Are you thinking of starting your own business and have a lot of concerns about taxes and how to calculate them? Or are you an entrepreneur looking for the easiest way to calculate and pay the taxes due and prepare the tax return in line with the requirements of the Zakat, Tax, and Income Authority? You’ve come to the correct spot since we offer you a thorough explanation of all the things you need to know about VAT in this article. What products or services are forced on them as well? How is it collected? And how do you simply calculate it? We provide you with examples of how to calculate them and demonstrate the characteristics of the top accounting software in the Kingdom of Saudi Arabia, Qoyod System, in this particular area. Follow us.
VAT: What is it?
With a few exceptions, VAT is an indirect tax that is levied on all products and services that businesses sell and purchase. This tax is levied on goods and services at every point in the supply chain, including manufacture, distribution, and final sale. In collaboration with all relevant agencies, the Zakat, Tax, and Customs Authority is in charge of implementing and managing value-added tax (VAT) inside the Kingdom of Saudi Arabia.
Goods and services subject to VAT
VAT of 15% is levied on the following goods and services:
1- Foodstuffs
The food tax is levied at 15%.
2- transportation
The tax is levied on local transport only, at a rate of 15%.
3- estates
The tax is levied on the rental of a commercial property at a rate of 15%.
4- ُُُEُُducation
Private education is taxed at a rate of 15%. For citizens benefiting from local private education services, the state shall bear the tax on their behalf.
5- Healthcare
The tax on health care in private health centers is imposed at 15%. For citizens benefiting from private health services, the state shall bear the tax on their behalf.
6- Oil
The tax is imposed on the oil, oil, and gas derivatives sector (local) at a rate of 15%.
7- Minerals
The tax is imposed on the supply of metals intended for investment, namely gold, silver, and platinum, and the tax rate is 15% if the level of purity of the metals is less than 99%.
8- E-Services
The tax on telecommunications and electronic services is imposed at a rate of 15%.
9: Financial Services
A tax of 15% is imposed on the following:
- Clear fees, commissions, or commercial discounts.
- Insurance products, including health insurance.
10: General and health insurance
It is imposed on insurance and reinsurance premiums, and it is imposed at 15% on the following:
- Personal accidents.
- Work injuries.
- Employer’s responsibility.
- Liability towards third parties.
- Public responsibility.
- Product liability.
- Medical liability.
- Professional responsibility.
- Theft and burglary.
- Insurance of funds in the safe and during transportation.
- Other insurances that fall within the scope of liability insurance.
- Vehicle insurance.
- Property insurance.
- Marine insurance: hulls.
- Marine insurance: transportation of goods.
- Aviation insurance.
- Energy insurance.
- Engineering insurance.
- Other branches of general insurance.
- Compulsory health insurance.
- Compulsory health insurance and other.
11: Supplies or other cases
A tax of 15% is imposed on the following:
- Commission or any brokerage or brokerage fee.
- Sale of goods that have been retrieved as part of the insurance policy.
- Sale of other business assets.
- Advisory and administrative services.
Methods for VAT Collection
The establishments pay the government the tax they collect from the consumer’s purchase process and also return the tax they paid to suppliers where the tax is due (sales tax or purchase tax). The customer pays the value of the tax on the products or services he purchases. The following table provides an example of how to simplify the tax collection process:
| Entity | Operation | Tax payable
(Sales and Purchases) |
| vendor | He sells the item to the distributor at a value of 80 riyals plus 12 riyals in tax (15%). | Pay 12 riyals. |
| Distributor | He sells the item to the retailer at a value of 90 riyals plus 13.5 riyals in tax (15%).
|
Pay 1.5 riyals.
(13.5 SAR – 12 SAR) |
| Retailer | He sells the item to the consumer at a value of 100 riyals plus 15 riyals in tax (15%). | Pay 1.5 riyals.
(15 SAR – 13.5 SAR) |
How do you calculate VAT?
The value of the tax imposed on goods or services sold or purchased is calculated by the following simple calculation: VAT = (item price × 15) ÷ 100. The tax payable to the Zakat, Tax, and Customs Authority is calculated by the following calculation: Tax due = total sales tax minus total purchase tax. In a specific period, and to clarify further, we offer the following examples:
Example 1:
Ahmed, the owner of a toy company, paid the vendor 15 percent, or 15 riyals, of the 100 riyals that he purchased. Ahmed then collected a 15% tax, or 500 riyals, from the customers after selling the products for 500 riyals. When it comes time to file his tax return and figure out how much he has to pay the authority, Ahmed deducts the purchase tax’s value from the sales tax’s value in the manner shown below:
75 (sales tax) minus 15 (purchase tax) = 60 riyals paid to the authority.
Example 2
Owning a nail salon, Reem spent 500 riyals on the necessary equipment and paid the supplier 75 riyals, or 15% of the total cost. After offering her clients 500 riyals worth of nail care services, Reem collected 15% of the total, or 75 riyals, in tax. Reem deducts the purchase tax value from the sales tax value in the following manner when it comes time to complete the tax return and determine the amount of tax she owes the authority:
75 (sales tax) minus 75 (purchase tax) = 0 riyals. That is, Reem is not required to pay any amount to the authority.
Tax compliance procedures
Compliance procedures for small or medium-sized enterprises can be facilitated by the following points:
1. Cash-basis accounting
The cash-basis accounting method is available to SMEs whose annual supply in the past or present does not exceed SAR 5 million in order to simplify compliance requirements.
2. Make invoicing simpler.
The essential elements of a simplified tax invoice are as follows: the date of issuance, the vendor’s name, address, and tax identification number; a description of the goods and services rendered; the amount payable; the amount of VAT owed; and, if the invoice value is less than 1000 riyals, an indication that tax is included in the price.
3. Submit a tax return.
A quarterly tax return can be filed for businesses whose annual taxable supplies do not exceed SAR 40 million.
Qoyod: Your perfect choice to calculate VAT easily
The system of restrictions removes the trouble of calculating tax, which can become a complicated process when you buy and sell a lot of goods or services in your facility in a specific period. Qoyod automatically calculates the tax using the information you enter in the invoices you issue in the system. Qoyod not only guarantees you accuracy and safety in the tax calculation process but also ensures that the tax is calculated and the tax return is prepared in accordance with all the requirements of the Zakat, Tax, and Customs Authority, as it is an accounting system approved by the Authority.
You can also easily extract the tax return, as Qoyod prepares it automatically and in compliance with all the requirements of the Authority, so that it guarantees all the necessary information, which includes sales invoices with the value of tax due, purchase invoices with the value of tax paid, and the total value-added tax payable, which is equal to the purchase tax minus sales tax.
Conclusion
Value Added Tax (VAT) is an indirect tax that is imposed on all goods and services that are sold or purchased with some exceptions, and it is important for all establishments of all sizes and fields to be aware of all aspects of the tax, including how to calculate it, how to pay it, etc., which drives establishments to use accounting systems to do so accurately to save time and effort and reduce potential errors that may lead to violations that are subject to penalties and fines.
It is important to choose a program that calculates tax, prepares the tax return automatically, and accurately ensures that you comply with the requirements of the Zakat, Tax, and Customs Authority. Qoyod is the best program that offers you this and more, as it has an integrated set of accounting services that help you manage your accounting business easily even if you do not have previous accounting experience. Subscribe now to the Qoyod accounting system and get a 14-day free trial period without a credit card and the ability to unsubscribe at any time.
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