January 2018
The Kingdom of Saudi Arabia has implemented VAT from 1 January 2018 at the standard rate of 5%. BDO with its dedicated VAT team has helped numerous businesses prepare for the implementation of the new VAT regime by providing end-to-end support tailored to our clients’ needs. We also work closely with our VAT specialist across our international BDO network and have collaborated in the implementation of VAT across both KSA and UAE.
More information into basic terms and terminologies of the VAT implementation can be found here.
VAT Basics
When a business makes a sale of goods or services it charges VAT to its customer – this is known as ‘output tax’
When a business buys goods or services it pays VAT to the supplier - ‘input tax’
Periodically (monthly or quarterly depending on the size of the business) the business files a VAT return with GAZT. On the return the business declares all output tax charged and claims a deduction for input tax paid (subject to some restrictions). The business pays the net amount of output tax less input tax to GAZT
A taxpayer cannot claim a deduction for input tax if it relates to personal expenses or if it relates to the making of exempt supplies.
The law relieves some goods and services by designating them as ‘exempt’ or ‘zero-rated’ as follows :
Zero-rate explained
No VAT is charged
The supplier can reclaim all of the
VAT (the input tax) on its costs
Result: complete relief from VAT
Exemption explained
No VAT charged
The supplier cannot reclaim input VAT on costs linked to the supply
Result: partial relief from VAT. Customer may benefit from a slightly lower price but the supplier has an additional cost
Here we summarise the key points from the Value Added Tax Law and the VAT Implementing Regulations, which were officially approved on 26 August 2017.
The law sets out the general structure for VAT in the Kingdom. This is supplemented by the Regulations, which provide the practical details of the tax – such as which goods and services will be zero-rated and exempt.
VAT Rate : 5%
Registration Threshold :
Until 1 January 2019, the registration will be compulsory for businesses with a turnover exceeding 1,000,000 SAR per annum. Businesses with a turnover between 375,000 and 1,000,000 SAR can register voluntarily.
After 1st of January 2019, the threshold for mandatory registration will drop to 375,000 SAR
The deadline for registration is 20 December 2017.
VAT Returns:
Businesses with a turnover below 40,000,000 SAR will submit returns on a three month cycle (not necessarily calendar quarterly);
Businesses with a turnover above 40,000,000 SAR will file returns monthly.
VAT grouping:
VAT grouping will be permitted and will allow 2 or more companies that are under common control to be covered by a single VAT registration. Supplies between the VAT group members will not be subject to VAT and VAT group members will be jointly and severally liable for VAT debts.
Exemption:
The following supplies will be exempt from VAT
Financial services (unless it is a fee based service)
Life Insurance
The leasing or licensing of residential real estate
Zero-Rating:
The following supplies will be zero-rated
Exports of goods
Some international services
Medicines and medical equipment
International transport and related services
Investment gold, silver and platinum
Note: There will be no zero-rating or exemption for food of any kind or for private medicine or private education. However, Government Bodies acting as Public Authorities will not be treated as ‘in business’ and will not therefore charge VAT. This will probably allow public medical services and education to be provided VAT free.
VAT Records:
Records must be kept in Arabic
Tax Invoices:
Tax invoices must be issued for all sales of goods and services to VAT registered customers. The VAT invoice must include the following details in Arabic, in addition to any other language used on the invoice:
Date;
Identifying number;
Supplier’s VAT number;
Where the customer has to ‘self-account’, a statement to that effect and the customer’s VAT number;
Name and address of customer and supplier;
Detailed description of goods or services and quantity supplied;
Price, rebates and discounts;
Rate of VAT and VAT payable;
Details of any special scheme used
Imports:
VAT is payable on the import of goods into KSA. The business may then deduct this VAT as input tax, subject to the normal rules for VAT recovery.
The basic rule is that the VAT is payable at the time of import. However, taxpayers will be able to apply for permission to defer payment of the VAT so that it is paid (and at the same time claimed) on the VAT return. This would remove the negative cash-flow impact of paying VAT at the time of import.
Exports:
Exports from the Kingdom will be zero-rated.
In due course there will be different rules for exports to customers in other GCC states. However, during a transitional period intra-GCC trade and exports to outside the Kingdom will be treated the same - ie zero-rated
For all exports, the goods must leave the country within 90 days of the supply taking place. The supplier will also need to obtain commercial or official evidence that the goods have left the country.
Anti-avoidance:
GAZT will have powers to disregard or re-describe transactions where avoidance is perceived.
Appeals:
An appeals process will be put in place to deal with VAT disputes. This will include a first instance committee and a mediation process.
Penalties for VAT errors and offences:
Late registration penalty – 10,000 SAR
VAT return errors – up to 50% of the error
Failure to pay tax to the Authority on time: 1,000 SAR plus 5%, 10%, 20% or 25% of the tax due depending on how late the payment is.
Incorrect issue of invoices: the higher of 1,000 SAR or double the tax
Failure to comply with various regulations: 1,000 SAR or 2% of monthly taxable supplies, up to a maximum of 20,000 SAR
Making false statements: double the tax involved
Tax Avoidance: Double the tax plus a penalty by the Administrative Court
Penalty for Tax Officials committing breaches of confidentiality: up to 1,000,000 SAR plus up to 2 years imprisonment.
To find out more:
GIHAD AL AMRI
Managing Partner
BDO Dr Mohamed Al-Amri & Co
Tel: +966 11 278 8782
GIhad@bdoalamri.com
BRIAN CONN
Regional Head of VAT
BDO Dr Mohamed Al-Amri & Co
Mobile: +971 52 152 5521
brian@bdoalamri.com