Reverse Charge Mechanism for VAT in Saudi Arabia - FAQs

What is reverse charge?

Typically, the supplier collects VAT on behalf of their customer and pays the tax to the government. Under the reverse charge mechanism, the end consumer pays the tax directly to the government.

When is reverse charge applicable?

The reverse charge mechanism will apply in the following situations: 

• When a VAT-registered business imports a taxable service. Since imported services do not go through the Customs Department, VAT cannot be collected at the airport or border. So the buyer accounts for input VAT on the import transaction under the reverse charge mechanism instead.
• When a taxable person receives services from a non-resident. The taxable person must calculate the amount of VAT due by the reverse charge mechanism.
• When the trading occurs within the GCC. When an intra-GCC transaction takes place, the supplier is not required to register in the destination country or charge VAT. In this case, the buyer needs to account for the VAT under the reverse charge mechanism.

Why is the reverse charge mechanism needed?

The reverse charge mechanism is necessary to apply the domestic VAT rate on overseas purchases. This will remove the financial advantages of buying services from overseas.

What should I do if I import goods to KSA and my supplier is not a KSA resident? 

In this case, you should pay VAT to the government under the reverse charge mechanism.

Are online services taxable under the reverse charge mechanism?

Yes, they are, if the recipient is a taxable person. If the provider of the service is a non-resident, they should appoint a representative within KSA and register for VAT if the value of sales in KSA exceeds SAR 375,000.

Are real estate services taxable under the reverse charge mechanism?

If a VAT-registered taxpayer in the KSA receives a supply of real estate services from a non-resident supplier, then the recipient should account for VAT under the reverse charge mechanism.

What happens when goods are transported from KSA to a recipient in another GCC state?

When goods are transported from KSA to another GCC member state, the recipient must pay VAT under the reverse charge mechanism in the destination state, if they are registered for VAT in that state.This type of supply is treated as export according to the KSA VAT law.