- All companies, businesses or entities which make an annual taxable supply of goods
and services in excess of SAR 375,000 are legally required to register for VAT with
the General Authority for Zakat and Tax.
- The registration period for companies below SAR 1M in revenues will extend until
the end of 2018.
- Those which make an annual taxable supply of goods and services in excess of SAR
187,500 but less than SAR 375,000 are eligible for to register voluntarily. Voluntary
registration provides significant benefits for the companies since it allows the
deduction of input tax.
- Businesses which are generating less than 187,500 SAR annual revenue are exempt
from the need to register
Businesses that provide goods and services which are not subject to VAT are not required to register for VAT.
The mandatory registration threshold is calculated on the basis of the taxable turnover (with the exclusion of capital assets) either based on the past twelve months or in the twelve months to come.
Do companies that fall below the voluntary threshold need to register in order to be able to do business with larger companies?
Companies that fall below the voluntary threshold are not eligible for VAT registration. Companies that meet the voluntary threshold and are below the mandatory threshold have the option to register for VAT.
How are group companies treated in KSA? Is there a maximum revenue size for the group company above which it is treated as separate companies?
Two or more Legal Persons may apply to register as a Tax Group in KSA if the following requirements are met:
- a) Each Legal Person is resident in the Kingdom and carries out an Economic Activity;
- b) Fifty percent (50%) or more of the capital of each legal Person, or ownership or control of fifty percent (50%) or more of the voting rights or value, in both or all of the legal Persons, is held by the same Person or group of Persons, whether, in any of the foregoing cases, directly or indirectly
- c) At least one of the Legal Persons is a Taxable Person eligible to be registered in its own right.
No, one of the requirements for VAT Groups is each Legal Person is resident in the Kingdom and carries out an Economic Activity.
If a person has annual revenues exceeding the mandatory registration threshold, but are solely generated by zero-rated goods, do they have to register?
A person who at any time has annual supplies made in KSA whose value exceeds the mandatory registration threshold which are exclusively zero-rated supplies, is excluded from the requirement to register. That person may elect to apply to register voluntarily.
In accordance with article 5 of the Implementing regulations and article 50 (3) of the unified VAT Agreement, non-residents must register as soon as they make any supply for which they are liable to charge VAT; this applies to supplies where the customer is not a taxable person and cannot self-account for VAT.
Any registration application must contain the following minimum information:
a) The official name of the legal person;
b) Physical address of place of business;
c) Registered address to receive e-mail;
d) Existing electronic identification number issued by the Authority, if any;
e) Commercial Registration identification number;
f) Value of annual supplies or annual expenses; and
g) Effective date of registration, or any alternative requested effective date.
What is the smart registration SMS (automatic registration) in Saudi Arabia? What does a company have to do? What if its revenues fall under the registration threshold?
Smart registration SMS intends to explain to taxpayers that GAZT has created their VAT account based on financial or some proxy information. In case they believe, they are not eligible to register for VAT, they can submit a deregistration request.
If the taxpayer believes that they are VAT eligible, they should log into their account and check if their details (such as name, VAT eligible supplies and purchases) are captured correctly.
If taxpayer’s revenue falls under registration threshold, they must check deregistration criteria in regulations and submit a deregistration request.
If you are already have a valid tax identification number (TIN), follow the below detailed instructions:
1) Open GAZT web site www.gazt.gov.sa and click on “User Login”
2) Enter existing User ID and Password and click “sign in”
3) Enter one time log-in code that is sent to the GAZT-registered mobile number by SMS (same as for other taxes)
4) The GAZT Taxpayer’s Dashboard will open
5) Here there will be a tile where taxpayers can register for VAT (if not already pre-registered) or change their registration details
If you do not have a TIN, you need to sign up for one on GAZT’s website prior to VAT registration.
An application to form a Tax Group must be made by one Taxable Person. This person should be the representative member of the Tax Group and will have the primary obligation to comply with the obligations and the rights of the group on behalf of all members of the group.
What are the requirements for mandatory deregistration in Saudi Arabia? A taxable person must apply to deregister within 30 days when any of the following cases occur:
- If the taxable person ceases to carry an economic activity, including the ceasing to exist as a legal person
- If at the end of any month, the non-resident taxable person has not made any taxable supplies in the KSA in the most recent 12 month period
- If all of the following three conditions occur for a resident:
1) Total value of annual supplies or annual expenses in the last 12 months does not exceed the voluntary registration threshold
2) Total value of annual supplies made in the KSA or annual expenses in the last 24 months does not exceed the mandatory registration threshold
3) Total value of annual supplies or annual expenses in that month and the subsequent 11 months is not anticipated to surpass the voluntary registration threshold
Deregistration is optional if:
- The business’s taxable sales in the past 12 months is between SAR 187,500 and SAR 375,000
- The business’s expected taxable sales in the next 12 months (current month included) is between SAR 187,500 and SAR 375,000
No, a branch and its head office are considered to be one taxable person for VAT purposes, given that they both form part of the same legal entity. This also applies in case of two branches with different Commercial Registrations (CRs).
How frequently does VAT need to be filed and how long after the deadline does the filing have to be received by GAZT in KSA?
