VAT on free gifts and samples: 4 checks
If your VAT-registered business gives away free gifts or samples to promote itself, no VAT is due as long as what each recipient gets stays at or below SAR 200 per calendar year, and your total of such gifts stays at or below SAR 50,000 a year. Anything beyond that is treated as if you sold it, so you charge yourself VAT at 15% on its cost. This lesson sets out the rule from its official text, then a WhatsApp example, then 4 checks before any gift leaves your stock.
The rule as ZATCA publishes it
Article 15, "Nominal Supplies", of the VAT Implementing Regulations published by the Zakat, Tax and Customs Authority (ZATCA) treats a nominal supply as a supply for consideration made by the taxable person, then carves out these cases:
- Promotional gifts and samples: not a nominal supply if the fair market value of what each recipient gets does not exceed SAR 200 excluding VAT per calendar year (paragraph 2a).
- Goods you give your employees as part of the business: the same SAR 200 per recipient per year (paragraph 2b).
- Annual cap: the relief covers at most SAR 50,000 of such gifts, samples and goods per calendar year (paragraph 3), with a separate, equal cap for free services (paragraphs 5 and 6).
- Destruction, theft and loss: goods not used in your business for these reasons are not a nominal supply (paragraph 4).
- Purchases you never deducted VAT on: if you bore input VAT on the gift's cost, did not deduct it in your returns, and keep proof of that, there is no nominal supply (paragraph 9).
Article 39 of the same regulations sets the value of a nominal supply: the purchase price or cost, or the fair market value if those cannot be determined. ZATCA's official Arabic text, last amended in November 2024, governs in any difference.
Example: a dates shop handing out corporate gifts
The owner of a dates shop writes to the system:
Owner: I sent out 40 premium boxes as gifts to managers at our corporate clients, SAR 350 cost each. Plus 300 tasting samples in the shop at SAR 4 each. And 5 boxes broke in transit
System: Premium boxes: each went to one recipient and cost SAR 350, above the SAR 200 limit, so each is a nominal supply. VAT: 40 × 350 = SAR 14,000, and 15% of that is SAR 2,100, added to this period's return.
System: Tasting samples: SAR 1,200, under SAR 200 per visitor, so no VAT. Your relieved gifts this year now total SAR 19,800 of the SAR 50,000 cap.
System: I logged the 5 broken boxes as damage, not gifts, so no nominal supply. Send me a photo and I'll file it with the movement.
Owner: And if I give the same manager a second box in Ramadan?
System: I'll add up what they received across the whole calendar year and warn you before issuing it if it goes over SAR 200.
That is what inventory on WhatsApp adds: every box leaves stock with a written reason (gift, sample or damage) and a known recipient, so the per-recipient limit and the annual cap are tracked automatically instead of rebuilt from memory at return time.
4 checks before a gift leaves your stock
| Check | Question | If yes |
|---|---|---|
| 1. Purpose | Is the gift to promote the business, or for an employee as part of the business? | It can qualify for relief if both limits are met |
| 2. Recipient limit | Has this person received more than SAR 200 before VAT this year? | It is a nominal supply; the safer course is VAT on the gift's full cost, and ask your accountant about mixed cases |
| 3. Annual cap | Do your relieved gifts exceed SAR 50,000 this year? | Gifts beyond the cap lose the relief and carry VAT |
| 4. Purchase VAT | Did you deduct input VAT on this gift's cost? | If not, and you can prove it, there is no nominal supply |
Keep in mind that the SAR 200 limit is measured at fair market value before VAT, while the value of a nominal supply, once it arises, is its cost. For when purchase VAT is deductible in the first place, see the input VAT lesson, and keep recipient lists and proof of damage with your records.