What Are the Recurring Purchases You Can Deduct Tax From in KSA?

What Is Input Tax Deduction?

Input tax deduction is the right of a business registered for VAT to recover the tax it paid on its purchases and expenses related to its economic activity. In other words, when a business purchases goods or services for use in its commercial activity and pays VAT on them, it can deduct this tax (input tax) from the tax it collected from its customers (output tax). The purpose of this system is to ensure that tax does not represent an actual cost to the business, and that the final tax burden falls only on the end consumer.

Conditions for Tax Deduction Approval According to ZATCA

The Zakat, Tax and Customs Authority (ZATCA) has set clear conditions for accepting input tax deduction, and all these conditions must be met to benefit from the tax deduction right:

1. Purchases Must Be in the Course of Economic Activity

Expenses and purchases must be directly related to your business activity subject to VAT. Personal expenses or expenses not related to economic activity cannot have their tax deducted.

2. Tax Must Be Actually Incurred

You must have actually paid VAT on these purchases or services with supporting documents proving this. Payment alone without invoices or documents is not sufficient for tax deduction.

3. Possession of Valid Tax Invoices

You must possess tax invoices in the name of the business that wants to benefit from the deduction. The tax invoice must meet the conditions stipulated in Article 53 of the Executive Regulations of the VAT Law, including:

• Supplier name and tax registration number
• Invoice issue date
• Description of goods or services provided
• Taxable amount
• VAT amount
• Customer (purchasing business) name in full tax invoices

4. Supplier Must Be Registered in the Tax System

The invoice must be issued by a supplier registered in the VAT system with the Zakat, Tax and Customs Authority.

5. In Case of No Tax Invoice Available

If a tax invoice is not available, an alternative document must be provided proving payment of tax to the taxable supplier, according to Article 8 "Alternative Documents/Evidence" of the Input Tax Deduction Guide.

Recurring Deductible Purchases

Can You Deduct VAT on Fuel?

Yes, you can deduct VAT on fuel if it is used for business purposes, such as fuel for delivery vehicles or company vehicles used for work. Tax invoices must be kept as proof.

Can You Deduct VAT on Electricity?

Yes, electricity bills for business premises, factories, or warehouses are fully VAT deductible, provided the premises are dedicated to business activity only.

Can You Deduct VAT on Water?

Yes, water bills for business establishments are VAT deductible, as long as consumption is related to the establishment's economic activity.

Can You Deduct VAT on Medical Insurance?

It depends on the case. If the business is registered for VAT and purchases medical insurance as part of its economic activity, it can deduct VAT paid on premiums. However, there are special rules to consider:

• If medical insurance is considered personal benefits or special perks for employees (i.e., not directly related to the business activity), it may not be deductible or only proportional deduction may apply.
• If the cost is part of legal obligations (such as mandatory employee health insurance), tax deduction may be clearer.

Can You Deduct VAT on Internet and Communications?

Yes, internet, telephone, and communication services used in business activity are fully deductible.

Can You Deduct VAT on Office Rent?

Yes, rent for business premises, offices, or warehouses is VAT deductible, provided the landlord is registered in the tax system and issues tax invoices.

Can You Deduct VAT on Office Supplies?

Yes, office supplies such as paper, pens, printers, ink, and other work supplies are deductible.

Can You Deduct VAT on Equipment and Devices?

Yes, purchasing computers, printers, office furniture, and other equipment for business activity allows deduction of VAT paid on them.

Can You Deduct VAT on Professional Services?

Yes, professional services such as legal, accounting, and marketing consultations, design services, and programming are deductible if related to business activity.

Can You Deduct VAT on Maintenance and Repairs?

Yes, costs of maintaining and repairing equipment, vehicles, and buildings used in business activity are tax deductible.

Purchases You Cannot Deduct Tax From

Although most purchases related to business activity are eligible for VAT deduction, there are important exceptions you should know to avoid tax violations:

1. Expenses Not Related to Economic Activity

Any personal purchases or expenses not directly related to your business activity cannot have their tax deducted. Examples include: personal purchases for the owner or family expenses.

2. Purchases Related to Tax-Exempt Supplies

If your purchases relate to supplies exempt from VAT (such as financial services, education, exempt healthcare), you cannot deduct input tax paid on those purchases. The difference here is that exempt supplies have no tax imposed on them in the first place, so you're not entitled to recover tax on their inputs.

3. Entertainment and Hospitality Services

VAT deduction is blocked only for hospitality and entertainment provided to employees or third parties for non-business purposes (such as recreational activities, personal entertainment, or social events). However, you can deduct VAT on legitimate business expenses such as:

• Training events and professional development programs
• Meals during business meetings with clients or partners
• Accommodation and meals for business travel
• Conference and seminar attendance costs

4. Certain Vehicles and Restricted Expenses

There are restrictions on deducting VAT on certain types of vehicles according to regulations specified by the Authority. It is advisable to review the Input Tax Deduction Guide for precise details.

5. Purchases from Unregistered Suppliers

If you purchase goods or services from a supplier not registered in the VAT system, or who did not include their tax registration number on the invoice, you cannot deduct input tax even if an amount was charged as tax on the invoice.

6. Received Deemed Supplies

VAT on deemed supplies (such as goods or services provided free of charge) received by the customer is not considered deductible input tax for the receiving customer.

Frequently Asked Questions

1. When can I deduct input tax in the tax return?

You can deduct input tax in the tax period in which you received the tax invoice and actually incurred the tax, provided all deduction conditions are met. In certain cases, you can amend previous returns if you missed deducting eligible tax.

2. What if I discover I forgot to deduct input tax in a previous return?

You can amend the previous tax return through the Zakat, Tax and Customs Authority's electronic portal, or include the amendment in your current return under the designated "Amendments" section.

3. Can I deduct VAT on simplified invoices?

Yes, you can deduct VAT from simplified tax invoices if the invoice value is less than 1,000 SAR. However, if the invoice value is 1,000 SAR or more, you must request a complete tax invoice containing buyer details (name and tax number) to be able to deduct input tax.

4. Do I need to keep original invoices or are electronic copies sufficient?

Electronic copies of electronic tax invoices are sufficient and acceptable, provided they are securely stored and accessible upon request from the Zakat, Tax and Customs Authority. All records and invoices must be kept for at least 6 years.

5. What is the difference between exempt supplies and zero-rated supplies?

Exempt supplies: No tax is imposed on them, and the supplier cannot deduct input tax related to them. Zero-rated supplies (0%): Considered taxable at 0% rate, and the supplier can fully deduct input tax related to them.

6. How can I verify that a supplier is registered for VAT?

You can verify supplier registration in the VAT system through the Zakat, Tax and Customs Authority's website via the "VAT Registration Verification" service by entering the tax number or commercial registration number.

Conclusion

Input tax deduction is a fundamental right for businesses registered for VAT, and helps ensure that tax does not represent a cost burden on commercial operations. It is important to understand the conditions that must be met for tax deduction approval, ensure possession of valid tax invoices from registered suppliers, and that purchases are related to economic activity. You should also know which purchases cannot have their tax deducted to avoid tax violations. We recommend keeping all documents and invoices organized, and reviewing the Input Tax Deduction Guide issued by the Zakat, Tax and Customs Authority for detailed information.

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