How to Calculate Value Added Tax (VAT) in Saudi Arabia Step by Step

Knowing how to calculate Value Added Tax (VAT) is essential for business owners, store owners, and accountants in Saudi Arabia; because an error in determining the price before tax, the tax value, or the total amount reflects on invoices, accounts, and tax returns.

The standard VAT rate in the Kingdom is 15% since July 1, 2020, and applies to supplies subject to the standard rate, with some supplies that may be subject to the zero rate or exempt according to the system.

The tax calculation method differs depending on the starting number: Do you have the price before tax and want to add 15%? Or do you have a tax-inclusive amount and want to know the tax value and the original price?

In this guide, you will learn both methods with examples, in addition to how to use a VAT calculation program to reduce errors in invoices, sales, and purchases.

To explain the tax from registration to filing and refund, you can review the guide to Value Added Tax in Saudi Arabia.

What is Value Added Tax (VAT)?

Value Added Tax is an indirect tax imposed on goods and services bought and sold by enterprises, with some exceptions and different treatments for certain supplies.

The final consumer bears the cost of the tax, while registered enterprises collect output tax on sales and handle input tax on purchases in accordance with the applicable rules and regulations.

Therefore, the enterprise must not consider the tax as part of its actual revenue, but rather separate the supply value from the VAT value within the accounts.

How to Calculate 15% VAT

If the price is exclusive of tax, calculating the VAT is done using the following formula:

Tax Value = Price before Tax × 15%

Then:

Price inclusive of Tax = Price before Tax + Tax Value

Or directly:

Price inclusive of Tax = Price before Tax × 1.15

This method is compliant with the guidelines of the Zakat, Tax and Customs Authority (ZATCA) for supplies subject to the standard 15% rate.

Example of VAT Calculation

If the service price before tax is 1,000 SAR:

Tax Value:

1,000 × 15% = 150 SAR

Total:

1,000 + 150 = 1,150 SAR

So:

This is the simplest way to calculate VAT when you have the base price before adding the tax.

How to Extract Tax Value from the Total Amount

If you have the price inclusive of VAT, do not multiply the amount by 15%; because the total already contains the tax.

The formula to extract the tax value from the total amount is:

Tax Value = Amount inclusive of Tax × 15 ÷ 115

ZATCA uses the 15/115 formula to extract the tax value from the tax-inclusive price.

Example

If the total amount is 1,150 SAR:

1,150 × 15 ÷ 115 = 150 SAR

Therefore, the Tax Value = 150 SAR.

And the price before tax:

1,150 - 150 = 1,000 SAR

This method is very important when reviewing invoices with prices displayed inclusive of tax.

How to Calculate the Amount Before Tax

To calculate the amount before tax from a price inclusive of 15%, use:

Amount before Tax = Total Amount ÷ 1.15

Or:

Amount before Tax = Total Amount × 100 ÷ 115

ZATCA guidelines explain the use of the 100/115 formula to reach the supply value from the tax-inclusive price.

Example for an amount of 2,300 SAR inclusive of tax

Amount before Tax:

2,300 ÷ 1.15 = 2,000 SAR

Tax Value:

2,300 - 2,000 = 300 SAR

Thus:

Tax Calculation Method: Quick Table

The VAT calculation method can be summarized in the following table:

For amounts containing fractions of a Riyal, Authority guidelines clarify that the tax value on the tax invoice is rounded to the nearest Halala according to applicable rules.

How is Sales and Purchases Tax Calculated?

For a registered enterprise, there is usually a tax associated with sales and a tax associated with purchases eligible for deduction.

Output Tax

It is the tax that the enterprise collects when selling taxable goods or services.

Example:

Taxable sales before VAT = 20,000 SAR

Output Tax:

20,000 × 15% = 3,000 SAR

Input Tax

It is the VAT paid to suppliers on purchases, and its deduction is subject to regulatory conditions.

Example:

Eligible purchases before tax = 8,000 SAR

Tax:

8,000 × 15% = 1,200 SAR

Simply put, output tax can be compared to deductible input tax when preparing the return, keeping in mind all regulatory rules and exceptions.

You can learn about the relationship between tax, sales, and purchases practically from the guide to Sales and Purchases Accounting.

Are All Goods and Services Subject to 15% Tax?

No.

The 15% rate is the standard rate in Saudi Arabia, but there are supplies that may be subject to a zero rate or be exempt from tax according to the nature of the good or service and the applicable regulatory rules.

Therefore, not all products should be automatically set to 15% without confirming the correct tax treatment.

