A keyword-rich, practical explainer for corporate taxpayers in Saudi Arabia on how VAT at 15% applies to imports of goods and services by businesses with exempt or partially exempt activities (e.g., financial services, residential leasing, education/healthcare exemptions), including customs valuation, importer of record, input VAT non-recoverability, partial exemption pro-rata, and ZATCA filing tips. Status check: standard VAT rate remains 15% as of 12 Aug 2025.
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Who Counts as an “Exempt Business” for Saudi VAT?
In Saudi Arabia, some activities are exempt from VAT (no output VAT charged), such as many financial services (margin-based), residential leasing, and specific education/healthcare items. A business might be:
- Fully exempt (non-registered): makes only exempt supplies — typically cannot recover input VAT and may not be VAT-registered.
- Partially exempt (registered): makes both taxable/zero-rated and exempt supplies — can recover input VAT in line with partial exemption pro-rata.
How VAT Applies at Import: Goods vs. Services
Imports of Goods
- VAT at 15% is generally due at customs clearance on the customs value plus duties and charges.
- If the importer of record is a registered taxpayer, import VAT appears against the tax number and may be claimable (subject to partial exemption and blocked categories).
- If the importer is non-registered or fully exempt, import VAT is typically a non-recoverable cost.
Imports of Services (from non-residents)
- Typically assessed under the Reverse Charge Mechanism (RCM) by the VAT-registered recipient.
- Where the recipient is not VAT-registered, RCM does not apply; other collection mechanics can arise depending on facts.
- For partially exempt registrants, RCM VAT is recorded as output VAT with input recovery restricted per the pro-rata method.
Customs Valuation: What Goes into the 15% Base
| Component | Included in VAT Base? | Notes |
|---|---|---|
| CIF value (cost + insurance + freight) | Yes | Starting point for customs assessment |
| Customs duties | Yes | Duties are part of the VAT base |
| Certain fees/charges up to release | Yes | If linked to importation/clearance |
| Post-import inland freight after release | No (generally) | May be separately taxable as a domestic service |
Registration Status & Recoverability Matrix
| Business Type | Import of Goods (Customs) | Import of Services (RCM) | Input VAT Recovery |
|---|---|---|---|
| Fully exempt, not registered | Pay 15% at border | RCM generally not applicable | Not recoverable → becomes a cost |
| Partially exempt, registered | 15% assessed to tax number | RCM output VAT recorded | Recoverable per pro-rata (blocked categories apply) |
| Fully taxable, registered | 15% assessed to tax number | RCM output VAT recorded | Generally recoverable (subject to normal rules) |
Blocked input VAT: entertainment, passenger vehicles (in many cases), and other non-business costs remain non-recoverable even for registrants.
Partial Exemption & Pro-Rata for Mixed Activities
If you make both taxable/zero-rated and exempt supplies, you are partially exempt. Input VAT on imports and overheads is recovered based on a pro-rata method (often revenue-based) with a year-end true-up. Capital assets are handled via the Capital Asset Scheme (CAS) over 5/10 years with annual adjustments for usage.
- Provisional pro-rata during the year; final pro-rata after year-end → post an adjustment in the first return after year-end.
- Separate registers for imports of goods, RCM services, and capital assets.
- Document methodology and management approvals; keep evidence for ZATCA audits.
Controls: Importer of Record, Evidence & Reconciliations
- Importer of Record (IOR): Align contracts so the correct entity is the IOR; the IOR’s VAT registration determines how import VAT appears and whether recovery is possible.
- Evidence pack: Commercial invoice, bill of lading/airway bill, HS codes, customs declarations, duty/VAT calculation, release/clearance docs.
- Reconciliations: Match customs import data to the VAT return and general ledger; investigate supplier incoterms and valuation gaps.
- RCM controls: AP workflow to identify non-resident services, calculate RCM VAT, and tag pro-rata recovery or block.
- Budgeting: For fully exempt importers, import VAT is a P&L cost; build into pricing or funding.
Worked Examples
1) Fully Exempt Importer (Non-Registered)
Bank imports IT equipment (CIF SAR 2,000,000). Customs duty 5%.
- Duties = 2,000,000 × 5% = SAR 100,000
- VAT base = 2,000,000 + 100,000 = SAR 2,100,000
- Import VAT @15% = SAR 315,000 → non-recoverable cost
- Total landed tax cost = 100,000 + 315,000 = SAR 415,000
2) Partially Exempt Importer (Registered)
Education company imports lab equipment (VAT base SAR 1,000,000). Provisional pro-rata 60%.
- Import VAT @15% = SAR 150,000 assessed to tax number
- Recoverable in-year = 150,000 × 60% = SAR 90,000
- Non-recoverable in-year = SAR 60,000 (cost). True-up at year-end to actual pro-rata.
3) Reverse-Charged Services (Partially Exempt)
Registered hospital buys cloud services from a non-resident (SAR 500,000).
- RCM output VAT = 500,000 × 15% = SAR 75,000
- Input recovery per pro-rata (say 40%) = SAR 30,000
- Net VAT cost = SAR 45,000
Common Pitfalls & Audit Red Flags
- Using a non-registered exempt entity as IOR when a registered affiliate could have imported (lost recovery).
- Mismatches between customs import data and VAT return disclosures (ZATCA cross-checks).
- Failure to apply RCM on non-resident services (or incorrect pro-rata recovery on RCM inputs).
- Claiming blocked input VAT (entertainment, passenger vehicles) under imports.
- No pro-rata true-up or missing CAS registers for capital assets.
Checklist for Exempt/Partially Exempt Importers
- Confirm VAT registration status of the importing entity before shipment.
- Verify HS codes, duty rates, and valuation to compute the correct VAT base.
- Establish IOR policy within your group to optimise VAT recovery (where permissible).
- Implement RCM workflow for non-resident services; tag pro-rata recovery.
- Maintain partial exemption methodology and perform an annual true-up.
- Keep CAS registers for high-value capital imports and track use-changes.
FAQ
Can a fully exempt business register for VAT to recover import VAT?
Generally, businesses making only exempt supplies are not eligible to recover input VAT; registration and recovery depend on making taxable supplies or meeting registration thresholds. Seek tailored advice.
Is import VAT always paid at the border?
Typically, yes for goods at customs release. For services, VAT is usually accounted via RCM by registered recipients.
Do special zones change import VAT?
Zone and customs status can affect mechanics and timing; however, non-recoverability still applies where the importer’s activity is exempt.
We’re partially exempt. Can we recover all import VAT on capital equipment?
Recovery is limited by your pro-rata and adjusted annually; capital assets may also require CAS adjustments over time.
SEO Takeaways for Corporate Readers
- Saudi VAT on imports by exempt businesses — when 15% becomes a cost.
- Importer of record policy — aligning registration with recovery potential.
- Customs valuation — CIF + duties + eligible charges define the VAT base.
- Reverse charge (RCM) — obligations for non-resident services to Saudi companies.
- Partial exemption & CAS — how mixed-use and capital assets change recoverability.
- ZATCA compliance — reconciliations, documentation, and audit readiness.
