Value Added Tax or VAT is an indirect tax imposed on the supply and import of goods and services, with specific exemptions in place. At every stage of a supply chain, VAT is paid and collected, from purchasing raw materials by manufacturers to retailers selling end products to the consumer.
Before we delve into the details of the VAT Calculator, let's get into a brief history of VAT KSA.
The tax history of Saudi Arabia can be divided into two parts:
Pre-Islamic Era: The formation of ZAKAT or similar practices can be traced back to the pre-Islamic era. Historical accounts suggest that pre-Islamic Zakat (or a form of wealth redistribution) might have had a custom of sharing the wealth with the financially weaker section and also groups like widows, orphans, and travelers. Zakat remains a cornerstone of Saudi Arabia's tax system. It's collected by ZATCA (Zakat, Tax and Customs Authority) and used for social welfare programs.
The Oil Boom & Shift in the 21st Century: For the majority of the 20th century, Saudi Arabia was heavily dependent on oil revenue. With huge oil reserves, the government didn’t have to levy any kind of tax on the citizens. With the arrival of the 21st century, a prominent change in Saudi Arabia’s tax scenario was noticed. To diversify the economy and reduce the dependency on oil, the government started introducing new taxes. A significant step came in 2018 with the introduction of Value Added Tax (VAT). Initially set at 5% in Jan 01 2018, it was later increased to 15% in 2020 to help the government navigate economic challenges.
ZATCA: The Modern Approach: ZATCA, the Zakat, Tax and Customs Authority, was formed by merging GAZT (General Authority of Zakat and Tax) and the General Customs Authority. The landmark decision was taken on December 4th, 2020, by the Council of Ministers. ZATCA's establishment signifies a significant step towards a more unified, efficient, and transparent tax and customs system in Saudi Arabia. One of the key initiatives is the implementation of e-invoicing. Here, the businesses are required to electronically generate, store, and submit invoices. This significant initiative was initiated to promote transparency, reduce errors, and streamline tax collection for both businesses and the government. E-Invoicing was introduced in 2 phases - Phase 1 which came into effect on Dec 2021 and Phase 2 which was rolled out in phases starting Jan 01 2023.
Phase 2: ZATCA Phase 2, also known as the Integration Phase, is a key part of Saudi Arabia's e-invoicing mandate implemented by the ZATCA. Enforced on January 1st, 2023, this phase goes beyond electronic invoices. It focuses on integrating a business's existing system (ERP, accounting software, POS, etc.) with ZATCA's Fatoora portal. This allows for real-time data exchange, enhanced transparency, and streamlined tax collection.
Before we dive into the VAT Calculator, let us get into a small definition of the Fatoora portal. In simple terms, it is a one-stop shop for managing businesses' e-invoicing needs, ensuring smooth integration with ZATCA's system. Plus, businesses can get valuable insights into their company's e-invoicing statistics, helping them monitor activity, identify trends, and stay compliant with regulations.
Saudi Vat Calculator is an online tool (often offered by ZATCA or other websites) that lets you enter a price and calculate the VAT amount you'll need to pay.
There are two ways to use a VAT calculator:
1. Price without VAT: You have to enter the price you see before VAT and the calculator will show you how much VAT to add.
A. VAT Amount = Sale price × VAT rate/100
B. Net Sale Price = Sale price × (1 + VAT rate)/100
Example,
Given:
VAT amount calculation:
Net Sale Price calculation (optional):
In this example:
2. Price without VAT: If the price includes VAT, you can use the calculator to figure out the original price before VAT was added.
Example,
Let's see this with an example:
Given:
VAT amount calculation:
Sales price before VAT calculation Price without VAT = Sale price × 100 / (100 + VAT Rate)
In this example:
While Saudi Arabia's tax system has undergone significant changes, navigating VAT compliance doesn't have to be a hurdle. VAT calculators offer a simple and effective solution for businesses and individuals alike. These handy tools can save you valuable time and ensure accurate calculations, eliminating the risk of errors that could lead to penalties. Whether you're a business owner determining the final price with VAT for your products or a consumer budgeting for a purchase, VAT calculators provide transparency and empower informed decisions. As Saudi Arabia's tax landscape continues to evolve, embracing VAT calculators is a smart step towards ensuring smooth financial operations and compliance.
Please also include a table on the VAT Filing format. This will be as per the excel attached.
For most purchases in Saudi Arabia, a 15% VAT needs to be added to the listed price. But if the price already includes VAT (it might say "VAT inclusive"), you can use a simple trick to find the original price: divide the price by 1.15.
Saudi Arabia initially implemented VAT at 5% in 2018. To diversify revenue sources, the government increased the rate to the current 15% on July 1st, 2020.
If the price you see already includes VAT (often labeled "VAT inclusive"), you can easily remove it to find the original price before VAT. Here's how: just divide the price by 1.15.
In Saudi Arabia (KSA), any resident doing business must register for VAT (Value Added Tax) if their annual sales of taxable goods and services exceed SAR 375,000 in the past year.
Simply multiply your sale price by (1 + VAT rate). This gives you the gross amount you'll collect from customers.
Saudi Arabia's VAT rate got a bump in July 2020, going from 5% to 15%.
VAT exemptions are limited to notified financial services and qualifying residential estates.
Every business can claim the amount they paid as VAT in their VAT filing report as an Input VAT credit. All you have to make sure is to have your CR number and VAT number mentioned in the Invoice issued to you. For eg: you can claim the VAT you paid in your Electricity bill and telephone bill if it is for office purpose.
