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Saudi Arabia continues to lead VAT policy innovation within the Gulf Cooperation Council (GCC) as it refines its tax framework to support economic diversification. Since its introduction in 2018, Saudi Arabia’s VAT system has undergone rapid evolution, with the rate increasing to 15% in 2020, making it the highest in the GCC.
With the implementation of new VAT-related regulations on 18th April 2025, Saudi Arabia is making strategic moves that both modernise its tax base and attract international visitors.
1. VAT refund for tourists: A tourism-boosting initiative
In a landmark shift, Saudi Arabia has introduced a VAT refund scheme for tourists. This measure aligns with its Vision 2030 goals to increase tourism’s share in GDP. The policy enables eligible visitors to reclaim VAT on goods purchased during their stay, which is a compelling incentive for international travellers. Similar systems are already in place across Europe and parts of Asia, but this is a first for Saudi Arabia. The move is expected to enhance the appeal of visiting, particularly as it promotes cultural events and international sporting fixtures.
2. E-commerce enters the VAT fold
Alongside its focus on tourism, Saudi Arabia is strengthening its oversight of digital commerce. The government has confirmed its intent to expand VAT compliance requirements to e-commerce platforms. Under the new regulations, online businesses—whether based locally or overseas—must register, collect, and remit VAT on eligible sales to Saudi consumers. This aligns with global tax trends targeting the digital economy, placing additional compliance responsibilities on sellers. For tax professionals and ERPEnterprise resource planning (ERP) is a type of software that organisations use to manage main business processes. implementers, these changes underscore the need for robust indirect tax automation and advisory services.
3. Holding the highest VAT rate in the GCC
Since increasing its VAT rate to 15% in 2020, Saudi Arabia has remained the GCC country with the highest indirect tax rate. While other GCC members, such as the UAE and Bahrain, maintain a 5% standard rate, Saudi Arabia’s higher threshold is a deliberate revenue-generating tactic amid fluctuating oil markets. It reflects a broader fiscal strategy: reducing dependence on hydrocarbons and securing a more sustainable state income through diversified taxation.
Implications for indirect tax strategy
For global organisations and regional e-commerce operators, these developments present both opportunities and challenges. The tourist refund scheme may necessitate updates to point-of-sale systems, while e-commerce compliance adds new layers of complexity to VAT reporting. As always, Innovate Tax is ready to help clients interpret and implement the necessary changes through automated tax solutions and tailored consulting.
Staying ahead of these shifts is crucial for any business operating in the region, as it helps safeguard compliance, avoid costly penalties, and maintain operational continuity amid regulatory changes.
