Saudi Arabia VAT 2025: Zero-Rated, Exempt Supplies & Transition Rules

Saudi Arabia’s VAT system, the system has seen several changes and businesses need to be up to date with the latest tax regulations as we enter 2025. Most goods and services are still charged with a 15% VAT rate, but it is important to understand zero rated and exempt supplies for proper tax planning and compliance. If you are a business owner, accountant or simply curious about Saudi Arabia’s VAT framework, it is important to know how these rules will affect your transactions.

E-invoicing in Saudi Arabia is one of the most important updates in VAT compliance. To ensure that all invoices are digitally generated and submitted real time to the Zakat, Tax and Customs Authority (ZATCA), businesses must do so. While this is not entirely bad, this shift towards digital invoicing not only makes the tax reporting much easier and more transparent but it also encourages comparison between invoices from the same invoice provider and opposing invoices with the same customer. In this article, we will look at the VAT structure in Saudi Arabia for 2025 and that includes tax rates, exempt supplies and transition provisions.

Here are the Saudi Arabia VAT 2025 Zero-Rated, Exempt Supplies & Transition Rules

1. What is the Current VAT Rate in KSA?

Saudi Arabia has a 15 percent VAT rate applied to most goods and services. The previous 5% rate was replaced by this standard VAT rate in July 2020. The rate is increased so as to bolster the country’s economic framework and to ensure sustainable government revenues.

The 15% VAT also applies to domestic sales, certain imports, taxable services. Businesses and consumers should know that. Nevertheless, there are certain exemptions and zero rated supplies that do not fall under this standard rate.

2. List of Goods and Services with 15% VAT Rate

The following categories are liable to the 15% VAT rate in Saudi Arabia:

• Electronics and household appliances

• Telecommunication services and digital products

• Automobiles and spare parts

• Luxury goods, clothing, and accessories

• Hotel and restaurants are hospitality services.

• Entertainment services, event tickets, and memberships

Businesses must ensure that they charge the correct VAT rate and comply with the latest Saudi Arabia E-invoicing in regulations to avoid penalties.

3. Zero-Rated VAT Supplies in Saudi Arabia

VAT supplies which are zero rated are taxable at 0% but input VAT can still be recovered on related expenses. The key zero rated supplies include:

• Goods and services exported to customers outside the GCC

• International transportation services, such as airline tickets

• Specific medical and pharmaceutical products

• Services that provide educational services in accordance with certain conditions

Zero rate transactions do not need to collect VAT but businesses are required to follow the E-invoicing in Saudi Arabia guidelines for proper reporting and records.

4. KSA VAT Exempted Supplies

The supplies are exempt from VAT, and the business cannot claim input VAT on expenses for such goods and services. Common VAT-exempt supplies include:

• Financial services, such as loans, bank fees, and insurance policies

• Residential property rentals (long-term leases)

• Certain public healthcare and education services

• Local passenger transportation services

It is important for businesses to understand the difference between zero rated and exempt supplies so that they do not make mistakes and get into compliance.

5. Transitional Provisions for Charging 15% VAT

If businesses are subject to long term contracts or ongoing projects, they will need to be aware of the transitional rules for VAT compliance. Here are key considerations:

1. Contracts Signed Before the VAT Increase: Businesses must also check if a contract signed prior to the VAT increase is subject to the 15% rate or if a lower rate is permitted.

2. Advance Payments: If the transaction is completed in 2025, the invoices for advance payments may need to be adjusted for VAT.

3. Government Contracts: The public sector contracts may be subject to special VAT treatment according to the terms of the agreement and the regulations.

4. Price Adjustments & Refunds: Businesses must adjust VAT on price changes, discounts, and refunds correctly.

Businesses will be able to avoid unnecessary tax liabilities and penalties by staying informed on these transition provisions.

6. VAT Rate on Imports and Exports in KSA

The following conditions apply to the application of VAT by Saudi Arabia on imports and exports:

• Imports: Goods imported into KSA are subject to 15% VAT and it is payable at customs clearance. There are certain exemptions for particular categories.

• Exports: Exports outside the GCC are zero rated, but have to be documented properly to be eligible for the 0% VAT rate.

If your business is engaged in international trade, it must have the right VAT documentation and comply with the most recent e-invoicing regulations.

Conclusion

As the VAT framework evolves in Saudi Arabia, businesses need to understand what zero rated, exempt and taxable supplies are and comply with the updated compliance requirements. This will ensure that businesses can run smoothly without penalties and with proper VAT classification, timely tax filings and following E-invoicing in Saudi Arabia guidelines. With the Kingdom’s economy on the path of transformation, VAT compliance remains a major factor in the Kingdom’s sustainable business growth.

E-invoicing is no longer an option but a necessity for Saudi Arabia businesses that wish to stay compliant. The advantage of digital invoicing is that it eliminates errors, increases transparency, and makes tax reporting easy for businesses in managing their financial commitment. It will mean businesses staying informed and proactively implementing these changes in an effort to arrive at confidence to navigate the VAT landscape in 2025 and thereafter.