5% of VAT was imposed by the Government of Saudi Arabia on Jan 1, 2018. It is also called consumption tax and is an indirect form of tax which is imposed on all goods and services. The Value Added Tax ( VAT ) is enforced whenever the value is added, starting from the production to the point of sale .
160 countries have already imposed it considering VAT as a reliable source of revenue for the budgets of their states. In Saudi Arabia , efforts are being made by GAZT ( General Authority of Zakat and Tax ) to enforce and implement VAT in their country .
Exemptions : Though VAT’s definition describes itself that it should be imposed on each service and all goods, Still there are a few exemptions in the VAT , which the masses of the Gulf countries are not acquainted with as it is a new thing for them.
The following 8 goods and services are exempted from VAT :
- Medicines as well as Medical equipments :
The authenticated suppliers of Medicines and medical equipments are exempted from VAT as they are authenticated by the Ministry of Health and Saudi Food & Drugs.
- Gold & Silver : The bullion markets of Gold and silver which are 99% tradable , unadulterated and very pure are also exempted from the VAT
- Exports of Goods : The exports done to the countries outside of the GCC are exempted from the VAT. In addition to this , the pilgrims visiting the country can claim for the refund of VAT on the airport for the items to be used back in their homes.
- Life Insurance : Contracts of Life Insurance and Reinsurance are exempted from VAT in the country of Saudi Arabia.
- Services by the Government Agencies : Government services like issuance and renewal of passports , issuance and renewal of driving licenses, etc are also exempted from VAT .
- International Transport : If you are travelling through any means i.e., air , land or sea , outside the country , there won’t be any kind of VAT imposed on your travelling . This becomes the main reason of imposing 5% tax on domestic tickets but there is no tax imposed on the international ones.
- Specified Financial services : Some selected type of financial services like Deposit and Savings accounts, credit or credit guaranteed by some Financial Institutions are exempted from paying the VAT. However, all other services are imposed with VAT.
- Rent of Residential Real Estate: The rented residential property which may be a villa, or a studio or an apartment is exempted from the VAT. However, VAT is made chargeable if the rented property is used for any commercial purpose.
Foreign Remittance: No Gulf country including Saudi Arabia has imposed any VAT on foreign remittance. There were some rumors that Saudi Arabia is imposing tax on foreign remittance which proved to be wrong. There is no VAT imposed on foreign remittance as of now.