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Accounts & VAT
Saudi Arabia’s Value Added Tax also has a list of categories of supplies subject to VAT, of which are the zero-rated VAT supplies. These supplies are standard rated at 0% while other supplies that are said to be outside the VAT net are exempt supplies. The differentiation is important because it enables businesses engaged in zero-rate transactions – exports and international services – to recover input VAT, which helps them to operate efficiently and at lower costs. This system has an important function in maintaining and developing the international trade and economic competiveness.
The following are examples of the Zero-Rated VAT Supplies; exports of goods and services, international transport, medical goods for re-sale, and metals used in investments. The above transactions are encouraged through offering them a zero percent VAT rate to ensure that the cost is as low as possible and competitive in the global market. However, to be eligible for these benefits, businesses must provide specific documentation including export invoices, customs documents, and proof of international transport.
With the ongoing digital transformation process in Saudi Arabia and the adoption of E-invoicing in Saudi Arabia, it becomes imperative that businesses capture the ZATCA Fatoora portal into their ERP systems. This is particularly important for those operating in Riyadh who supply goods and services that are considered as ‘‘zero-rated” for VAT purposes so that they can easily adapt to new changes in the legislation as well as maximize on tax incentive opportunities.
Zero-Rated VAT Supplies means supplies that are charged at 0% VAT. This is different from the exempt supplies which are not liable to tax but do not allow recovery of input tax. Zero-rated supplies are good for businesses since they can recover the VAT charged on inputs through these sales.
Export of Goods and Services
For exports to other countries outside the GCC countries, the goods are exempted from the standard tax rate, also known as Zero-Rated VAT Supplies. The following documents, including customs, commercial and transportation documents are required from suppliers in order to claim this benefit.
For services rendered to individuals who do not reside in the GCC, the services are also zero-rated as long as the following conditions are met: proof that the individual is a resident outside the GCC and that the services have not been consumed in the GCC region.
International Transportation Services
The movement of goods and passengers across borders of GCC countries by air, rail or sea is exempted from tax. Additional services like booking of seats and carriage of baggage are also recognized.
The Qualifying Medicines and Medical Goods
The Ministry of Health (MoH) approved medicines and medical equipment is categorized as zero-rated supplies to enhance the availability of affordable health care services.
Qualifying Investment Metals
Metals such as gold, silver and platinum intended for use as investments and which are of 99% purity and above are exempt from the standard rated tax when sold by producers or refiners.
New Developments for E-Invoicing and Zero-Rated VAT
To align with ZATCA’s phase 2 implementation of E-invoicing in Saudi Arabia, businesses must ensure compliance with recent announcements:
1. Taxability
Zero-Rated Supplies: These are taxable under VAT law but at a 0% rate. Where VAT is charged at this rate it is deemed to be zero and therefore no tax is levied on the supply. However, such supplies are still within the VAT system so that the business can enjoy other connected VAT options.
Exempt Supplies: These supplies are outside the VAT and therefore even if the supplies are made to the customer, he or she does not incur any VAT charge. The supplies that are not liable to VAT are excluded by law and therefore are not subject to tax measures for example input VAT recovery.
2. Input VAT
Zero-Rated Supplies: Businesses making zero-rated supplies can recover the input VAT charged on the goods and services that are used in the course of making the zero-rated supplies. This refund mechanism helps to keep the business competitive and averts the VAT cost on their operations.
Exempt Supplies: Recoverability of Input VAT paid on goods or services relating to exempt supplies are not allowed. This means that the cost of VAT has to be borne by the businesses and this may lead to the overall cost being high thus affecting the profitability of the business.
3. Examples
Zero-Rated Supplies: These are the exportation of goods and services to countries outside the GCC, international movement of cargo and people, some medicinal products and medical equipment, and investment quality metals such as gold and silver with high purity.
Exempt Supplies: This includes things like loans and insurance, the property which is being used as collateral and particular educational or healthcare services that have been carved out in the statute.
4. Regulatory Implications
Zero-Rated Supplies: Exporters require supporting documents for input VAT recovery which include export invoices, customs documents, and proof of delivery.
Exempt Supplies: Since exempt supplies do not include VAT charges, the companies that engage in the exempt supplies will have to meet fewer legal demands but cannot reclaim VAT.
5. Ease of Modification in the Future
Zero-Rated Supplies: As taxable supplies, the zero-rated goods and services may in future see their VAT rate altered by legislation.
Exempt Supplies: These supplies are unlikely to be included in the scope of VAT unless it is done so through statutory changes, and there is no scope for future changes to be made.
It is crucial for companies to grasp these subtleties in order to better control their VAT processes, minimize expenses, and adhere to Saudi rules.
Zero-rated VAT supplies are one of the key features of the Saudi Arabia’s VAT framework intended for the entities involved in cross-border activities or providing vital services. These supplies are exempted from VAT through a 0% rate so that businesses can recover input VAT, thus cutting on costs and improving competitiveness. Some examples are exported goods and services, international transportation, qualifying medical products and investment metals. This framework is vital to support the economic development and to place the Saudi businesses effectively into the global economy.
The difference between zero-rated and exempt supplies is very important for a businessperson to understand in order to be able to manage the VAT compliance. Zero rated goods are taxed at 0 % and allow for the recovery of input VAT whereas exempt supplies are non-taxable but do not allow the recovery of VAT which in turn results to increased costs. Knowledge of these differences helps business entities to obtain maximum benefits in the process of functioning and application of the VAT.
Specifically, the issues of compliance with the changing ZATCA regulations, for instance, E-invoicing integration are crucial for businesses that deal with zero-rated VAT supplies. This requirement is useful for proper reporting and also for the smooth running of the business especially for those located in cities such as Riyadh. To avoid being on the wrong side of these laws, companies must ensure they are up to date with the VAT laws in Saudi Arabia and use the advanced ERP solutions that are available in the market today to harness the power that comes with the tax system.
