What is VAT Input Tax?
VAT input tax is the value-added tax that a registered taxpayer pays on goods and services purchased for the purposes of its taxable economic activity. It is recoverable against output tax in the VAT return.
How It Works
- Verify each purchase invoice is a valid tax invoice issued in the taxpayer’s name.
- Record input VAT in a dedicated receivable account.
- Apply the apportionment rules where purchases relate to both taxable and exempt supplies.
- Track the time limits for claiming input VAT.
- Net input VAT against output VAT in the periodic return and request a refund if input exceeds output.
Saudi Context
ZATCA disallows input VAT on entertainment, certain motor vehicles, and supplies used for exempt activities. Saudi VAT registrants must retain tax invoices and supporting evidence for six years to defend claims during a VAT audit.
Example
A distributor pays SAR 100,000 plus SAR 15,000 VAT on inventory purchases. The SAR 15,000 input VAT is offset against output VAT in the same tax period, reducing the net VAT due.