The Tax Return of a Taxable Person must be filed electronically with the Authority for each Tax Period by the last day in the month following the end of the Tax Period to which the Tax Return relates.
- Taxable persons which make an annual taxable supply of goods and services in excess of SAR 40,000,000 will be required to file VAT returns monthly
- All other taxable persons will be required to file VAT returns quarterly. However, such persons may elect to file monthly returns subject to approval by GAZT
Payment of Tax due by a Taxable Person in respect of a Tax Period must be made by the last day of the month following the end of that Tax Period.
Companies that have applied and have been granted a group registration in KSA will be able to start filing as a group only during the next filing period.
For example, if you are a monthly filer who applied for group registration in February and is granted the group registration certificate, then you will be able to file your returns as a group starting the period of March which is due for submission by April.
The filing for the month of February will remain as per the registration status which was effective in February, where each company will be expected to file individually as was the case before group application.
A Taxable Person in KSA is only allowed to apply for cash-based accounting provided that the annual value of taxable supplies in the past calendar year and the anticipated value of taxable supplies in the current calendar year do not exceed five million Saudi riyals. This is intended to support small businesses with the implementation of VAT. Taxable persons with taxable supplies above that threshold are required to report to GAZT on accrual accounting basis.
Where any amount is expressed in a currency other than riyals, the amount must be converted to riyals using the daily rate prescribed by the Saudi Arabian Monetary Authority on the date Tax becomes due.
Taxpayers should use credit and debit notes to make corrections to overstated or understated VAT declared in previous invoices.
- Credit notes: If a supplier realizes it collected too much VAT from its customer, the supplier must issue a credit note to the customer for the difference.
- Debit notes: If a supplier realizes it collected too little VAT from its customer, the supplier must issue a debit note to the customer for the difference.
Credit and debit notes must specify the tax invoice number for the original transaction to which they are connected.
If a taxpayer needs to make an adjustment to an already submitted tax return, he has 20 days to notify GAZT by submitting a correction form.
If there is a discrepancy of tax owed under SAR 5,000, the correction can be made by adjusting the net tax in the business’s next tax return.
If you are unable to pay VAT in KSA when it is due, you can request an extension from GAZT in writing, noting:
- The amount of tax owed
- The tax periods associated with that sum
- Why paying on time is not possible
GAZT will reply either approving or rejecting the request within 20 days.
The VAT Invoice in KSA must include the following details in Arabic, in addition to any other language also shown on the Tax Invoice as a translation:
a) The date of issue;
b) A sequential number which uniquely identifies the invoice;
c) The Tax Identification Number of the Supplier;
d) In cases where the Customer is required to self-account for Tax on the Supply, the customer's Tax Identification Number and a statement that the Customer must account for the Tax;
e) The legal name and the address of the Supplier and of the Customer;
f) The quantity and nature of the Goods supplied or the extent and nature of the Services rendered;
g) The date on which the supply took place, where this differs from the date of issue of the invoice;
h) The taxable amount per rate or exemption, the unit price exclusive of VAT and any discounts or rebates if they are not included in the unit prices;
i) The rate of Tax applied;
j) The Tax amount payable, shown in riyals;
k) In the case where Tax is not charged at the basic rate, a narration explaining the Tax treatment applied to the Supply;
l) In cases where the margin scheme for used Goods is applied, reference to the fact that VAT is charged on the margin on those Goods.
Tax invoices must include the Tax Identification Number of the Supplier. In cases where the Customer is required to self-account for Tax on the Supply, the tax invoice must also include the customer's Tax Identification Number and a statement that the Customer must account for the Tax.
Are there differences in how invoices should be structured with respect to the counterparty (e.g. different invoices for small, non-registered markets than for large ones)?
There is no differentiation of VAT invoice requirements depending on the counterparty. However, a simplified Tax Invoice may be issued for Supplies of Goods or Services valued less than 1,000 riyals. A simplified Tax Invoice may not be issued in respect of an Internal Supply or an Export of Goods
Self-billed Tax Invoices may be issued by the Customer on behalf of a Supplier in respect of a Taxable Supply made to the Customer, provided that a prior agreement between the Supplier and the Customer has been made to this effect. Such agreement must confirm a procedure for the acceptance of each Invoice by the Supplier of the Goods or Services, and include an undertaking by the Supplier not to issue Tax Invoices in respect of those Supplies.
Currently the physical bills are not sent to customer if the bill amount is less than 100 SAR. If customers don't receive the VAT invoice, then how can they claim back VAT in KSA?
A simplified Tax Invoice may be issued for a Supply of Goods or Services valued at less than 1,000 riyals. A simplified Tax Invoice may not be issued in respect of an Internal Supply (sales to other GCC countries) or an Export of Goods.
Businesses can use simplified tax invoices in KSA for goods or services valued at under SAR 1,000 that are not classified as export or internal supplies. The simplified tax invoice must include:
- The date the invoice is being issued
- The full name, address, and tax identification number of the supplier
- The description of the Goods or Services supplied
- The total payable for the good or service referred to in the invoice
- The tax payable or an indication that the total payable mentioned includes VAT
The company needs to issue electronic invoices and store them for review. At the end of the tax period, the total of these invoices is calculated and submitted with the tax declaration; the actual invoices are not submitted to the Authority.
