VAT for freelancers on digital platforms: A practical guide to determining liability and calculating tax

When a freelancer opens an account on a digital platform such as Upwork, Fiverr or Malt, they often assume that invoicing and tax are handled automatically. The reality is that Saudi law clearly defines who is responsible for collecting VAT and when it applies to the service.

Who is responsible for the tax?

The basic rule is that the invoice issuer is responsible for collecting and remitting the tax. For a freelancer selling services via a platform, there are three common scenarios:

• The platform issues the invoice in the freelancer’s name and adds VAT.
• The freelancer issues the invoice directly to the client, and the platform only takes a commission with no role in tax.
• The platform classifies itself as a commercial intermediary and adds tax on the commission, while the freelancer remains responsible for tax on their service.

This difference depends on the contract with the platform and its terms of service. If the contract states that the platform acts as the “supplier” or “processor” of transactions, then it bears the responsibility for collecting tax.

How to determine if your service is taxable or not?

The key is the place of supply. In Saudi Arabia, if a freelancer provides a service to a client within the kingdom, VAT of 15% applies to the service value. If the client is outside Saudi Arabia, the service is exempt from VAT, provided export is proven (for example, via a clear contract stating the service is delivered remotely).

With global platforms, the client is often from another country, but occasionally a Saudi client may request the service via the same platform. In that case, the freelancer is treated as selling within Saudi Arabia and must add VAT.

Steps to calculate VAT for freelancers on platforms

1. Determine the client’s location: Use the email address, billing details or any evidence proving the client resides in Saudi Arabia.

2. Check whether the platform adds VAT: Review the billing section in your account settings. Some platforms (such as Upwork) offer a “VAT inclusive” or “VAT exclusive” option. If the platform adds VAT, you do not need to adjust the invoice manually.

3. Calculate VAT manually if required: When you issue the invoice, calculate 15% of the service fee. Example: if the project price is 10,000 SAR, VAT = 10,000 × 0.15 = 1,500 SAR, so the total invoice = 11,500 SAR.

4. Include VAT in the electronic invoice details: Clearly state the “VAT amount” and write your VAT registration number. This simplifies the monthly return process.

5. Record VAT in the ZATCA system: At the end of each month, record total taxable sales and VAT collected in the “Zakat, Tax and Customs Authority” system. Do not forget to attach copies of the invoices.

When is VAT included in the income tax return?

VAT is not included in the income tax return, but the amounts paid as VAT are deducted from net income before calculating income tax. In other words, if you pay 15,000 SAR as VAT during the year, you can deduct it from your total income before calculating income tax.

Common challenges and how to avoid them

Misclassifying the client: If you treat a client as international when they are actually in Saudi Arabia, you may face a fine for failing to collect VAT. The solution is to clearly document the client’s address.

Relying solely on the platform to generate the invoice: Some platforms do not issue tax invoices, so you must issue a separate invoice and include VAT yourself.

Overlooking VAT on commission: Some platforms collect commission from the client and add VAT on it. If you do not record this VAT as income, your return may appear understated.

Practical tip from the field

Mohammed, a freelance graphic designer working via “Fiverr”, initially added VAT to every job he completed. He later noticed that the platform only calculated VAT on the commission. After consulting an accountant, it was confirmed that VAT on his services (from the client’s perspective) was not due because most of his clients were overseas. As a result, he removed VAT from his invoices and avoided paying unnecessary amounts.

The lesson: always review the platform’s terms and confirm the client’s location before adding VAT.

Conclusion

A freelancer using digital platforms does not differ much from any other seller regarding VAT responsibility. The difference lies in the contract details with the platform and proving the client’s location. By following clear steps—determining the client’s location, reviewing platform policies, calculating VAT manually if needed, and recording it in ZATCA—you can avoid errors and penalties.

Maintaining transparency in invoicing and documenting every process ensures a correct tax return and lets you focus on growing your business instead of worrying about taxes.