAT in any GCC state, and proceeds from the sale of capital assets.
Returns and payment
- Period: monthly if annual revenue exceeds SAR 40 million; quarterly otherwise.
- Deadline: the return must be filed, and the net tax paid, no later than the last day of the month following the end of the period.
- Refunds: a credit balance can be claimed after filing the return, or at any time within the following five years.
Penalties vary by violation. The main ones are:
| Violation | Penalty |
|---|---|
| Failing to file the return on time | 5% to 25% of the tax the return should have covered |
| Failing to pay the tax on time | 5% of the tax due for each month or part of a month |
| Incorrect return that understates the tax | 25% of the difference; ZATCA may raise it to 50% or reduce it to zero |
| Failing to register within the specified period | SAR 10,000 |
Input tax: what can and cannot be deducted
A registered company may deduct the VAT charged on purchases made in the course of its activity. This covers VAT charged by a registered supplier inside the Kingdom, VAT the company accounted for itself under the reverse charge explained below, and import VAT paid on goods. The company generally needs a tax invoice, or customs documents showing the tax, or another document ZATCA accepts.
Input tax is not deductible in these cases:
- Expenses attributable to exempt activities.
- Expenses unrelated to the company's activity, including certain blocked categories such as entertainment and motor vehicles.
Where a company makes both taxable and exempt supplies: VAT directly attributable to taxable supplies is deducted in full, VAT directly attributable to exempt supplies is not deducted, and shared overheads are deducted proportionally, in line with the taxable share of activity.
Imported services: when no Saudi invoice arrives
When is a service treated as supplied in the Kingdom?
A non-resident supplier is one with no fixed establishment in the Kingdom, meaning no principal place of business and no other place where human and technical resources are permanently available to supply or receive services.
The general rule is that most services received by a taxable person in the Kingdom are treated as supplied in the Kingdom, even if the provider is abroad. Some categories follow special place-of-supply rules:
- Transport.
- Services related to real estate: the location of the property.
- Telecommunications and electronic services: the place of actual use and enjoyment.
- Restaurant, hotel and catering services: the place of actual performance.
- Cultural, artistic, sporting, educational and entertainment services: the place of actual performance.
ZATCA gives this example: a Saudi company sends employees to work in Amman and books them into a hotel there. The service is performed outside the Kingdom, so it falls outside the scope of Saudi VAT and the reverse charge does not apply.
The reverse charge
When a service is treated as supplied in the Kingdom and no registered supplier collects the tax, responsibility shifts to the taxable buyer, who is treated as having supplied the service to itself:
- It accounts for output tax at 15% on the invoice value.
- It deducts, at the same time, the corresponding input tax, provided the conditions for deduction are met.
- It reports the amount in box 9 of the VAT return, the box for taxable imports on which tax is accounted for under the reverse charge. Reporting is a condition for the matching deduction.
Three practical points follow:
- The foreign supplier does not issue a Saudi tax invoice for this purpose, and the buyer is not required to issue one to itself. The company should keep the supplier's invoice and contract; ZATCA accepts the commercial invoice as proof of the VAT calculation.
- The reverse charge applies to services that are taxable by nature. An exempt service, such as a loan from a non-resident, is not reported in the return.
- Output tax and the matching input tax are recorded in the same return (box 9), so the tax and its offset appear in one place.
What is the financial effect?
It depends on the company's position:
- A company whose supplies are all taxable accounts for the tax and deducts it in the same return, so there is usually no cash effect. Omitting the entry, however, makes the return incorrect and exposes the company to the penalties above.
- A company with exempt activities or a partial deduction rate bears the non-deductible part as a real cost. Following an example in ZATCA's guideline, suppose a company that can deduct only 70% of its input tax receives legal services from a foreign firm for SAR 100,000. The reverse charge produces SAR 15,000 of tax at 15%; SAR 10,500 can be deducted, and the company bears SAR 4,500.
What if your company is not a taxable person?
The reverse charge does not apply to someone who is not subject to VAT. But if the entity carries on an economic activity and is not registered, services it receives from a non-resident supplier count towards the mandatory registration threshold, and it may become obliged to register because of them. Conversely, if a non-resident supplies taxable services to a non-taxable recipient in the Kingdom, it is the supplier that must register and charge the tax.
The reverse charge is not withholding tax
This is one of the most common points of confusion. A single payment to a foreign supplier can trigger two entirely different taxes:
| VAT reverse charge | Withholding tax | |
|---|---|---|
| Nature | Consumption tax | Income tax on the non-resident supplier |
| Who accounts for it | The buyer in the Kingdom, on itself | The buyer in the Kingdom, out of the payment |
| Usual effect | Recorded and deducted in the same return | Withheld from the supplier and paid to ZATCA |
| Can a double tax treaty remove it? | No | It may reduce or eliminate it, depending on the type of payment and the treaty |
We cover withholding tax in a separate article, including rates, deadlines and the role of double tax treaties: Withholding Tax and Double Tax Treaties: What to Check Before You File the Return.
A checklist before paying a supplier outside the Kingdom
- Does the supplier have a fixed establishment in the Kingdom? If so, it may be registered and charge VAT itself.
- What type of service is it, and does a special place-of-supply rule apply?
- Is your company a taxable person, and what deduction rate does it have?
- Has the invoice value been entered in box 9 of the return for the correct tax period?
- Have you kept the supplier's invoice, the contract and evidence of the nature of the service?
- Have you reviewed the effect of the payment on withholding tax before paying?
This article is for general information and is not professional advice on any specific situation. The rules and rates above follow ZATCA's guideline issued in May 2026 and were reviewed on 8 October 2026; they may change after that date. If you need a specific case reviewed, you are welcome to contact us.