If a person receives a payment in excess of the amount mentioned on the invoice, does the person has to pay VAT for this amount?
In case this excess amount is received in exchange for advanced payment supplies, it is a taxable supply of 5%.
What does a person do if the value of a supply, as stated on the invoice that has been already submitted to the Authority in Saudi Arabia, changes?
In the event that the value of a supply is adjusted, the taxable person who has made the supply shall provide the customer with a credit/debit note as prescribed in article 54 of Saudi VAT Implementing Regulations. In this case,
a) credit note in case the tax charge on the invoice exceeds the actual value; or
b) Debit note in case the tax charge on the invoice is less than the actual value.
The value of a supply changes due to specific cases, indicated under article 40 of the VAT implementing regulations. Below are two examples where this might occur:
- An order for a good that has been paid but not delivered is cancelled and must be refunded
- A customer opts to cancel a service that has already been partially completed and therefore the revenue and tax collected must be proportionally adjusted
Tax invoices must be issued at the latest by the 15th day of the month following the month when the transaction occurred.
Records shall be kept in the Kingdom either physically or electronically through an access to the relevant server where these records are stored. These must be produced upon request by GAZT. Original documents are preferable but true copies may also be accepted.
If sales are made to regular customers, is it possible to issue a consolidated cash invoice for these customers at the end of the month as a single cash transaction in Saudi Arabia?
A summary invoice may be issued provided that all Supplies included on a summary Tax Invoice are made by the same Supplier and within the same Tax Period, and the invoice must be in compliance with all other requirements of a tax invoice as provided for in Article 53 of the Implementing Regulations.
Should tax invoices issued from a branch list the name of the main company or the branch, given that the name of the main company is listed in the tax certificate?
For VAT purposes, the Tax Invoices should be issued by the name of the main company listed in the tax certificate with or without the name of the branch. Please note, issuing invoices is subject to the conditions contained in the Implementing Regulations.
GAZT does not require submission of any invoices or supporting documents for VAT returns. The documents need to be retained in electronic or paper form in Arabic for 6 years for auditing purposes.
Taxpayers should keep all records related to their calculation of VAT. The records should include VAT returns, invoices, accounting records and any other documents that explain the operations of the taxpayers.
GAZT does not require additional audit requirements but an auditor's opinion may be required in cases where a bad debt needs to be qualified.
GAZT will execute audits via a combination of on-site and off-site audits. The exact approach is currently being detailed and will be communicated over the coming months.
Business may be selected for review or audit if return and circumstances are not within acceptable boundaries. These conditions will change according to business's reporting history. Businesses with a proven history of accurate reporting are less likely to be selected for review in KSA.
GAZT will also be addressing areas of identified risk which may include certain industry types, market segments or geographical locations, and conducting random sampling to ensure the integrity of returns.
You may be asked to substantiate a return up to five years after the end of the year in which the return was due.
If a business has been selected for a review, then the business will be contacted and asked to explain and provide evidence to support your VAT return. This may include certain tax invoices and other evidence of business transactions.
A review is a request to re-examine a decision made by GAZT. A review can be requested for assessments and re-assessments, input tax deductions, VAT registrations and de-registrations, VAT groups, refunds and penalty decisions.
1) Incorrect re-assessments issued by GAZT.
2) Cancellations of applications to change the proportional input deduction method.
3) Cancellations of applications for VAT registration, cancellations of applications for VAT deregistration, Involuntary deregistration, and cancellations of suspensions of filing obligations.
4) Cancellations of applications to form VAT group, and cancellations of changes to a VAT group.
5) Involuntarily offsetting of VAT credit, and cancellations of applications for refund to Eligible Persons.
6) Late registration penalties, late filing penalties, late payment penalties and correction penalties.
A taxpayer can request for a review within 30 days of the decision made by GAZT.
Log in to account on the GAZT Portal, go to taxpayer services within the Indirect Tax tile, and submit a request for VAT review.
Securities are requested depending on the review reason. Requests related to re-assessments and penalties will require a security payment.
Bank guarantees need to be sent to GAZT headquarters.
If no security payment is made on the request for review, the request for review will be cancelled and won't be processed.
The Internal Review department within GAZT will analyze the validity of your request and investigate the issue. The internal review is an independent department and will objectively analyze the case.
You can request for an appeal at the Judiciary Committees for the Settlement of Tax Violations and Disputes.
No specific prescriptions are included in the regulation. General rules and principles apply. Extras are already integrated in the final product and hence in the pricing of the vehicle which is subject to VAT.
If a company offers cash deduction in KSA on its goods and services, an amendment is made to the tax previously reported by deducting the value of the cash.
Goods that are provided for free to the customer are not considered to be taxable supplies if the fair value of these supplies does not exceed SAR 200 per customer.
Can products be zero-rated under one circumstance while standard-rated (5%) in another one in Saudi Arabia?
No, goods/services will be subject to a consistent VAT rate. However, it is important to understand the definition of "Economic Activity" as it determines if an exchange of goods/services is "within the scope of tax" or not.