This is an important point when setting up a tax calculation program, as the accuracy of the result depends first on the correctness of the tax rate specified for each item or service.

How do you calculate tax when there is a discount?

When there is a discount that affects the taxable supply value, the system must calculate the tax on the correct basis after applying the discount in accordance with the tax treatment of the transaction.

Simplified example:

Price = 1,000 SAR

Discount = 100 SAR

Value after discount = 900 SAR

Tax:

900 × 15% = 135 SAR

Total:

900 + 135 = 1,035 SAR

And because the invoice is the document that shows the supply value, tax, and discounts, you can refer to the Tax Invoice in Saudi Arabia guide.

Is there software to calculate VAT?

Yes, VAT calculation software can be used instead of repetitive manual calculation, especially in companies and stores that issue a large number of invoices daily.

But the best software doesn't just do:

Price × 15%

It must instead link the tax with:

• Products and services.
• Sales.
• Purchases.
• Discounts.
• Returns.
• Customers.
• Suppliers.
• Invoices.
• Accounts.
• Tax reports.

DigitalPro offers the ability to define tax on items and manage invoices, returns, sales, purchases, and reports within a single system.

You can explore DigitalPro as an accounting and point-of-sale system if the enterprise needs a program to calculate VAT and link it directly to accounts, invoices, and inventory.

Also discover: The Best Accounting Software for Small Businesses in Saudi Arabia

What is the benefit of a VAT calculation program?

The program helps reduce errors resulting from repetitive manual calculation, especially when there are:

• Hundreds of invoices.
• Multiple products.
• Discounts.
• Returns.
• Branches.
• Points of sale.
• Daily sales and purchases.

When issuing an invoice, the system can calculate the price before tax, the tax, and the total, then record the transaction in sales, the customer's account, and reports.

This becomes even more important with electronic invoicing; as the enterprise needs to issue invoices showing the required data and tax values in an organized manner. You can review the article E-Invoicing Software to know the requirements for choosing the right system.

Common Errors when Calculating VAT

Among the most common errors to avoid are:

• Multiplying the tax-inclusive amount by 15% to extract the tax.
• Confusing the price before tax with the inclusive price.
• Applying the 15% rate to a supply that is not subject to the standard rate.
• Ignoring discounts when determining the taxable value.
• Not reviewing returns.
• Entering an incorrect tax rate into the program.
• Considering the tax as part of sales revenue.
• Relying on manual calculation despite having a large number of transactions.

The basic rule is:

Before Tax → Multiply by 15%.

Inclusive of Tax → Use 15/115 to extract the tax.

Frequently Asked Questions on How to Calculate VAT

How do I calculate 15% VAT?

Multiply the amount before tax by 0.15. If the price is 1,000 SAR, the tax will be 150 SAR and the total 1,150 SAR.

How do I calculate the amount inclusive of tax?

Use:

Amount before Tax × 1.15

Example: 2,000 × 1.15 = 2,300 SAR.

How is the tax value extracted from the total amount?

Use:

Total × 15 ÷ 115

This is the method outlined by ZATCA guidelines for extracting a 15% tax from a tax-inclusive amount.

How is the amount before tax calculated?

Use:

Amount inclusive of Tax ÷ 1.15

If the total is 1,150 SAR, the amount before tax is 1,000 SAR.

How much is the tax in an amount of 115 SAR?

If 115 SAR is inclusive of tax:

Tax Value = 115 × 15 ÷ 115 = 15 SAR

And the price before tax = 100 SAR.

How much is the tax for an amount of 100 SAR?

If 100 SAR is before tax, the tax value is 15 SAR and the total is 115 SAR.

But if 100 SAR is inclusive of tax, the tax will not be 15 SAR; rather, it is extracted using the 15/115 formula.

Is there an official VAT calculator?

The Zakat, Tax and Customs Authority provides a Merchant and Consumer Calculator service that helps the user calculate the VAT value.

Conclusion

How to calculate VAT depends on knowing whether the amount in front of you is inclusive of tax or not.

If the price is before tax:

Tax = Price × 15%

Total = Price × 1.15

As for if the price is inclusive of tax:

Tax Value = Total × 15 ÷ 115

Price before Tax = Total ÷ 1.15

These formulas help calculate the VAT in Saudi Arabia correctly for supplies subject to the standard rate, with the necessity of noting that some supplies have different tax treatments.

With the increase in sales and purchases volume, using a VAT calculation program becomes more practical than relying on manual calculation. You can try DigitalPro to link tax with sales, purchases, invoices, inventory, and reports, or explore Aamalsoft solutions then request a free trial to test an actual tax cycle within the system.