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The Value Added Tax (VAT) was implemented in Saudi Arabia beginning from January 2018 as one of the structural reforms within the country. Aimed at increasing income to support the fiscal base, increase the fiscal stability of Saudi Arabia, and standardizing the domestic consumption, VAT targets most of the products and services consumed in the Kingdom of Saudi Arabia or imported into it. KSA VAT for large businesses experience a challenge in the right management of VAT to meet the requirements of the law on one hand and finding ways to minimize its impact on their businesses. From the invoice to the taxation of deductions, it is crucial to grasp the concept of VAT.
This paper will outline how VAT affects large businesses in KSA including some of the effects of VAT, VAT compliance measures that firms should adopt, and some of the areas of focus for large businesses in KSA. We will also discuss some important aspects such as e-invoicing Saudi Arabia and e-invoicing Riyadh for the businesses to cope with the changing taxes. This guide is beneficial for both the beginners in VAT and the individuals who want to improve their current knowledge about VAT and its implementation.
As of now, the standard rate of VAT in KSA is at 15 percent. This applies to all goods and services, except those that are considered as exempt supply (such as food and medicines) or those considered as zero-rated supply (such as export of goods to other countries within the GCC). Any trader who surmounts the registration ceiling is mandated to register for VAT and charge the tax on all taxable supplies.
In the given article, it has been found that VAT implementation has had both benefits and threats for large businesses in KSA. Below are some of the main effects:
Inflation: There is also an element of inflation where every business has to include 15% VAT in the price determination, thus reducing the profit.
Improved record keeping: There is need to keep proper records of all the purchases, sales as well as the VAT amounts.
Supply chain considerations: any changes in VAT regime, in the form of implementation, changes to existing or new transactions with suppliers, and customers, must be taken into account in the supply chain.
Better cash flow: This is especially when a business can recover input VAT on purchases, the flow of cash can be enhanced.
Below are some of the areas that large businesses should consider to enhance smooth implementation of VAT:
Implementation of VAT compliance: Put in place clear structures within the organisation for each employee to undertake their necessary VAT related tasks. Train employees on VAT procedures.
Accounting: Adapt other accounting systems to accommodate the compliance with VAT laws with regards to calculations, records, and reports.
Data record management: In compliance with ZATCA requirements, it is essential to adopt an effective system for storing and archiving any VAT-related data for a period not less than five years.
Supplier Management: Communicate to suppliers on the VAT treatment on the transaction and documentations to be submitted.
Customer Management and ‘Point of Sale’ (POS): Most of the POS systems should be updated to incorporate features that can calculate the VAT and make the necessary adjustments on the invoices.
VAT return Filing and Payment: It is important to learn about the requirements of the ZATCA for the filing and payment of the VAT returns.
There is a need to establish and implement internal controls that would enable the organization to meet the VAT requirements and to minimize risks.
Systems and IT: Assessment of existing IT systems and can upgrade if necessary to manage the tasks that are related to application of VAT.
In order to make the implementation of Value Added Tax a success, there is need for extensive planning. In this case, VAT for large businesses in KSA can avoid disruptions, and align themselves with the ZATCA regulations by addressing the above-mentioned areas of VAT.
To manage VAT for large businesses in KSA, it is essential to have knowledge about the taxes, compliance, and the current rules on digital invoices. While the Saudi Arabia government works towards developing a robust tax system, the business should be in a position to appreciate changes in the policies such as e-invoicing in KSA and e-invoicing in Riyadh. Correct management of the VAT is important in the business that aims at compliance, adequate financial planning to avoid penalties and efficient handling of the taxes.
In the case of large businesses operating in KSA, implementation of VAT is not only a compliance issue but a business enabler as well. Thus, using automated tax solutions and keeping proper records of all VAT transactions is a good way to facilitate the filing process. Understanding the changes in the VAT laws will help the companies to succeed in the new economy of Saudi Arabia while at the same time being compliant in the long run.
