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  • The VAT return form is split into two distinct sections,

  • the first of which deals with VAT on sales (output VAT) and
  • the second of which deals with VAT on purchases (input VAT).

  • In addition, there are three columns that appear on the VAT return form:

    1. Amount
    2. Adjustment
    3. VAT amount

  • Box 1 - Standard rated sales:
  • Amount: the amount of all goods and services sold in the KSA during the current filing periods which are subject to the standard rate of 5% VAT
  • Adjustment: adjustments to the sales amount of goods and services sold in the KSA subject to 5% as reported in previous VAT return forms e.g. returned goods by customers, bad debt write-offs

  • Box 2 – Sales to customers in VAT implementing GCC countries
  • Amount: the amount of goods and services sold to customers registered for VAT in other GCC countries during the current filing period. Those sales are subject to 0% VAT rates
  • Adjustment: adjustments to the sales amount of goods and services sold to customers in other GCC countries, and reported in previous return forms

  • Box 3 - Zero rated domestic sales
  • Amount: the amount of all goods and services sold in the KSA during the current filing period that are subject to 0% VAT
  • Adjustment: adjustments to the sales amount of goods and services sold in the KSA, subject to 0% VAT rate, and reported in previous return forms

  • Box 4 - Exports:
  • Amount: the amount of goods and services exported to customers outside the GCC countries during the current filing period. Those goods and services are subject to 0% VAT
  • Adjustment: adjustments to export amounts of goods and services sold to non-GCC countries, and reported in previous return forms

  • Box 5 - Exempt sales:
  • Amount: the amount of goods and services exempt from VAT and supplied to customers either inside the KSA or outside during the current filing period
  • Adjustment: adjustments to amounts of exempt goods and services sold inside and outside the KSA, and reported in previous return forms

  • Box 7 - Standard rated domestic purchases:
  • Amount: the amount of goods and services purchased from suppliers in the KSA during the current filing period and subject to the standard rate of 5% VAT
  • Adjustment: adjustments to purchase amounts of goods and services from suppliers in the KSA, subject to VAT at the standard rate of 5% VAT, and reported in previous VAT return forms

  • Box 8 - Imports subject to VAT paid at customs:
  • Amount: the amount of goods and services purchased from suppliers outside the KSA during the current filing period and subject to 5% import VAT which has been paid at customs.
  • Adjustment: adjustments to purchase amount of goods and services purchased from suppliers outside the KSA during the current filing period and subject to 5% VAT.

  • Box 9 - Imports subject to VAT accounted for through reverse charge mechanism:
  • Amount: the total amount of imports that are subject to the reverse charge, i.e. where the taxable recipient of goods and services accounts for any VAT due as opposed to the non-resident taxable supplier
  • Adjustment: the amount adjusted as a result of imports being required to be accounted for under the reverse charge, i.e., the customer acts as if he is both the supplier and the recipient for VAT purposes and self-assesses any VAT due

  • Box 10 - Zero rated purchases:
  • Amount: the amount of goods and services purchased from suppliers in the KSA during the current filing period and subject to 0% VAT
  • Adjustment: adjustments to purchase amounts of goods and services from suppliers in the KSA, subject to 0% VAT rate, and reported in previous return forms

  • Box 11 - Exempt purchases:
  • Amount: the amount of exempt goods and services purchased from suppliers in the KSA during the current filing period
  • Adjustment: adjustments to purchase amounts of exempt goods and services from suppliers in the KSA, and reported in previous return forms.

  • Box 14 - Corrections from previous period (between SAR ±5,000):
  • Amount: the amount pertaining to a correction of an error reported in previous return forms (up to 5 years back) more than SAR -5,000 and less than SAR 5,000.
  • Adjustment: N/A

  • Box 15 - VAT credit carried forward from previous period(s):
  • Amount: the credit in VAT amounts from previous filling periods that were not claimed or refunded. This amount will be deducted from the total VAT due for the current filing period
  • Adjustment: N/A

  • Box 16 - Net VAT due (or reclaimed):
  • Amount: the total amount of VAT due or claimed for the current period. Any negative amount is VAT claimed that could either be refunded or carried forward for subsequent periods
  • Adjustment: N/A

  • THE REVERSE CHARGE MECHANISM (RCM)

  • 10.1. Reverse charge mechanism overview
  • The reverse charge mechanism is an accounting practice that enables taxpayers to account for input VAT that has not been paid before that period’s tax filing. The taxpayer effectively notes the reverse charge as a payable amount on its tax return to account for an input tax amount that should have been but was not collected on a previous purchase.

  • 10.2. When to use the reverse charge mechanism
  • The reverse charge mechanism must be applied when a VAT-registered business imports a taxable service.
  • Unlike imported goods, imported services do not go through customs, so VAT cannot be collected at an airport or a border. However, the buyer is still required to account for input VAT on the transaction using the reverse charge mechanism. The best way to explain this is through an example:
  • Let’s say our electronics store purchases a software subscription from a UK firm for SAR 2,000. Because the software is delivered electronically, it never goes through customs department and VAT is not collected upon “import”. As a result, the store must use the reverse charge mechanism to account for input VAT, as explained and shown below:
  • The store will note the SAR 2,000 input cost as an import subject to VAT through the reverse charge mechanism
  • The amount of SAR 20,000 is recorded in the standard rate box, and its output tax of SAR 1,000 is recorded
  • If the store’s sales were 100% taxable in the previous year, then the store will effectively owe no input VAT on the software. Instead, it will just remit the full 5% output VAT (equal to SAR 1,000) it collected during that tax period