Guideline for

General Provisions A VAT-registered person may deduct Input VAT charged on goods and services it purchases or receives while carrying on its Economic Activity. Input VAT may be deducted on: • VAT charged by a VAT-registered Supplier in the KSA; • VAT self-accounted by the VAT-registered person under the Reverse Charge Mechanism; or • Import VAT paid to Saudi Customs on imports of goods into the Kingdom. As a general rule, the Input VAT that is related to the Taxable Person’s VAT-exempt activities is not deductible as the Input VAT. In addition, input VAT may not be deducted on any costs incurred that do not relate to the Economic Activity of the Taxable Person (including some blocked expenditure types such as entertainment, sporting or cultural services, catering service, and restricted motor vehicles)21, or on any costs which relate to making exempt supplies. This Input VAT is a credit entered on the VAT return, which is offset against the VAT charged on supplies (output VAT) made during that period. Input VAT may only be deducted where the Taxable Person holds a tax invoice, or customs documents showing the amount of tax due, or any other document showing the amount of input tax paid or due, subject to the approval of the Authority22. 21. Article 50, Implementing Regulations 22. Article 7, Implementing Regulations 12.2 Input Tax Deduction Adjustment Obligation: If a taxable person deducts input tax on a supply that has not been fully paid for within 12 months of the supply date, they must adjust the deductible tax amount unless they have reliable evidence that the contract is still valid, there is no dispute regarding the payment obligation, or the supply will be settled in a later period in accordance with applicable laws. If the taxable person adjusts the deduction as described above and subsequently makes payment, they may reinstate the input tax deduction equivalent to the amount of consideration actually paid. This adjustment must be made to the tax return for the period in which the payment was made, and not retroactively.