E-commerce businesses subject to VAT in Saudi Arabia

The General Authority of Zakat and Tax (GAZT) announced that goods acquired through online sales will still be subject to value added tax (VAT) of 5%. The tax will be collected by government at customs when the goods enter the border crossing point.

GAZT also confirmed that VAT will apply on goods imported from GCC countries temporarily until the electronic service between the GCC countries is activated.

Certain goods, such as software, e-subscriptions, mobile applications and digital content will be governed by special VAT laws that will determine how the tax is applied.

The GAZT also stated that if the supplier is outside the Kingdom, the recipient in the Kingdom may be subject to paying tax and they must calculate this according to the reverse charge mechanism.

The reverse charge mechanism is where the recipient of goods calculate the VAT payable instead of the non-resident supplier.

In the case of an electronic platform acting as an intermediary between a non-resident supplier and a resident end-consumer, the platform is responsible for calculating the VAT value.

All qualified entities must be ready to implement VAT from 1 January 2018. GAZT has created a website, which provides information and concepts on VAT and how businesses need to apply it. The site also contains a wide range of resources, tools and information that can serve as a reference for companies to ready themselves for VAT.

GAZT has reminded enterprises with annual revenues exceeding SAR 1,000,000 to register for VAT before December 20, 2017, to avoid fines and penalties.