A practical, keyword-rich chronology for corporate taxpayers in Saudi Arabia tracking the shift from 5% VAT (2018) to 15% VAT (2020)—and what it meant for ZATCA compliance, contracts, invoicing, input VAT recovery, and pricing strategy.
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Executive Snapshot
- 1 January 2018: Saudi Arabia introduces Value Added Tax at 5% on most goods and services.
- 11 May 2020: Authorities announce an increase to address macroeconomic pressures.
- 1 July 2020: The standard VAT rate becomes 15%.
Why it matters now: Historical rate changes still affect long-term contracts, warranties, credit notes, and audits. CFOs should retain evidence for how the 5%→15% transition was handled across pricing, invoicing, and tax points.
Key VAT Timeline (2018–2020)
| Date | Event | Impact for Businesses |
|---|---|---|
| 1 Jan 2018 | VAT go-live at 5% | Register for VAT; configure ERP; train staff; start issuing tax invoices; manage reverse charge for imported services. |
| 11 May 2020 | Rate increase to 15% announced | Begin planning for price updates, contract reviews, and transitional accounting for supplies straddling the change date. |
| 1 Jul 2020 | New standard rate 15% takes effect | Apply 15% to taxable supplies with tax points on/after this date; maintain documentation for split-period/continuous supplies. |
Transitional Rules: Supplies Spanning 1 July 2020
ZATCA issued transitional guidance to determine whether 5% or 15% applies when invoices, payments, or deliveries crossed the rate-change date. While specific treatments depended on facts, the common decision drivers were:
- Tax point mechanics — time of supply (invoice issuance, delivery/performance completion, or receipt of advance/payment).
- Continuous supplies — services or contracts billed periodically required apportionment across pre- and post-change periods.
- Advance invoices/retainers — deposits invoiced/paid before 1 July 2020 could carry 5% for the portion supplied before the change; remaining value supplied after the change generally aligned to 15%.
- Long-term contracts — contracts signed before the announcement date needed review for rate clauses, variation orders, and invoicing cadence.
Control tip: Keep a rate-change mapping by customer/contract that shows tax points, delivery dates, invoice dates, advances, and the logic for applying 5% vs. 15%.
Contracts, Pricing & ERP Actions for the 5%→15% Shift
- Update commercial terms: Add a tax-change clause; clarify whether prices are VAT-exclusive and who bears increases.
- Revise price lists & catalogs: Ensure customer-facing channels reflect 15% from 1 July 2020.
- Configure ERP & e-billing: Map tax codes (5% legacy vs. 15% standard), set correct effective dates, and lock old tax codes to prevent misuse after the change.
- Credit/debit notes: If post-change adjustments relate to pre-change supplies, apply the historical rate used on the original tax invoice and reference it.
- Vendors & procurement: Confirm supplier capability to issue compliant invoices; clean up blocked input VAT categories (entertainment, passenger vehicles, etc.).
VAT Returns & Documentation During the Change
- Return periods: Monthly or quarterly depending on turnover; rate changes often created split-rate periods—track outputs at 5% vs. 15%.
- Input VAT recovery: Claim per the rate on supplier invoices (5% or 15%); ensure invoice validity and business use.
- Reverse charge (imported services): Apply the rate in force at the tax point; retain contracts, service completion reports, and RCM workings.
- E-invoicing readiness: While e-invoicing (FATOORA) began later, maintaining clean master data and tax codes eased later Phase-2 integrations.
- Record retention: Keep all rate-change evidence and reconciliations for at least 10 years.
Illustrative Examples (Training-Style)
| Scenario | Tax Point | Likely Rate | Notes |
|---|---|---|---|
| Goods delivered on 28 Jun 2020, invoiced 2 Jul 2020 | Delivery (pre-change) | 5% | Delivery completed before 1 July; invoice references pre-change supply. |
| Service performed Jul–Aug 2020, advance received 20 Jun 2020 | Completion dates post-change | 15% on the service value delivered after 1 July | Advance may be taxed at 5% if conditions met; final invoice trues up to 15% for post-change delivery. |
| Monthly maintenance contract April–September 2020 | Continuous supply across change | Apportion: 5% (Apr–Jun) and 15% (Jul–Sep) | Keep schedule showing service periods and invoices by month. |
FAQ for Saudi Corporate Taxpayers
Does the 15% rate apply to all supplies?
Most taxable supplies are at 15%, but zero-rated and exempt categories remain per VAT law (e.g., certain exports, specific financial services).
How should we handle post-change credit notes for pre-change invoices?
Use the same VAT rate as the original tax invoice and reference the original document number/date.
What about imported services around July 2020?
Apply the rate in force at the time of supply per reverse charge rules; document service periods and evidence of use.
