Imported goods: 4 steps to deduct VAT
The reverse charge lesson left goods arriving through customs for this lesson. If your business imports stock or equipment, you usually pay VAT before the goods are released from customs. What value is it charged on, who may deduct it, and what proves it?
When VAT is due and who pays it
Under the VAT Implementing Regulations and the imports and exports guideline of the Zakat, Tax and Customs Authority, importing goods is taxed in its own right, apart from any later sale. VAT is payable on the date of import, calculated on the customs declaration and paid with the duties to clear the goods. It falls on whoever acts as importer under the Unified Customs Law; an unregistered importer pays but cannot deduct it. The authority's published text governs; this is a practical simplification.
What value it is charged on
The guideline quotes the GCC Unified VAT Agreement: the value of imported goods is the customs value plus excise tax, customs duties and any other charges, excluding VAT. On the declaration, the customs value is the goods plus freight and insurance to the place of import. VAT at 15%, per the guideline, applies even to goods exempt from customs duty; only a few imports are VAT-exempt.
Practical rule: customs duty is part of the VAT base; only the VAT enters your return as input tax.
Example: a shipment logged on WhatsApp
A homeware store owner clears a blender shipment from China, sends the system a photo of the customs declaration and writes:
Cleared the blender shipment today, the broker paid 16,600 riyals customs and VAT, log it as an expense
The system splits the amount:
The importer on the declaration is your business, with your VAT number, which is a key condition for deducting it. Goods plus freight and insurance are 80,000 riyals and duty is 4,000, so the base is 84,000 and VAT at 15% is 12,600 riyals. I suggest adding the duty to the blenders' stock cost and recording 12,600 as input VAT in box 8 of this period's return (VAT paid at import), since the blenders are for sale in your taxable business. Send the broker's fee invoice separately.
With inventory over WhatsApp, stock enters at its real cost and the VAT lands in the right box. For the general conditions, see input VAT deduction.
4 steps for every shipment
- Clear in your business's name: your VAT number must appear on the declaration, usually automatically; if not, update your details with the authority. A broker may do the paperwork; what counts is who appears as importer.
- Check before paying: report any value or classification error to the authority before you pay.
- Keep the customs document: the guideline limits the deduction to whoever holds customs documents proving it imported the goods.
- Deduct to the extent of use: in full for taxable business (except blocked items such as entertainment and certain vehicles), proportionally for mixed use, nothing for exempt or personal use.
Where it usually goes wrong
| Mistake | What is right |
|---|---|
| Bearing VAT on goods cleared in a broker's or relative's name | You are not shown as importer, and the guideline limits the deduction to the importer |
| Adding customs duty to input VAT | Only the VAT is deducted |
| Deducting VAT on personal or exempt-activity goods | VAT is due at import, but not deductible |
| Waiting for a refund of VAT overpaid on a declaration | Per the guideline it is not refunded; deduct it as input VAT |
Paying through the return instead of at customs
Article 44 of the Regulations lets a taxable person apply to pay import VAT through its return instead of at customs release. Approval is not automatic. It requires a monthly tax period with imports at least monthly, twelve months of on-time returns and payments with all other VAT obligations met, and proof of financial stability. The authority may refuse the application, or cancel an authorisation, if it sees a risk of non-payment or outstanding VAT obligations. If approved, the guideline puts this VAT in box 9 instead of box 8.
Checklist
- Before shipping, confirm with the supplier and broker that your business is the importer.
- Each month, match import VAT in your books with the monthly customs statement of imports and VAT collected, and the portal summary.
- Keep import and shipping documents at least six years; see record keeping.