What is VAT？

Value Added Tax (or VAT) is an indirect tax. Occasionally you might also see it referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.

 

VAT is one of the most common types of consumption tax found around the world.   Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.

 

VAT is charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while Businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.

 

A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers.   The net result is that tax receipts to government reflect the ‘value add’ throughout the supply chain.

 

Saudi Arabian VAT rates

The standard VAT rate for Saudi Arabia is 5%, with a nil VAT rate for some goods. The VAT rate is 15% from 1 July 2020.

Supply	Old rate	New rate	Implementation date
Standard Rate	5%	15%	01 Jul 2020

 

There are other things--Zero-rated supplies and Exempt supplies

 

Zero-rated supplies

The following supplies are deemed zero-rated, and therefore eligible for reclaiming VAT suffered:

• Exports of goods or services outside the Council Territory backed by evidence of the movement of the goods/services
• Supplies within customs duty suspension zones
• Exports of services include where the customer is not resident within the a Council Territory and/or the consumption does not take place within the Territory
• International transport services of goods or passengers
• Medical equipment and medicines
• Investment precious metals

 

Exempt supplies

The following supplies are VAT exempted, and therefore deemed as not eligible for reclaims of input VAT reclaims:

• The issue or transfer of money or security for month
• Credit
• Operation of current, deposit and savings accounts
• Financial instruments
• Islamic finance products – Shari’ah compliant
• Interesting on loans, credit or debt security
• Life insurance
• Residential real estate leases (excludes hotel and similar short-term rentals)

 

Saudi Arabian VAT registration

Saudi Arabia and the United Arab Emirates began to collect VAT from January 1, 2018. Overseas companies are forced to collect VAT, and there is no exemption limit. Required to submit registration materials to the tax Bureau within 30 days of local sales.

 

• VAT registrations may be back or forward dated
• Zero-rated or ‘gift’ supplies will not count towards the VAT registration threshold; but supplies received under the reverse charge will
• Voluntary VAT registrations for businesses under the annual threshold will be permitted
• Anti-splitting rules are included, designed to prevent avoiding the VAT registration threshold

 

What information is required when submitting a Saudi Arabian VAT number and registration?

All VAT registration applications are made electronically, with the following information:

• Name of business, including ID information
• Address of business, including email contact details
• Commercial registration numbers
• Date of VAT registration
• Value of annual taxable supplies

 

 

Do I need a Saudi Arabian tax agent?

• Non-resident tax payers may use a tax agent or register directly
• Non-residents must appoint a Tax agent, who must be approved by the tax authorities
• Tax agents are joint and severally liable for the tax payer’s VAT liabilities
• VAT Group registrations, where connected businesses apply for a single, combined registration and ID are permitted. The criteria for this includes:
  • Only resident businesses
  • Common control of the businesses
  • As least one of the businesses must be eligible for VAT registration in their own right
  • One of the businesses will be nominated as the reporting entity

Saudi Arabian VAT deregistrations   

VAT deregistrations may be required where the taxable supplies cease, or fall below the annual VAT registration threshold

VAT refunds

Refunds may be applied for on a calendar quarterly basis, with a single final annual claim by 30th June of the following year. The minimum claim amount is Riyals 1,000.

Description of goods or services:

• Invoices do not have to be submitted in support of the refund; but may be requested subsequently
• Approved refunds will be paid within 60 days
• Foreign businesses which are VAT/GST registered in their own countries may apply for annual VAT refunds
• Tourist VAT refunds will be provided for by authorised organization

Details required in a claim include:

• Name of Tax ID number
• Invoice dates
• Invoice numbers
• Total invoice amount
• VAT

 

VAT compliance

The date of supply for taxation purposes is deemed to be the earliest of date of invoice, payment date or date of supply. Invoices should be issued at the latest by the 15th of the month following the taxable supply. In the case of periodic payment installments of the supply, a separate supply takes place on the earlier of the due date for the installment payment or payment for the installment.

