VAT Taxable vs. Exempt Suppliers in Saudi Arabia: Key Differences Every Business Owner Should Know

Navigating the world of VAT compliance in Saudi Arabia can be complex, especially when understanding who qualifies as a VAT-registered (taxable) supplier and who is considered VAT-exempt. These classifications impact not only how you issue invoices and collect taxes, but also whether you can recover input VAT and how you interact with the ZATCA (Zakat, Tax, and Customs Authority).

In this article, we break down the legal definitions, conditions, and practical implications of being a VAT-registered versus a VAT-exempt supplier, as defined by the Saudi VAT regulations.

Who Is a VAT-Registered (Taxable) Supplier?

A VAT-registered supplier (also called a taxable person) is any individual or business entity that carries out economic activity independently and provides taxable supplies of goods or services within the Kingdom. This supplier is registered with ZATCA and is required to charge VAT (usually 15%) on sales and remit the tax collected.

You must register if your annual taxable turnover exceeds SAR 375,000. Voluntary registration is also available for businesses with a turnover exceeding SAR 187,500 but below the mandatory threshold.

Who Is a VAT-Exempt Supplier?

A VAT-exempt supplier is not required to collect VAT on sales. This could be due to two reasons:

• Their supplies are categorically exempt under VAT law (e.g., qualifying financial or residential leasing services).
• They do not exceed the VAT registration thresholds and choose not to register voluntarily.
• These suppliers do not issue VAT invoices or have the right to reclaim VAT on their purchases. For them, VAT paid becomes a final business expense.

Comparison Table: VAT-Registered vs VAT-Exempt Supplier



Impact on VAT Invoicing

1. VAT-Registered (Taxable) Suppliers:

Invoice Requirements:

Must issue compliant VAT invoices for every taxable supply. These invoices must include:

1. Invoice number and issue date
2. Supplier’s name and VAT registration number
3. Customer’s name and VAT number (if applicable)
4. Description of goods or services
5. Net amount
6. Applicable VAT rate (15% or 0%)
7. VAT amount
8. Total invoice amount (including VAT)
9. Deadline:

The VAT invoice must be issued within 15 days of the end of the month when the supply occurred.

2. VAT-Exempt Suppliers:

No VAT Invoices:

Do not issue VAT invoices since their sales are exempt from VAT. Instead, they may issue commercial invoices that:

• Do not show a VAT registration number
• Do not mention any VAT percentage or amount

Mixed Supplies:

If a registered supplier issues an invoice containing both taxable and exempt items, the invoice must:

• Indicate which items are exempt
• Only show VAT amounts on taxable items

Read more: Understanding Value-Added Tax (VAT): A Comprehensive Guide.

Input VAT Recovery and Refunds

1. VAT-Registered (Taxable) Suppliers:

Input Tax Credit:

Have the right to recover VAT paid on purchases that relate to their taxable business activities.

Refund or Carry-Forward:

If input VAT exceeds output VAT, the business can:

• Request a refund from the Zakat, Tax and Customs Authority (ZATCA)
• Or carry forward the credit to future tax periods

2. VAT-Exempt Suppliers:

No Input VAT Recovery:

Cannot claim or deduct VAT paid on business expenses related to exempt activities.

VAT Becomes a Cost:

Any VAT paid is recorded as a business expense and is not recoverable through the tax system.

Understanding the difference between VAT-registered and VAT-exempt suppliers is crucial for compliance and strategic tax planning in Saudi Arabia. If your business qualifies for VAT registration, you’ll need to ensure accurate invoicing, filing, and input VAT claims.

If you’re exempt, it’s equally important to know your limitations, especially when it comes to reclaiming VAT or issuing tax invoices. Using accounting software like Wafeq, which is fully compliant with ZATCA regulations, can help you handle VAT accurately and efficiently, regardless of your supplier status.