What is input VAT?
Published
Input VAT is the value added tax a business pays on its purchases and expenses. It is not a cost - it is an amount deductible against the output VAT collected from your customers.
The equations
Input VAT = Taxable purchases × 15%VAT from a gross amount = Gross × (15 ÷ 115)Net VAT payable = Output VAT − Deductible input VAT
Al-Waha's figures for the open tax period
Taxable purchases = SAR 128,666.67Input VAT = 128,666.67 × 15% = SAR 19,300
Conditions for deduction
Deduction is not automatic. The core conditions:
- The business is registered for VAT.
- You hold a valid tax invoice containing the required fields - or a customs import document.
- The purchase is for the taxable economic activity, not personal use.
- The deduction is taken in the correct tax period.
Fail any of these and the tax is not deductible; it becomes part of the purchase cost.
What is generally not deductible
| Item | Reason |
|---|---|
| Purchases for personal use | Not for the economic activity |
| Certain entertainment and hospitality items | Excluded by regulation |
| Vehicles designated for personal use | Specific criteria in the regulations |
| Purchases relating to exempt supplies | No output VAT to deduct against |
| An invoice missing required fields | Not valid as a deduction document |
The list above is simplified for a general reader; detailed cases and exceptions are set out in the VAT Implementing Regulations and should be reviewed with a qualified accountant.
The entry
A goods purchase invoice of SAR 11,500 including tax:
| Account | Debit | Credit |
|---|---|---|
| Inventory | 10,000 | |
| Input VAT | 1,500 | |
| Accounts payable | 11,500 |
Input VAT is an asset account with a debit balance - an amount recoverable from the authority until it is offset on the return.
The costliest mistake
Recording the invoice gross without separating the tax:
| Account | Debit | Credit |
|---|---|---|
| Inventory (wrong) | 11,500 | |
| Accounts payable | 11,500 |
The double effect: inventory cost overstated by SAR 1,500, and SAR 1,500 of deductible input VAT lost entirely. Across Al-Waha's period, if the error were repeated on all purchases: SAR 19,300 forfeited on a single return, with cost of sales overstated by the same amount.
Mixed supplies
A business making both taxable and exempt supplies does not deduct all of its input VAT, but a proportion calculated under a method set out in the regulations. This case needs specialist review and should not be managed by estimate.
Frequently asked questions
When do I claim input VAT?
In the tax period in which a valid tax invoice is held. Claiming in the wrong period requires correction.
What if input VAT exceeds output VAT?
A balance arises in your favour, carried forward to the next period or refunded under the authority's procedures. This is common during expansion, large purchases, or for exporters.
Can I deduct VAT on an invoice I haven't paid yet?
Liability attaches to the supply and the invoice rather than payment, so normally yes - provided you hold a valid tax invoice.
What if I lost the original invoice?
You have no deduction document. Request a copy from the supplier before filing; deducting without documentation is an exposure at audit.