Intercompany transactions for a Group operating in Saudi Arabia are not subject to VAT as supplies of goods from one member to another member within a VAT group are not considered supplies of goods or services within the scope of tax.
Expenditures relating to the following Goods or Services are not considered to be incurred by the Taxable Person in the course of carrying on his Economic Activity, and consequently the Taxable Person will not be permitted to deduct the Input Tax relating to such expenditure, save where the Goods or Services are to be directly supplied onwards as a Taxable Supply by the Taxable Person:
a) Any form of entertainment, sporting or cultural services;
b) Catering services in hotels, restaurants and similar venues;
c) The purchase or lease of restricted motor vehicles,
d) Repair, alteration, maintenance or similar services on restricted motor vehicles;
e) Fuel used in restricted motor vehicles; or
f) Any other Goods and Services used for a private or non-business purpose.
How is a non-resident company that is registered in Saudi Arabia and provides services and goods in Saudi Arabia taxed for VAT purposes?
The non-resident company shall appoint a financial representative. The representative is obligated to pay the required taxes and comply with all the requirements of the Saudi Law and associated regulations. The Authority shall determine the names and lists of tax representatives in cooperation with other parties as deemed necessary.
Any taxable person making standard 5% rated supplies must collect the tax on his sales and is entitled to refund the tax paid on his purchases. Any person making zero rated is not entitled to claim tax on his sales, but has the right to refund the tax paid on purchases. Any person making out of exempt supplies will not collect VAT on his sales and is not entitled to refund the tax paid on his purchases.
The place of supply (where tax is ultimately levied) is the jurisdiction where the final consumption occurs. Note this does not necessarily have to be the country where the value is created.
There are special situations for which the place of supply is determined on a different basis, please refer to the Implementing Regulations for more detail on place of supply.
A taxable business can deduct input VAT, meaning VAT it has paid on goods or services purchased from suppliers. Three categories of goods and services purchases are eligible for input VAT deduction:
1) Taxable supplies: All goods and services that are not specifically mentioned as exempt from VAT are eligible for input VAT deduction when purchased.
2) Internal supplies: Input VAT paid on imports from other GCC countries, or internal supplies, is eligible for deduction.
3) Taxable imports from outside the GCC: VAT paid on taxable imports from outside the GCC is deductible.
There are four categories of purchases for which businesses are not permitted to deduct input Tax on:
1) Input Tax paid on sports, entertainment, or cultural services.
2) Input Tax paid on catering services in hotels, restaurants and similar venues.
3) Input Tax paid on “restricted motor vehicles” or related services. Restricted motor vehicles are vehicles that are not exclusively for company purposes or intended for resale.
4) Input Tax paid on any other goods or services used for private or other non-business reasons.
The concept of a proportional deduction is important for businesses that sell a mix of taxable and exempt supplies. Instead of deducting all of the input tax it pays, the business must only deduct an amount that is proportional to its taxable sales.
In other words, if a bank sells 30% taxable supplies and 70% exempt supplies, it should only deduct 30% of its input tax. However, businesses base this calculation off their ratio of taxable to exempt and taxable supplies in the previous calendar year. If in the current year the business sells more exempt supplies than in the previous year, the taxpayer will have to use an adjustment at the end of the year to compensate GAZT for the amount it over-deducted. The opposite adjustment is possible if the business discovers that it under-deducted, based on a higher-than-expected ratio of taxable to exempt supplies.
In the case a taxable person is registered for VAT in more than one GCC country, VAT paid or collected on each transaction should be accounted for as pertaining to the country most closely associated to the transaction. The place of supply of goods and services is determined by the rules in Chapter 3 (article 10-21) of the Unified VAT Agreement.
Branches of the same legal entity are viewed as one taxable person for VAT purposes. Consequently, provision of goods and services between a head office and its branch or between branches of the same legal entity are not subject to VAT.
A taxable person who is resident in the Kingdom may appoint a tax agent to act on that taxable person’s behalf in respect of its VAT obligations in the Kingdom by submitting a notification. Notwithstanding the appointment of a Tax Agent, the Taxable Person shall maintain individual responsibility for all such obligations.
No VAT adjustment is required for genuine loss, theft or damage in the course of a business activity in KSA. The taxpayer should retain records to prove the damage or loss in the case of audit. Such records include, but are not limited to, police reports and insurance claim documentation. Records are kept for the purpose of evidencing the original deduction of input tax on such goods.
If a person is a service provider acting as an intermediary between the supplier and the customer, does a person charge VAT on the commission only?
On the assumption that a person is acting as an intermediary (agent) in the name and on behalf of the supplier in KSA, VAT can be charged on fees/commission portion only. .
The input tax related to capital assets can be deducted upfront in the Tax Return if it is intended to be used by the purchaser for the purpose of their Economic Activity which constitutes making taxable supplies (to produce taxable goods or services). Persons who deduct input tax upfront must monitor the use of the capital asset across its useful life and make an adjustment if the usage changes from taxable to exempt or vice versa. See Article 52 of the Implementing Regulations.
