VAT recovery in Saudi Arabia : annual reclaim by foreign companies

The VAT was introduced in Saudi Arabia in 2018 with an initial rate of 5%.  After a significant increase in 2020, the current VAT rate stands at 15%. This is the highest VAT rate applicable in the member states of the Gulf Cooperation Council.

Companies registered for VAT in Saudi Arabia have the possibility to deduct the input VAT in their local VAT returns.

Foreign companies registered outside the GCC and incurring VAT in Saudi Arabia, on their travel expenses or purchases within the country, can request the VAT refund from the local tax administration ZATCA.

VAT recovery conditions in Saudi Arabia

In order to obtain the VAT refund in Saudi Arabia foreign companies must meet certain conditions:

• Absence of taxable transactions in Gulf countries
• Establishment in a country outside the GCC with a similar VAT system
• VAT registration in the country of establishment
• Reciprocity in VAT refunds between the country of establishment and Saudi Arabia
• Allocation of purchases to the economic activity of the foreign company outside the GCC

VAT recovery procedure in Saudi Arabia

The VAT recovery procedure in Saudi Arabia is divided into two stages:

1. Registration of the foreign company on the electronic tax portal as a person eligible for VAT refund

This step requires the detailed identification of the foreign company, the indication of its bank details (IBAN) and the identification of the tax representative, if applicable.

Documents justifying the status of the foreign company (such as extract from the trade register, articles of association, VAT certificate), as well as the personal ID of the legal representative must be provided upon the registration. Their postal delivery may be requested by ZATCA.

2. Submission of the electronic VAT refund request

Foreign companies registered on the tax portal and provided with an identification number can file the request for reimbursement of VAT incurred in Saudi Arabia.

This step includes the submission of compliant invoices, accompanied by proofs of payment.

The tax administration may request additional documents during claim processing. These elements must be provided by the claimant within minimum 20 days.

VAT recovery rules in Saudi Arabia

VAT deductibility: The VAT refund in Saudi Arabia can only be granted for expenses related to the economic activity of companies outside the GCC.

Following expenses are excluded from the right to VAT deduction:

• Any form of entertainment, sporting or cultural services
• Catering services in hotels, restaurants and similar places
• The purchase or rental of restricted motor vehicles, as well as related goods and services
• Any other goods and services used for private or non-commercial purposes

Partially taxable persons will be able to claim the VAT refund in proportion to their VAT liability rate.

VAT refund period: The VAT can be claimed back in Saudi Arabia for an annual period of 12 months. Only one file per expense year is accepted by the tax authorities.

Minimum VAT claim amount: The minimum amount of the annual VAT reclaim must be greater than or equal to 1,000 SAR.

VAT reclaim deadline: Companies have 6 months to claim the VAT incurred in Saudi Arabia. Claims must be filed no later than June 30 of the year following the expense year. Thus, the VAT on 2023 expenses can be claimed back until June 30, 2024.

VAT refund deadlines: The tax administration of Saudi Arabia grants VAT refunds within 60 days after the notification of the decision. No deadline is set for making tax decisions.

Appeal: In the event of a complete or partial rejection of the VAT refund claim, an appeal may be filed by the claimant.

Opportunities

BtoBnice accompanies businesses in recovering their VAT in Saudi Arabia.

For more information, we invite you to contact our VAT expert: contact@btobnice.com