Tax categories
The four tax categories a tax rule can have (standard rate, zero rated, exempt, out of scope), their rates, reasons and how they print.
Every tax rule in Settings → Taxes has one of four categories, chosen under Category when you add or edit the rule. The category decides the rate, whether a reason is needed, and how the line appears on the invoice, in the VAT report and in ZATCA's e-invoice (where they are coded S, Z, E and O).
| Category (code) | Rate | Reason | Example in a travel agency |
|---|---|---|---|
| Standard rate (S) | Above 0, for example 15% | None | Hotel stays, packages and services sold in the country. |
| Zero rated (Z) | 0% | Needed | International transport of passengers. |
| Exempt (E) | 0% | Needed | Exempt financial services. |
| Out of scope (O) | 0% | Needed in Saudi Arabia; elsewhere "Not subject to tax" by default | Amounts outside VAT, or countries with no VAT. |
Rules the screen applies
- Rate % can only be typed for Standard rate. Other categories are always 0%.
- A standard-rate rule needs a rate above 0: a standard rule at 0% is refused.
- Zero-rated, exempt and out-of-scope rules have rate 0: these cannot carry a rate.
- In a country with e-invoicing (Saudi Arabia), a zero rated, exempt or out of scope rule needs a Reason from the official list: Choose the exemption reason (needed for e-invoicing), Choose a reason from the official list. A reason of another category is refused: This reason is for category …. See VAT exemption and zero-rate reason codes.
- Elsewhere, without a reason the printed wording is "Zero rated", "Exempt from VAT" or "Not subject to tax".
- A line with no rule at all is out of scope at 0%.
How each category appears
| Category | On the rule list | On the printed invoice | In the VAT report |
|---|---|---|---|
| S | Standard rate | Standard rate with the rate, e.g. S 15% per line |
Standard rated |
| Z | Zero rated | Zero rated, the code and the reason | Zero rated |
| E | Exempt | Exempt, the code and the reason | Exempt |
| O | Out of scope | Out of scope, the code and the reason | Out of scope |
When every line of a document is out of scope and there is no standard rate, the document prints as a plain Invoice without a Tax breakdown.
Note
Lines with the same category, rate and reason are added together in the Tax breakdown, and their VAT is rounded once for the group. See How VAT is worked out, and the Rounding line.
Related articles
- VAT exemption and zero-rate reason codesThe reason codes a zero rated, exempt or out of scope tax rule can carry, ZATCA's official VATEX list and the other countries' reasons.
- Tax and e-invoicing rules by countryThe currency, VAT rate, tax rules, VAT number format and e-invoicing each country starts with, and what happens when a branch is in that country.
- How VAT is worked out, and the Rounding lineHow the system works out VAT on each invoice, why prices include tax, and why a Rounding line of 0.01 sometimes appears.
- ZATCA validation and rejection codesEvery rule code the system or ZATCA can show on an e-invoice, what it means in plain words, and how to fix it.