Second Version | May 2026

What is VAT? VAT is an indirect tax that is imposed on the importation and supply of goods and services at each stage of production and distribution, subject to certain exceptions. VAT is imposed in more than 160 countries around the world. VAT is a consumption tax that is paid and collected at each stage of the supply chain, starting from the purchase of raw materials by the manufacturer and ending with the sale of the final product by the retailer to the consumer. Unlike other taxes, taxable persons shall both: • Collect VAT from their customers on each taxable sale at the applicable tax rate; and • Pay VAT to the suppliers from whom they receive goods or services, if any, on each taxable purchase at the applicable tax rate. When taxable persons sell goods or provide services, they must charge VAT at a rate of 15% (assuming the standard rate applies to such supplies) in addition to the final selling price. Taxable persons must account separately for the 15% collected from taxable sales from their revenues in order to remit it subsequently to ZATCA. The VAT collected by taxable persons on their sales is referred to as “Output Tax.” Similarly, purchases made by taxable persons are treated such that VAT at a rate of 15% is added to purchases of goods and services (assuming the standard rate applies to such supplies). The VAT paid to suppliers is referred to as “Input Tax.” For more information about VAT, please see the VAT Guideline in the Kingdom of Saudi Arabia available through the website zatca.gov.sa. 1.4. This Guideline Economic Activity is one of the fundamental and essential terms for the imposition of VAT in the KSA. The main objective of this Guideline is to provide further clarification regarding the interpretation of the definition of economic activity for VAT purposes. It is directed to all persons who practice activities involving the supply or receipt of goods or services. This Guideline contains detailed and illustrative information related to: • Employees and persons who perform similar personal services. • Holding companies and management companies. • Charities and non-profit organizations. • Government bodies. To obtain guidance on any specific transactions, a request for an interpretative decision can be submitted by visiting the official VAT website zatca.gov.sa, which includes a wide range of tools and information specifically developed to assist persons subject to the Regulations, including visual guidance materials, all relevant data, and frequently asked questions. 2. Definitions of the Main Terms Used Economic activity: Defined for VAT purposes as follows: “An activity that is conducted in an ongoing and regular manner, including commercial, industrial, agricultural, professional, or services, or any use of material or immaterial property, and any other similar activity(1)“. A Taxable Person: Defined in the Implementing Regulations of the VAT System as follows: “... a Taxable Person in the Kingdom is a Person who conducts an Economic Activity independently for generating income, and is registered for VAT in the Kingdom or who is required to register for VAT in the Kingdom under the Law or these Regulations.(2)“ Under the Unified VAT Agreement, persons who are registered or required to register in any GCC State are considered a Taxable Person. The requirements for registration in the Kingdom are described in Section 4. Taxable Supplies are a defined term for VAT purposes. In the Unified VAT Agreement, they are defined to be: “Supplies on which Tax is charged in accordance with the provisions of the [Unified VAT] Agreement, whether at the standard rate or zero-rate, and for which associated Input Tax is deducted in accordance with the provisions of the [Unified VAT] Agreement(3)“. VAT is chargeable in the Kingdom of Saudi Arabia on taxable supplies of goods or services made or received by a taxable person in the Kingdom, and on importation into the Kingdom(4). Resident is a term defining a person (with a natural or corporate) who has a place of residence in the KSA for VAT purposes. A Non-Resident is a person with no such place of residence in the KSA(5).