It may be deducted in the Tax Return if it is incurred in the course of carrying out the economic activity which constitutes making taxable supplies. Any goods and services intended for personal use and not for the business or economic activity should not be deducted. In addition, the utility service bill should be in the name of the Business and should include the Business Tax Registration Number in-order to deduct the input VAT.
Generally, a taxable Person in KSA may deduct Input Tax charged on goods and services supplied to that Taxable Person in the Tax Return, to the extent these are received in the course of carrying out an Economic Activity which constitutes making taxable supplies. It is not required that these be directly use for a particular onwards supply. In this way VAT incurred on business overheads such as office supplies within a taxable business is generally deductible.
In reference to article 29(6) of the Implementing Regulations, the process of issuing or transferring debt securities or securities that represent property rights or other transferable documents recognizing an obligation to pay a monetary consideration to the bearer is considered an exempt supply of Financial Services and no VAT should be charged.
If a company provides vehicles to its employee for work purposes, can input VAT incurred on the purchase of the vehicles be deducted in KSA?
Input tax may be deducted on vehicles which are used in the economic activities for the employer not available for any personal use.
Input tax on restricted vehicles should not be deductible if made available for any personal use. Allowing employees to drive their vehicles home and have these available for use overnight, unless this is a requirement of the employee’s work duties or condition of taking the vehicle, generally indicates that the vehicles are made available for their private use. If this is the case, the input tax incurred on the purchase of the vehicle cannot be deducted.
If the subsidiary companies are registered in the Kingdom under the same Tax Group, then the transactions between them are not subject to VAT.
If they are not registered in the same Tax Group, then any supply of goods or services (whether for a consideration or without a consideration) between those companies is subject to VAT in accordance with the VAT Law.
Both VAT-registered and -unregistered businesses are required to pay VAT on imports, as described below:
1) Registered businesses: If a business is registered for VAT and is importing goods from a non-GCC country (or from the GCC but cannot prove previous VAT payment), then it must pay VAT to the Customs Department upon the imported goods’ arrival in KSA.
Note importers can apply for approval to pay import VAT to GAZT on the same tax return as their other VAT. GAZT will primarily approve larger-volume importers for this option.
2) Unregistered businesses: If a business or a private person which is not registered for VAT imports goods worth more than SAR 10,000 from another GCC country and cannot prove that it paid VAT in the originating nation, it is required to pay VAT in the Kingdom (to the Customs Department).
Note: Extra GCC-Imports are always taxable unless the product is otherwise specified as exempt. Intra GCC-Imports will be treated as extra GCC-Imports for VAT purposes until the E-Services System is developed among GCC States.
Does VAT apply to the import of goods that have been sent abroad temporarily for repair or maintenance, and then re-imported to the KSA?
Special valuation rules apply where goods are re-imported to the Kingdom following repair or maintenance in another country. When re-imported, VAT is payable based only on the additional value added to the machinery, if any. This value is determined in accordance with Customs Law.
Is VAT applied to machines that are imported into Saudi Arabia and are then sent back outside the country?
For goods imported for the intended purpose of re-exportation where the period for re-exportation does not exceed 180 days, VAT is paid if duration for re-exportation exceeds designated period.
It is a mechanism by which the recipients of taxable services calculate VAT payable instead of the non-resident supplier, that is, the recipient acts as if the supplier and the recipient are together for VAT purposes and self-assesses the VAT that is due and records the process in his tax returns.
The following imports of goods, which are not subject to customs duty, are exempt from import VAT:
1) Goods for diplomatic and military use;
2) Imports of personal effects and household appliances being moved into the KSA by citizens living abroad, and foreigners coming to stay in the Kingdom for the first time;
3) Imports of returned goods; and
4) Low value imports of personal items and gifts carried in travellers’ personal luggage, within the limits set by the Customs Department for relief from customs duty collection.
For imported goods transiting in KSA, whose final destination is a 3rd country outside of KSA, KSA VAT payment is suspended until release to the domestic KSA market For goods which move to another country, ultimately import VAT is paid to the country of final destination according to the rules in that country.
For goods deposited in designated customs warehouses for a period not exceeding 1 year (renewable for 3 more years), VAT is only paid by the importer at the time when the goods are taken from the warehouse and issued for release inside the KSA.
If customer payments are outstanding for an extended period of time, does VAT already have to be paid?
There are provisions in place to qualify receivables as "bad debt" in case the payment is not received for a period exceeding the threshold and any further conditions according to Art. 40 (7) of the VAT Implementing Regulations are met. Amounts that qualify as bad debt in Saudi Arabia can be adjusted by the taxpayer.
If the claim is approved either partially or in full, the Authority in Saudi Arabia will make the payment to the bank account indicated by the Eligible Person in the application within 60 days from the date of approval of the request.
Once a refund is approved in full or in part, the Authority in Saudi Arabia must conclude refund procedures and initiate payment within 60 days from the date of approval of the request. No additional compensation will be paid with regards to GAZT refunds.
The Authority may offset excess Tax held in the Taxable Person’s VAT account against taxes, penalties or any other amounts due to the Authority, or withhold payment pending the resolution of outstanding assessments raised against that Taxable Person in respect of other taxes.