Self supplies

• Goods or services provided by a taxable business to itself are considered outside of the scope of VAT
• Goods or services provided to members of a VAT Group by another member of the same group are outside the scope of VAT

Vouchers

• Vouchers for the redemption of a taxable supply are not considered a taxable event subject to the following conditions
  • The face value is equal to the redemption value

Place of Supply

• For B2B cross-border transactions, the supplier must obtain the tax identification number of their customer
• The place of supply for electronic and telephonic services will be based on the location of the consumption. Criertia for determining the place of consumption/residence includes:
  • Invoice address
  • Bank account location
  • IP address of customer
  • SIM card address
• Supply of live cultural, sport, education and entertainment place of supply will be the physical location of the supply
• Goods or services supplied outside of the country are exempt
• Supplies made from outside of the Kingdom to within the Kingdom are considered taxable supplies if provided with transport services
• Exports may only be exempted from VAT if the supplier obtains proof the departure of the goods from the Kingdom

Determining fair market value

• The tax authorities may re-determine the taxable value of a transaction where
  • There is a supply between related parties
  • Where the value is below the fair market value
  • The customer is not entitled to a full input VAT deduction
  • The supply is made without consideration

Cash-based VAT accounting

• Taxable businesses may apply for cash-based VAT reporting if their annual sales are below Riyals 5million
• An successful application must be adopted for a minimum of two years unless the threshold is exceeded
• Cash-based VAT accounting calculates the VAT due only on VAT paid or received

Input VAT deductions

• Tax registered businesses may deduct input VAT from the charged output VAT levied
• Input VAT incurred on services enjoyed 6 months prior to VAT registration may be used
• Input VAT suffered on goods used for the services but paid for prior to the VAT registration may be deducted. The value of capital goods will be the net book value
• Input VAT deductions on expenditure not related to the economic activity are not permitted for the following:
  • Entertainment, sport or cultural events
  • Hotel and restaurant catering services
  • Second hand cars, including repairs and fuel
• Input VAT incurred relating to exempt supplies are now deductible
• Proportionate deductions are permitted, by prior agreement, where the input VAT relates to goods or services partially used in the supply of taxable supplies. A default calculation is available
• Input VAT may be recovered when incurred in relation to capital raising, the transfer of a going concern and other one-off events incidental to the taxable business activity
• Special rules apply to VAT deductions on capital assets apply

Reverse charge

• In certain circumstances involving non-resident suppliers, the customer will be responsible for declaring the output and input VAT
• This includes resident electronic marketplaces and portals where the operator buys from a non-resident provider an e-services for onward supply to local consumers

Supply of used goods

• Eligible used goods may be sold under the profit margin scheme, once approved by the tax authorities
• The taxable margin is calculated on the difference between the purchase price and sales price

Imports

• There is a low-value import relief of Riyals 10,000 for imports by consumers
• Imports of special needs goods are VAT exempt
• Regular importers may apply for a deferral of import VAT, and payment via their subsequent VAT return

Record keeping

• Tax payers must maintain supporting VAT accounts and records for at least 6 years
• Records must be maintained in Arabic
• Electronic records must be maintained in the Kingdom for resident companies, or have portal access to the tax authorities if outside of the territory
• A Saudi tax representative is required to maintain the invoices, books, records and accounting documents of non-resident businesses

VAT invoice requirements

• VAT invoices must be issued for all taxable supplies and/or related payments
• Invoices must be issued by at least the 15thof the month following the taxable supply
• Invoices should include the following details:
  • Date of invoice (and date of supply if different)
  • Unique, sequential invoice number
  • Tax ID number of the supplier
  • Name and address of the supplier and customers
  • Description and quantity of the goods supplies; nature of services provided
  • Gross, VAT and net values of supply
  • VAT rate applied, and explanation where not the standard rate
• Simplified invoices are permitted where the taxable supply is below Riyals 1,000; this excludes the VAT calculation and address of the customer
• Electronic invoices must be issued where prescribed by the tax authorities
• Invoice credit or debit notes must contain a reference to the original sales invoice number, plus any details of a discount.