Introduction: VAT as a Strategic Imperative
Value Added Tax (VAT) has become a cornerstone of Saudi Arabia’s fiscal framework since its introduction in 2018. Managed by the Zakat, Tax and Customs Authority (ZATCA), VAT applies to most goods and services at a standard rate of 15%. For businesses, VAT compliance is no longer optional—it’s a vital part of sustainable operations.
At MFD Services, we understand that VAT compliance is not just about filing returns—it’s about protecting businesses from penalties, ensuring audit readiness, and enabling confident decision-making. As a trusted coordination and advisory partner, MFD Services helps clients align with evolving VAT regulations while safeguarding their strategic interests.
In April 2025, ZATCA introduced significant amendments to the VAT Implementing Regulations. These updates cover VAT grouping, digital marketplace obligations, refund eligibility, and record-keeping. They reflect the Kingdom’s push for transparency, international alignment, and the Vision 2030 roadmap.
What’s New in 2025: Key Regulatory Amendments
VAT Grouping Redefined
ZATCA has updated the rules for forming VAT groups. Under the new framework, each group member must:
- Independently qualify for VAT registration.
- Be a resident in Saudi Arabia.
- Share at least 50% common ownership or control with other group members.
- Exclude entities in special economic zones or under customs suspension.
Refund eligibility for VAT groups is now restricted, with only a few exceptions such as certain real estate developers. These changes become effective on October 15, 2025, giving companies a limited transition period.
Deemed Supplier Rules for Digital Marketplaces
From January 1, 2026, online platforms that facilitate transactions—not just payment processing—will be treated as deemed suppliers. This means they must collect and remit VAT on behalf of sellers.
For businesses running e-commerce or service platforms, this requires immediate review of contracts and workflows. MFD Services supports clients by assessing marketplace models and ensuring VAT obligations are contractually defined.
Input VAT Deduction Restrictions
Businesses can now only claim input VAT on costs directly linked to taxable supplies. Expenses connected to exempt activities may no longer be recoverable. This requires precise cost allocation and stronger documentation.
Grants and Government Payments Clarified
Government grants provided to taxable persons—when linked to goods or services—are now considered taxable. They must be treated as part of VAT-applicable consideration. This marks a major change for organizations receiving state-linked support.
Registration and Deregistration Updates
- Mandatory registration: Revenue above SAR 375,000 annually.
- Voluntary registration: Revenue above SAR 187,500.
- Deregistration rules are stricter, requiring businesses to keep all records and settle any outstanding liabilities.
Filing and Documentation: Precision Is Non-Negotiable
VAT returns must be filed electronically via the ZATCA portal:
- Monthly for entities earning over SAR 40 million annually.
- Quarterly for smaller entities.
Every return must include taxable supplies, output VAT, input VAT, and net payable/refundable amounts.
Businesses must maintain proper documentation, including:
- VAT-compliant invoices.
- Service agreements and delivery proofs.
- Bank records and payment confirmations.
- Export evidence for zero-rated supplies.
ZATCA has stressed that weak documentation can trigger audits, penalties, or denial of refunds.
Audit Preparedness: A Compliance Priority
ZATCA audits may be initiated due to inconsistencies, refund requests, or routine checks. The new rules give ZATCA authority to dissolve non-compliant VAT groups and impose penalties.
Advisory firms like MFD Services ensure clients are always audit-ready by:
- Reviewing contracts and documentation.
- Flagging high-risk exposure areas.
- Supporting coordination with licensed tax advisors for representation.
Cross-Border Transactions: GCC Alignment with Local Nuance
Saudi Arabia’s VAT rules align broadly with the GCC VAT Agreement but include local specifics. Businesses engaged in cross-border trade must pay special attention to:
- Place-of-supply rules.
- Reverse charge mechanisms for imports.
- Zero-rating conditions for exports.
MFD Services helps clients interpret these rules within Saudi Arabia’s unique regulatory context.
Strategic Implications for Businesses
The 2025 amendments highlight a shift toward stricter enforcement and deeper regulatory scrutiny. Businesses must move beyond reactive compliance and adopt a proactive VAT strategy.
This means:
- Reassessing VAT group eligibility
- Updating input VAT recovery policies.
- Reviewing digital platform structures.
- Adjusting grant and government payment treatment.
- Preparing comprehensive audit documentation.
Failure to adapt could result in financial penalties, reputational harm, and operational disruption.
Why Choose MFD Services for VAT Advisory Support
Advisory Without Overreach
MFD Services does not file VAT returns or represent clients before ZATCA. Instead, we coordinate, prepare, and advise, ensuring clients remain compliant without crossing regulatory boundaries.
Localized Expertise
We understand Saudi-specific VAT regulations and how they align with broader GCC frameworks, giving clients a regionally attuned advantage.
Scalable Coordination
Whether it’s restructuring VAT groups, reviewing platform obligations, or preparing for audits, our structured coordination adapts to businesses of all sizes.
Audit-Ready Documentation
MFD prepares VAT documentation that meets compliance standards, with disclaimers and formatting designed for ZATCA scrutiny.
Trusted by Professionals
Our role is to empower licensed tax consultants by delivering clean, organized, and risk-free documentation that accelerates their work.
Final Note
Saudi Arabia’s VAT system continues to evolve, and the 2025 amendments demand sharper compliance, transparent processes, and proactive planning. Businesses that adapt quickly will minimize risk and gain confidence in their operations.
For companies seeking structured, compliance-safe VAT support, MFD Services provides clarity, strategic coordination, and unmatched local expertise. With us, businesses can navigate VAT with confidence, precision, and peace of mind