At the time a Taxable Person acquires a Capital Asset; input tax shall initially be deducted in accordance with the intended use of the goods. During the Adjustment Period, an adjustment to the deduction must be made following any year in which the actual use of the Capital Asset differs from that initial intended use. Capital expenditure incurred on a Capital Asset already owned by the taxable person (to construct, enhance or improve it) counts as expenditure or additional expenditure acquiring it and the adjustment period (or additional adjustment period) for such expenditure shall commence on the date of completion of such works.
Taxpayers are eligible for VAT refunds in three scenarios:
1) Net tax due is negative (credit) amount: If the total VAT a business owes is negative because their input VAT exceeds their output VAT in a given tax period, the business is due a refund.
2) Previous payment exceeds VAT owed: If a business has paid GAZT more than it owed, it can claim a refund.
3) Credit balance: If a business otherwise ends up with a positive balance on their VAT account, they can claim that amount as a refund.
When taxpayers submit their VAT returns, taxpayers can request to receive any refund associated with that return as a tax credit. In that case, GAZT will automatically apply the refundable amount to the taxpayer’s balance on their next VAT return or any other time.
Companies need to request and provide certification in Saudi Arabia from the issuing bank that the IBAN provided for remittance of the refund matches the reporting entity’s parent identification details, e.g. company ID or individual ID (Saudi national ID, Iqama number or GCC ID) – otherwise the remittance will be rejected.
The time taken to review a refund will in part be reliant upon the responsiveness of a business to verify the refund claim. Good book-keeping and records storage will help a business provide evidence in a timely manner.
Businesses with a proven compliance history will be fast-tracked, taking in consideration that the refund claim of the quarterly returns may slow the timeframe.
The regulations require that when an approval decision in part or in full is made for a refund request, GAZT have 60 days to issue the payment for the refund if requested to do so by the taxpayer. The refund request may be rejected if there are any Tax Returns due and not submitted with the Authority.
Two independent committees will be set up to manage objections and appeals. These committees are a sub-set of the Committee for the Settlement of Tax Violations and Disputes.
- VAT First Instance Committee. This committee is responsible for adjudication of violations, disputes and claims of public and private rights resulting from the enforcement of the provisions of tax laws and regulations
- VAT Appeals Committee. This committee is responsible for adjudication on objections made against the decisions of the VAT First Instance Committee
If taxpayers disagree with the decision issued by the VAT First Instance Committee, an extra 30 days will be given to present an appeal to the VAT Appeals Committee. This committee will issue a decision that shall be final and non-appealable before any other judicial authority.
Supplies of Financial Services are exempt from VAT, except in cases where the Consideration payable in respect of the service is by way of an explicit fee, commission or commercial discount. Hence explicit fees involved in the financing are subject to standard rate.
Private education services are subject to the 5% standard VAT rate. In accordance with the Royal Decree no. (A / 86) the State will bear the 5% VAT for citizens benefiting from private education services.
Privaregarding the value of education services provided to them without VAT after confirming the identity te education establishments registered in the VAT system will issue tax invoices to Saudi citizens of the recipient of the service, and these entities must include the national identity data of the recipients of the service on the issued tax invoice.
For non-citizens, tax invoices including 5% VAT must be issued in accordance with the VAT regime and its executive regulations.
Yes, online sales of services are subject to VAT. If the recipient of these services is a Taxable Person, VAT due is calculated by way of reverse charge mechanism. If the recipient of these services is the end consumer, the non-resident provider of these services must register for VAT if their sales in KSA are more than 375,000 SAR.
All construction services performed in the KSA, or any contract to construct a residential or commercial building in the KSA – including the activities of sub-contractors on any such project - is a supply of services which is subject to VAT at the 5% rate.
Construction services are continuous over a certain period of time, involving payment under strict conditions. In such cases, when should VAT be due?
The provision of construction services in KSA is considered to be a “continuous” supply of services. This means that VAT becomes payable based on each progressive payment, according to the following rules:
- Where contracts have specified payment due dates at set milestones, VAT becomes due at the earlier of the due date or the actual payment.
- In all other cases, VAT becomes due for each progress payment at the earliest of the issue of the invoice or the date of actual payment.
Contracting firms often collect advance payments for services which will be provided in the future. When collecting a security deposit/advance payment for such services, will this be subject to VAT and should there be an invoice for this?
An advance payment in KSA that is part of the consideration and intended to be applied against a service, is subject to VAT on the receipt date, provided that the related supply is taxable and no other tax point preceded the payment, i.e. no invoice issued or supply delivered. In this context, the company must issue an invoice for the value of the advance payment. A genuine security deposit is not considered as an advance payment unless it is able to be applied against the consideration for a supply. An invoice is not required in this scenario.
In some cases, the contract may state that payment due to a service supplier is not fully compensated until the work is completed. In such cases, how is the amount of VAT due determined?
The retention of payment in KSA does not affect the rules: VAT will still be due on the basis of the full amount invoiced or full amount due at that milestone.
Is VAT deductible on expenses incurred during a construction project upfront, before the project is completed or payment received in KSA?
There is no restriction to deduct input VAT incurred which is related to the taxable supplies to be made in future and being part of the economic activity of the business. VAT may be deducted by a registered taxable person provided he meets the relevant criteria to deduct VAT in respect of the goods and services received.
