Indirect Taxes in KSA: A Comprehensive Guide

Zakat, Tax and Customs Authority (ZATCA) regulate all the indirect taxes in the Kingdom of Saudi Arabia (KSA). ZATCA collects zakat, taxes and customs duties and always strives to achieve the highest level of taxpayer compliance in accordance with the best practices by providing high-quality services.

There are two types of indirect taxes in KSA:

1. Value Added Tax (VAT)
2. Excise Tax
3. Customs duties

This article explains the different types of indirect taxes in KSA.

Value Added Tax (VAT)

VAT is an indirect tax charged when supplied or imported goods and services, with certain exceptions. VAT is followed by more than 160 countries across the globe.

VAT is a consumption tax paid and collected at every stage of the supply chain, beginning from the manufacturer purchasing raw materials till the retailer sells the product to an end-consumer.

Saudi Arabia introduced Value Added Tax (VAT) on 1st January 2018.

ZATCA imposes VAT on the supply of goods and services. Initially, ZATCA used to charge 5% on the sale of goods and services for consideration.

However, the KSA government increased the VAT rate to 15% w.e.f 1st July 2020. The VAT rate has been increased to combat the adverse economic impact of the COVID-19 pandemic.

Excise Tax

Excise tax is an indirect tax charged on certain goods in the KSA. Typically, the tax is not directly levied on a final sale of goods to the end purchaser or consumer but is collected from the producer, the importer or an intermediary.

The tax levied on the excise goods is typically included in the price of subsequent sales, including the sale to the final purchaser.

Excise tax is characterised as a consumption tax. In KSA, the excise tax is calculated based on a specified percentage of the selling price or other specified value of those excise goods.

Customs duties

Customs duties are imposed on imports following tariff rates decided by the Saudi Customs regulations. This tax is imposed on the price of imported goods, assessed based on the actual cost paid or the agreed-upon cost denominated in the exporting country's currency.

The price consists of the 

• Price of the imported goods
• Freight and insurance costs

If this is not achievable, authorities will price the imported goods considering the most proximate comparable value.

Further, the government grants tariff protection from competing imports to locally produced, quality goods to encourage joint ventures in manufacturing.