Value Added Tax (VAT) is a tax added to the price of most goods and services. The customer pays it, but the business collects it and passes it to the tax authority. A business is only taxed on the value it adds, because it can recover the VAT it paid on its own purchases.
The two sides: output VAT and input VAT
- Output VAT is the VAT you charge your customers on your sales.
- Input VAT is the VAT you pay your suppliers on your purchases and expenses.
- Each period you pay the difference: output VAT − input VAT. If input is higher, you have a refund or a credit.
A worked example (Saudi Arabia, 15%)
| Step | Net | VAT 15% | Total |
|---|---|---|---|
| You buy stock from a supplier | SAR 1,000 | SAR 150 (input) | SAR 1,150 |
| You sell it to a customer | SAR 2,000 | SAR 300 (output) | SAR 2,300 |
| You pay ZATCA | SAR 150 | 300 − 150 |
The VAT is not a cost to you: you collected SAR 300 and spent SAR 150 on input VAT, and the difference goes to the government. That is why clean records matter. Input VAT you cannot prove with a valid tax invoice is input VAT you cannot recover.
Rates and registration thresholds
| Country | Standard rate | Mandatory registration |
|---|---|---|
| Saudi Arabia | 15% | Taxable supplies above SAR 375,000 a year |
| UAE | 5% | Taxable supplies above AED 375,000 a year |
| Bahrain | 10% | Supplies above BHD 37,500 a year |
| Oman | 5% | Supplies above OMR 38,500 a year |
| Egypt | 14% | Sales above EGP 500,000 a year |
| Qatar, Kuwait | — | VAT not introduced yet |
Standard, zero-rated and exempt
- Standard-rated: most sales, charged at the full rate.
- Zero-rated: charged at 0%, such as many exports. You can still recover input VAT.
- Exempt: no VAT charged, such as some financial services and residential rent. You usually cannot recover the related input VAT.
What a VAT-registered business must do
- Issue valid tax invoices, now electronic in Saudi Arabia and Egypt, and soon in the UAE.
- Keep purchase invoices to support every input VAT claim.
- File VAT returns on time, monthly or quarterly depending on size and country.
- Pay the net VAT due by the deadline, to avoid penalties.
Try the numbers yourself with our free VAT calculator. It adds or removes VAT for every Gulf country and Egypt.
Need professional assistance?
KasemCPA can review your numbers, build the model properly or set it up in Odoo.