Category: Quantities & pricing
Prepared by Eng. Ahmed Fathy, Projects Manager ·
Definition
VAT in Saudi Arabia has been 15% since July 2020 and applies to construction contracts, material supplies and engineering services at the standard rate. It is added to every payment application and invoice, and prices in offers and contracts must clearly show amounts before and after VAT.
Why it matters on a project
Unclear VAT treatment is one of the most common causes of financial disputes. A 15% difference on a large contract is a big sum.
Measurement and pricing
VAT = value before tax × 15%, shown on its own line in the offer, payment application and tax invoice.
Worked example
A 1,000,000 SAR contract before VAT: VAT 1,000,000 × 15% = 150,000 SAR, total 1,150,000 SAR.
Common mistake
Signing a contract for a sum without stating whether it includes VAT, then disputing it at the first payment.
Frequently asked questions
Is VAT due on the advance payment?
Yes, it is usually due when the advance is received, with a tax invoice.
Can a contractor recover VAT on purchases?
A registered contractor offsets input VAT against output VAT under the regulations.
Related terms
- QuotationA document giving a contractor's or supplier's price and terms for defined work.
- Payment application (IPC)A periodic payment request based on approved progress and executed quantities.
- Lump-sum contractA fixed-price contract for a defined scope; the contractor carries the quantity risk.
- Cash flowThe timing of money coming in and going out over the project.
Read next
Does your project need quantity take-off and BOQ pricing? Send the drawings or a short description and we reply within one working day.
Service detailsRequest a quote