VAT General Principles

Input VAT

Input VAT is the value added tax added to the price of purchased goods or services. The buyer can deduct the amount of VAT paid, If the buyer is registered with the tax authority.

Output VAT

Output VAT is the value added tax calculated and charged on the sales of goods and services.

Exempt Supply

An exempt supply is a supply on which VAT is not charged and for which the related input VAT is not deductible.

Zero-rated supply

A zero-rated supply is a taxable supply on which VAT is charged at 0% and for which the related input VAT is deductible.

Standard Rate Supply

A taxable supply at the Standard Rate is a supply on which VAT is charged at 5% and for which the related input VAT is deductible. All items which are not coming under both exempted category, as well as zero-rated category, are coming under standard rated supplies.

Reverse charge mechanism

the Reverse Charge Mechanism is applicable while importing goods or services from outside the GCC countries. Under this, the businesses will not have to physically pay VAT at the point of import.

The responsibility for reporting of a VAT transaction is shifted from the seller to the buyer; under Reverse Charge Mechanism. Here the buyer reports the Input VAT (VAT on purchases) as well as the output VAT (VAT on sales) in their VAT return for the same period.

The reverse charge is the amount of VAT one would have paid on that goods or services if one had bought it in the KSA or UAE. The importer must disclose the amount of VAT under both Input VAT as well as Output VAT categories of the VAT return of that period.

Reverse Charge Mechanism eliminates the obligation for the overseas seller to register for VAT in KSA or UAE.