The basic formula
The idea of the VAT return is simple: you add up the VAT you collected from your customers on sales, called output VAT, then subtract the VAT you paid on purchases, expenses and imports related to your taxable activity, called input VAT. The result is the net VAT payable to ZATCA, or a credit balance in your favor if input VAT is higher.
Net VAT = Output VAT − Deductible input VAT
Return deadlines
- A business whose annual supplies exceed 40 million SAR files a monthly return.
- A business whose annual supplies do not exceed 40 million SAR files a quarterly return.
- The return is filed and the VAT paid by the end of the month following the end of the period. Example: the Q3 return (July–September) is filed and paid by the end of October.
Numerical example of a quarterly return
A food distribution warehouse, Q3 figures:
| Item | Amount before VAT (SAR) | VAT (SAR) |
|---|---|---|
| Local sales at the standard rate of 15% | 800,000 | 120,000 |
| Exports outside the GCC (zero-rated) | 100,000 | 0 |
| Total output VAT | 120,000 | |
| Local purchases from registered suppliers | 400,000 | 60,000 |
| Imports (VAT paid at customs) | 150,000 | 22,500 |
| Total input VAT | 82,500 | |
| Net VAT due | 37,500 |
Calculation: 120,000 − 82,500 = 37,500 SAR, paid with the return by the end of October.
Note that exports carry no VAT, but they are included in the return in their own box, and they do not cause you to lose the right to deduct the related input VAT, provided you keep the export documents.
Conditions for deducting input VAT
Not every VAT amount you paid is deductible. As a general rule, deduction requires:
- A valid tax invoice in the business's name and with its VAT number, or a customs document in its name for imports.
- That the purchases are used in a taxable activity, not in exempt supplies or for personal use.
- That the expenses are of a type the Implementing Regulations do not exclude from deduction; for example, VAT on some hospitality and entertainment expenses may not be deductible.
If the business has both taxable and exempt supplies, it may need to apportion shared input VAT, and this is a case worth reviewing with an advisor.
Tips before you press Submit
- Reconcile the total output VAT in the return with the sales report from the e-invoicing system for the same period.
- Make sure the credit notes and debit notes issued in the period have been included as adjustments.
- Review large supplier invoices: is the supplier's VAT number correct? Is the invoice in your business's name?
- Keep a detailed schedule showing how you arrived at every figure in the return; it is the first thing requested in an audit.
- If you discover an error in a previous return, correct it through the return correction mechanism set by ZATCA instead of ignoring it.
A second example: when input VAT exceeds output VAT
A new manufacturing workshop bought large equipment in Q1 while its sales were still limited:
- Taxable local sales: 120,000 SAR, VAT 18,000 SAR.
- Equipment purchased from a registered supplier: 300,000 SAR, VAT 45,000 SAR.
- Raw material purchases: 60,000 SAR, VAT 9,000 SAR.
Input VAT = 45,000 + 9,000 = 54,000 SAR.
Net = 18,000 − 54,000 = −36,000 SAR, that is, a credit balance of 36,000 SAR in the workshop's favor.
In this case there is nothing to pay, and the credit balance appears in the return. The business chooses between carrying it forward to offset VAT in later periods, or requesting a refund under ZATCA's procedures. A refund request is often accompanied by a request for supporting documents, such as the equipment invoices and proof of payment and of use in the business activity, so prepare them in advance.
Common mistakes in this case include recording the equipment as an ordinary expense without separating its VAT, or forgetting to include its VAT in the return altogether, so the business loses its right to deduct it.
In all cases, make closing the tax period a monthly habit even if your return is quarterly: reconcile sales, purchases and their VAT at the end of each month, so you find errors while they are small, and preparing the return at the end of the quarter becomes a quick review instead of an exhausting search through three full months of documents.