Insurance companies are treated in the same manner as any other company. The VAT is imposed at a 5% rate on every service provided, except for life insurance services which are taxed at 0%.
The Medical insurance service is subject to VAT, and the Registered Insurance Companies will charge VAT on all Medical Insurance contracts and premiums.
Are employing companies entitled to deduct input VAT paid on medical insurance provided to employees and their families?
If such medical insurance is mandatory in KSA for the companies in respect to their employees as per Saudi Labour Law or other KSA Laws and Regulations, the input VAT could be deductible as an expense incurred as part of the employer’s economic activity, according to the normal rules. Otherwise, the purchase of medical insurance for private use of individuals cannot be deducted.
Supplies of Real Estate in the KSA which are made as part of an Economic Activity are taxable.
This includes the lease or license of any commercial property or any other property which does not qualify as Residential Real Estate. This includes, for example:
- Annual lease of office blocks;
- Rental of a plot of vacant land (regardless of whether this is zoned as commercial or residential property);
- A license to use a manufacturing or industrial facility.
The zoning of land as commercial or residential does not affect the VAT treatment: any supplies which do not meet the exemption for Residential Real Estate are subject to VAT at 5%.
If part of the company is exempt and part is 5%, how do we treat supplies such as rent (given the whole business is in the same building) in KSA?
In cases where a Taxable Person incurs Input Tax on Goods or Services which are used both for making Taxable Supplies and for making Exempt Supplies or other non-Taxable Supplies, the proportional deduction of Input Tax is determined as follows: The default proportional deduction is calculated on the basis of a fraction where
- The numerator is the value of Taxable Supplies made by the Taxable Person in the last calendar year, including the value of Supplies made by that Person that do not take place in the Kingdom, but that would have been Taxable if they had taken place in the Kingdom, and
- The denominator is the total value of all Supplies of Goods or Services made by the Taxable Person during the last calendar year.
The taxpayer is also allowed to submit an alternative calculation methodology to GAZT for approval.
Residential rent is exempt; Residential sale is standard rated unless not considered economic activity (it is out of scope if sold by someone who was using it for personal dwelling by himself or by relative). However, residential sales amounting to no more than SAR 850,000 of first dwellings to Saudi citizens are exempt from VAT.
In many cases, a landlord may make an additional charge for services provided in connection with the rental of commercial or Residential Real Estate – for example: maintenance fees, charges for utilities, car parking etc. Charges for additional services are generally a separate supply of services which will be subject to VAT in accordance with the normal VAT treatment applying to those supplies. They do not fall within the exemption for rental of Residential Real Estate, even where provided in connection with a residential contract.
For the sale of Real Estate, VAT becomes due on the date that property is transferred to the recipient. However, VAT can become due earlier if:
- A tax invoice is issued by the supplier before the transfer date, or
- the recipient pays the full amount or a deposit to the supplier.
In most cases, the free month will be provided as a discount from the payable consideration for the other months under the contract. In this case, the taxable lease will be calculated on the net amount received (actual consideration due for payment).
If a free lease is provided without any connection to another taxable supply, the provision of services without charge is a deemed nominal supply. In these cases, free of charge supplies of residential real estate which qualify for VAT exemption will not be subject to VAT.
In case of the purchase of Real Estate, at what point in time can input tax be deducted in Saudi Arabia?
The VAT deduction application on the purchase of Real Estate would be considered on a case-by-case basis. In general, an Input VAT deduction should be available in the monthly or quarterly period where the goods and services were purchased, provided the taxpayer can prove they relate to (current or future) taxable transactions.
Properties may be rented as a short-term measure as a secondary purpose to the primary purpose of their onwards sale. In these cases, Input VAT deduction should depend on the primary purpose on re-sale.
Example: Hussein has charged VAT on the purchase of an apartment which he intends to sell. He rents out the apartment as a residence for twelve months whilst searching for a purchaser. Hussein charges VAT when he sells the apartment, but the rental income he derives is exempt.
Hussein’s intention at the time of purchase is to sell the apartment and the exempt rental is a short term activity and not as an Economic Activity. The purchase of the apartment is deductible as it is directly attributable to the onwards sale.
A construction company which is selling apartments to financial institutions (banks) with ownership transferring to the bank (and not to the end customer). It receives the consideration in instalments. Then, the bank is selling the same apartment to end customer on a hire purchase contract. Is supply qualified to be subject to tax?
As long as the supply involves a transfer of ownership from your company to the recipient (bank) for a consideration, this transaction is qualified to be subject to VAT at the standard rate of 5%. The consideration received with respect to the supply from the bank will be considered as the taxable amount. Whilst this transaction is carried out as part of a financing arrangement, it is intended in this case that the construction company permanently transfers ownership to the bank (so the sale cannot be disregarded under the special provisions).
Hospitals and private medical centers registered in the VAT system will issue tax invoices to Saudi citizens regarding the value of health services provided to them without VAT after confirming the identity of the recipient of the service. Private Health Services should include national identity data of service recipients on the issued tax invoice.
