E-COMMERCE SELLING INTO KSA FROM THE UAE CUSTOMS VAT RETURNS & PE RISKS

This article has been researched and written by the Tax Consultant Team at Creation Business Consultants. AI has not been used in generating this article.

Saudi Arabia is currently one of the largest and fastest-growing e-commerce markets in the GCC. Despite the geographical proximity and strong trade relations between the Gulf Cooperation Council countries (specifically the UAE), cross-border e-commerce cannot be considered a sale within the same market, which means that UAE-based e-commerce companies will be subject to Saudi taxes if they sell goods to individuals rather than companies.

For UAE online sellers, customs, VAT, and Permanent Establishment (PE) risks represent the biggest obstacles to successful expansion in Saudi Arabia. Any of these risks can lead to delays in shipments at the border, resulting in late delivery of goods to customers, in addition to daily administrative costs and fees associated with shipments held at the border.

CUSTOMS DUTY RULES APPLIED TO GOODS SHIPPED FROM THE UAE TO SAUDI ARABIA:

One of the most common misconceptions among UAE e-commerce sellers is that all goods shipped to Saudi Arabia from within the UAE are automatically subject to zero customs duties.

However, this exemption only applies to products manufactured within the GCC countries that meet the official rules of origin under applicable regulations and laws.

This means that most goods imported from the UAE to Saudi Arabia are subject to standard Saudi customs regulations and rates.
Customs duties in Saudi Arabia are based on the Harmonized System (HS) code and typically range from 5% to 25%, (depending on the nature of the product). This means that proper HS classification is crucial; incorrect classification may result in shipment confiscation or the imposition of administrative fines.

In addition to basic customs duties, sellers will incur other charges such as administrative fees and currency exchange fees levied by shipping companies.

CUSTOMS DUTY RATES ON IMPORTED GOODS IN SAUDI ARABIA

Customs duties in Saudi Arabia range from 5% to 25%, depending on the nature of the imported shipments.

Some goods may be completely exempt from these duties, but the shipments will still be subject to Value Added Tax (VAT) (15%).

To avoid shipment delays at the border, ensure that the following documents are available for each shipment:

• A commercial invoice from the seller, including the value of each item, the quantity, and the Harmonized System (HS) code.
• A packing list.
• A certificate of origin, signed and stamped by the country of origin for the imported shipments.
• Approval from the relevant regulatory, standards, and metrology authorities.

Any missing or inaccurate documentation is one of the most common reasons for delays in shipments from UAE sellers at the Saudi border.

CONDITIONS TO CONSIDER FOR TAX COMPLIANCE IN SAUDI ARABIA FOR E-COMMERCE SELLERS

In Saudi Arabia, the Customs and Zakat Authority apply value-added tax (VAT) to imported goods in addition to customs duties. All goods imported into the Kingdom of Saudi Arabia are subject to a 15% VAT rate.

For sellers, determining who is responsible for paying VAT on imports whether it is the customer, the shipping company, or the seller themselves is a major concern.

According to Saudi tax regulations, if a resident company’s annual sales exceed SAR 375,000, it must apply for VAT registration and file returns monthly or quarterly (depending on the tax period).

For companies with no physical presence in Saudi Arabia, VAT registration is mandatory from their first sale to consumers within the Kingdom.

This obligation also applies to sellers who conduct online sales to individuals within Saudi Arabia.

This means that the responsibility for VAT registration and filing tax returns lies with the seller.

RISKS OF A PERMANENT ESTABLISHMENT IN SAUDI ARABIA FOR UAE SELLERS

A PE is a fixed place of business for a seller that may subject a UAE-based seller to a 20% corporate tax rate in Saudi Arabia even without establishing a company.

The following activities may subject a seller to corporate tax in Saudi Arabia:

• Storing goods in a third-party warehouse or distribution centre in Saudi Arabia.
• Allowing agents or contractors in Saudi Arabia to negotiate or finalize deals.
• Marketing or logistics arrangements that indicate a local presence.

Understanding PE risks is important for a company to avoid unexpected tax liabilities. Note that not all activities create a PE and small-scale marketing or occasional sales may not trigger corporate tax, but the line can be unclear, so tax advice is required.

TIPS FOR UAE E-COMMERCE SELLERS

1. Classify goods the right way – use HS code to avoid fines or shipment confiscation.
2. Accurate documentation – keep up to date invoices, packing lists, and certificates of origin.
3. Register your company for VAT early – if you meet or are near thresholds or sell directly to Saudi consumers complete VAT registration asap. 
4. Monitor PE risk activities this includes but not limited to warehousing or local agent use.
5. Partner with experienced logistics and tax advisors to manage cross-border shipments and compliance.

TAKEAWAY

Expanding e-commerce sales from the UAE to Saudi Arabia offers companies a wider market and growth potential. However, your company must ensure it is on top customs, VAT, and PE risks which need to be checked and monitored.  To set your company up for success and get ahead prepare, ensure there is accurate documentation, and seek tax advice to understand your companies tax obligations for smooth operations and to avoid fines.

For UAE sellers looking for support with tax registration, compliance, or cross-border shipments, Creation Business Consultants can provide expert guidance every step of the way.

For more information regarding how we can assist with tax services in KSA, contact us today!

Email: [email protected] | UAE: +971 4 878 6240 | Saudi Arabia: +966 54 995 267