What is VAT Zero Rated?
Zero-rated VAT supplies are taxable supplies on which VAT is charged at 0%. Unlike exempt supplies, zero-rated supplies allow the supplier to recover input tax on related purchases, often resulting in VAT refunds.
How It Works
- Confirm the supply falls under a zero-rated category — exports, international transport, qualifying medicines, and so on.
- Issue a VAT-compliant invoice showing the VAT rate as 0%.
- Reclaim input VAT on related purchases through the periodic return.
- Retain evidence of the zero-rated treatment — customs documents, contracts, logistics records.
- Track refund claims if input VAT exceeds output VAT consistently.
Saudi Context
Saudi zero-rated supplies include the export of goods outside the GCC, international transport, and selected medicines and medical equipment under conditions defined by ZATCA. Exporters must keep customs export declarations as evidence to support the 0% rate.
Example
An exporter ships SAR 500,000 of goods to Egypt. The invoice is zero-rated. Input VAT of SAR 30,000 paid on raw materials is fully recoverable through the VAT return.