Guideline for

Input Tax Deduction Adjustment Obligation: 12.3 Proportional Deduction Relating to Input Vat 13. VAT Obligations for Taxable Persons 13.1 Issuing Tax Invoices 13.2 Filing VAT Returns 13.3 Keeping Records 13.4 Display of Certificate of Registration Within the VAT System 13.5 Correcting Past Errors 13.6 Evidence for Not Charging VAT on Temporary Transfers of Goods 14. Penalties 15. Request for an Interpretive Decision(Tax Ruling) 16. Contact Us 17. Frequently Asked Questions 1. Introduction 1.1 Application of a Value Added Tax (“VAT”) System in the Kingdom of Saudi Arabia (“KSA”) The Kingdom of Saudi Arabia ratified the Unified VAT Agreement for the Cooperation Council for the Arab States of the Gulf (“GCC”) by Royal Decree No. (M/51) dated 3th Jumada al-Awwal 1438H/30th January 2017. Based on the provisions of the Unified VAT Agreement, the Kingdom of Saudi Arabia issued the VAT Law (“VAT Law”) by Royal Decree No. (M/113) dated 2nd Dhu al-Qi'dah 1438H/25th July 2017, as well as the Implementing Regulations of the VAT Law by Resolution No. (3839) dated 14th Dhu al-Hijjah 1438H/5th September 2017 (the “Implementing Regulations”) issued by the Board of Directors of the General Authority for Zakat and Income Tax (formerly) (currently “the Zakat, Tax and Customs Authority”) and amended by subsequent Board resolutions. 1.2 Zakat, Tax and Customs Authority Cabinet Decision No. (570) dated 22nd Ramadan 1442H/4th May 2021 was issued, providing for the merger of the General Authority of Zakat and Tax and the General Customs Authority into a single entity under the name of the Zakat, Tax and Customs Authority (ZATCA). The Authority undertakes the collection of Zakat and the collection of taxes and customs duties, and seeks to achieve the highest level of compliance among taxpayers in accordance with best practices and with high efficiency. The Authority also seeks to enable the Kingdom to become a global logistics hub by facilitating trade, safeguarding national security, and regulating and administering all activities related to customs operations and customs ports, in a manner that ensures their advancement to the highest degree of efficiency, productivity, and competitiveness. This is achieved through the provision of high-quality services with a focus on the customer and their service in accordance with best practices. 1.3 What is VAT? VAT is an indirect tax that is imposed on the importation and supply of goods and services, with certain exceptions. VAT is imposed in more than 160 countries around the world. VAT is a tax on consumption that is paid and collected at every stage of the supply chain, starting from when a manufacturer purchases raw materials until a retailer sells the end- product to a consumer. Unlike other taxes, persons registered for VAT will both: • Collect VAT from their Customers equal to a specified percentage of each eligible sale; and • Pay VAT to their Suppliers, if any, from whom they have received the goods or services, equal to a specified percentage of each eligible purchase. When a Taxable Person sells a good or service, a 15% VAT charge, assuming a standard case, is assessed and added to the final sales price. The taxable persons will account for that 15% that they have collected from all eligible sales separately from their revenue in order to later remit a portion of it to the Authority. The VAT a Taxable Person collects on its sales is called Output VAT. The same will apply to purchase transactions, in that VAT will be added at the rate of 15% to purchases of goods or services made from suppliers registered for VAT, on the assumption that the basic rate applies to those supplies. The VAT a business pays to its suppliers is called Input VAT. Further information about VAT can be found at zatca.gov.sa.