The services provided to non-citizens are subject to VAT. The provider of healthcare services to non-citizens shall issue tax invoices, including VAT, at a rate of 5% according to the VAT system and its executive regulations.
How will private hospitals and medical centers list these transactions in their tax returns in Saudi Arabia?
When filing their tax returns through the VAT website, private sector institutions should enter transactions related to non-Saudi recipients of the services which are subject to the standard 5% rate in the “Local Sales Subject to the Standard Rate” section. Transactions related to Saudis, meanwhile, should be entered in the "Sales to citizens".
VAT Implementing Regulations states that some supplies of medicine and medical equipment are zero-rated. The ministry of health or any other competent authority has issued the list of items that are zero-rated according to specific classifications.
Intra-GCC and extra-GCC transportation are zero rated. Within international transport, zero-rated goods and services include:
- International transport of passengers and goods
- Vehicles and equipment to be used for international transportation
- Services provided in connection with international transportation
Are maintenance and repair costs for different means of transportation subject to VAT in Saudi Arabia?
If the supplier obtains a certificate from the customer that the supply of goods and services will be in relation to a “qualifying” means of transport (used predominantly for international transport), then the maintenance, repair, or modification of that qualifying means of transport, are zero-rated. This includes the supply of replacement parts, consumables and other necessary components incorporated into the means of transport in question. The zero-rating only applies if the purpose of the supply of those goods and services is to ensure the continued operation of the vehicle, aircraft or vessel as a qualifying means of transport.
A qualifying means of transport means any vehicle, vessel or aircraft designed or adapted to carry a minimum of ten people, or designed to carry Goods on a commercial basis, which is used predominantly for international transportation and not domestic passenger transportation. In this context, predominantly means at least 75% of trips made. Any means of transport adapted for or intended for recreation or private use is not a qualifying means of transport.
Two types of transactions involving qualifying investment metals – gold, silver, and platinum of 99% purity or higher – are zero-rated:
- A producer or refiner’s original sale of investment metal
- Any further sale of gold, silver, and platinum where the purity level remain
All other transactions are standard 5% rated.
Yes, government supplies are subject to VAT and the businesses supplying the government are expected to charge them VAT and transfer it to GAZT. GAZT may (in the future) determine certain government bodies / charities / citizens / companies / farmers as exempt from paying VAT yet so far none has been designated.
If the activity is exercised by a government entity in its capacity as a public authority, and it supplies its services to beneficiaries, then this supply is not considered an economic activity and is therefore considered out of VAT scope.
If the supply activity is exercised by a government entity in its capacity other than their capacity as a public authority and for the purpose of generating income, then it is considered an economic activity and is therefore subject to VAT.
This is determined based on the nature of the sale. If the seller is conducting an economic activity, the VAT applies, i.e. if an individual sells his car then there is no VAT. If the intermediary conducting the auction is not taking ownership of goods but just charging a commission, this is then treated as a service and the commission amount is VAT applicable.
In the case of vehicles purchased from suppliers under a financing agreement, will they be taxed prior to their financing to the final beneficiary in KSA?
GAZT considers that rent-to-own or lease-to-own financing contracts in principle deals with the financing arrangement of the supply (sale) of goods (assets) on which the provisions and definitions of non-continuous (one-time supply of goods) applies on the date of placing the good (asset) under the customer disposal.
VAT should apply on this supply on the date of supplying these goods (transfer of ownership), date of issuing tax invoice, or at the date of receiving the payment either fully or partially to the extent of payment made, whichever comes first. Such a supply is not considered as a continuous supply for VAT purposes.
Save for website or broadcasting advertising, to the extent a Saudi Arabia entity makes a supply of services to an entity outside the GCC, such a supply takes place where the customer usual Place of Residence is and is zero-rated.
Yes, NGOs that incur taxes on their purchases are subject to VAT, according to the Regulations, GAZT may allow these entities to refund taxes as per a list issued by a decision of the Minister of Finance.
What is the extent of taxability of international roaming service in KSA provided to the company’s subscribers with respect to incoming and outgoing calls or data usage?
Per article 24(3) of Implementing Regulations, the place of supply for roaming services should be the place of residence of the recipient of that service. Should the customer have their usual place of residence in the KSA then KSA VAT must be charged on the consideration by the supplier.
A mobile prepaid recharge card is a voucher which entitles the holder to redeem it for services. In reference to Article (19) of the VAT Implementing Regulations, where a person issues or supplies a Voucher with a specific face value, this is not considered to be a supply. However, The Supply of a face value Voucher is a Supply of services to the extent that the Consideration provided in respect of the issue or Supply of the Voucher exceeds its monetary face value.
Therefore, 5% VAT is due on the prepaid recharge cards when the end consumer actually charges the prepaid card, i.e. upon activation.
The Customs Department is responsible for administering and enforcing VAT collected on imports and other movement of goods in or out of KSA.
Customs duty is separate from VAT. Therefore, the company will still be required to pay VAT.
No, a recipient company is not required to perform diligence on whether a supplier is registered or not. If a KSA resident supplier does not charge VAT, there is no obligation on the recipient. However, in order to deduct the Input VAT, the recipient should make sure to receive a correct VAT Invoice from the supplier, and should notify the supplier if they did not.