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May 15, 2026

This GAZT guideline provides a detailed framework for the Value Added Tax (VAT) treatment of capital assets in the Kingdom of Saudi Arabia. It defines capital assets, clarifies the rules for initial input VAT deduction, and outlines the mandatory adjustment mechanism for changes in taxable use. The guide explains adjustment periods (6 years for movable/intangible assets, 10 for immovable) and the annual calculation process. It primarily elaborates on the application of Article 52 of the VAT Implementing Regulations, covering permanent adjustments for sales, nominal supplies upon disposal, and special rules for deducting VAT on assets held upon registration.

Capital Assets Guidelines

Version 1 | June 30, 2020

1. Introduction

1.1. Implementing a Value Added Tax ('VAT') system in the Kingdom of Saudi Arabia ('KSA')
1.2. General Authority of Zakat and Tax ('GAZT')
1.3. What is Value Added Tax?
1.4. This Guideline

2. Definitions of the main terms used

3. Economic Activity and Registration

3.1. Who carries out an Economic Activity?
3.2. Mandatory registration
3.3. Optional VAT registration

4. Key Concepts of Capital Assets

4.1. What are Capital Assets?
4.2. Purchase Value of a Capital Asset
4.2.1. Improvements to Existing Capital Assets
4.3. Supply of a Capital Asset
4.3.1. Sales of Restricted Motor Vehicles
4.4. Disposal of Capital Assets

5. Input VAT Deduction

5.1. General Provisions
5.2. Proportional deduction relating to input VAT
5.3. Principles for Deduction of Input Tax on Capital Assets (upon initial purchase)

6. Capital Assets Adjustments

6.1. Taxable Use
6.2. Adjustment Periods
6.3. Adjustment of the Value of Input Tax Deducted
6.3.1. Input Tax potentially subject to adjustment
6.3.2. Calculation of the Adjustment for each twelve month period
6.4. Capital Assets with unchanged usage during a twelve month period
6.5. Permanent Adjustment: Sale of Asset
6.6. Asset ceasing to be used for Taxable Purposes

7. Input Tax Deduction for Capital Assets held upon VAT Registration

7.1. Material Capital Assets (Goods)
7.2. Immaterial Capital Assets (Services)
7.3.Calculation of Deduction

8. VAT obligations of the Taxable Person

8.1. Issuing tax invoices
8.2. Filing VAT Returns
8.3. Keeping Records
8.4. Certificate of registration within the VAT system
8.5. Correcting past errors

9. Penalties

10. Applying for the issue of rulings (interpretative decisions)

11. Contacting Us

12. Questions and Answers

Change of VAT rate to 15% as of July 1, 2020

Upon the introduction of VAT in January 2018, the KSA applied a basic VAT rate of 5% to Taxable Supplies and Imports made in the Kingdom. The basic VAT rate was revised to 15% with effect from 1 July 2020 (the “Revised VAT Rate“).

Transitional rules have been introduced to clarify the VAT rate to be applied to long-term contracts for continuous supplies which span 1 July 2020, and for certain supplies where invoices are issued or contracts are concluded prior to 11 May 2020. These rules, and further detail surrounding the change to the VAT rate -including guidance in respect of specific types of supply- are detailed in a separate guideline on the Revised VAT Rate.

Contents

Change of VAT rate to 15% as of July 1, 2020