What is VAT Accounting?
VAT accounting is the process of recording, reporting, and reconciling value-added tax (VAT) on sales (output VAT) and purchases (input VAT). The net of the two is paid to or refunded by the tax authority. Saudi Arabia applies VAT at a standard rate of 15%, with specific zero-rated and exempt categories.
How It Works
- Register for VAT if annual taxable supplies exceed the mandatory threshold (SAR 375,000) or voluntarily above SAR 187,500.
- Issue Fatoora-compliant tax invoices on sales, charging output VAT at the applicable rate.
- Record input VAT on qualifying purchases, supported by compliant supplier invoices.
- File a periodic VAT return (monthly or quarterly) and pay the net VAT due, or claim a refund.
Saudi Context
Saudi Arabia introduced VAT in 2018 at 5%, then raised it to 15% in 2020. ZATCA enforces VAT through Fatoora Phase 1 (e-invoicing) and Phase 2 (integration). Penalties include 5%-25% of the unpaid VAT for late filing or non-compliance, and SAR 1,000-50,000 fines for invoice irregularities.
Example
A Saudi retailer sells SAR 200,000 of goods (output VAT SAR 30,000) and buys SAR 120,000 of inventory (input VAT SAR 18,000). Net VAT payable for the period is SAR 12,000, paid to ZATCA via the Fatoora portal.