Technical FAQ

The following section aims to provide technical information for businesses on the introduction of VAT in the Kingdom of Saudi Arabia. This information and other parts of the VAT website is updated regularly.

1. VAT eligibility and registration process

1.1. VAT eligibility

• 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.

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. 

Two or more Legal Persons may apply to register as a Tax Group in the Kingdom 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.

 

The VAT system and its implementing regulations do not grant investors any exemptions. Therefore, any person who practices economic activity in the Kingdom, whether resident or non-resident, is subject to tax in the Kingdom.​​​​​​

If a VAT group is established based on one member’s taxable status and that member loses his eligibility, then the group must deregister. 

A person who at any time has annual supplies made in the Kingdom 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.

1.2. VAT registration and deregistration process

Registration has officially been launched on 28 August 2017. 

Yes, there is a separate process for VAT registration. However, existing taxpayer information in existing databases will be leveraged to the greatest extent possible. 

Upon successful registration, the Authority will issue a registration certificate along with a separate VAT identification number.

Any registration application must contain the following minimum information:

a)    The official name of the legal person or natural person;
b)    Physical address of regular abode or place of business;
c)    Registered address to receive electronic 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.
 

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.
 

Registration can only be done through the GAZT website: gazt.gov.sa

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 register for a tax group can be submitted through the Authority's VAT website. The Authority will consider the application, and accordingly approve or reject the application. 

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.

Yes, the parent company is entitled to group with any other company as long as both companies meet the requirements mentioned under Article 10 in the Implementing Regulations. 

The registration of taxpayers takes effect from the start of the next month following the month in which the registration application is submitted.

Taxpayers can submit a deregistration request by logging into their GAZT account on portal. An applicant needs to fill a deregistration form and submit documents to support his eligibility for deregistration.

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
 

The registration form will require you to specify:
1)    official name of the legal Person or natural Person and ID information if the Person is a natural Person,
2)    physical address of regular abode or place of business,
3)    email address,
4)    existing electronic identification number issued by the Authority, if any,
5)    commercial registration number, if any,
6)    effective date of registration, or any alternative effective date requested.
7)    Whether you are an importer
8)    Whether you are an exporter
9)    IBAN number - not required if already logged with GAZT
10)    VAT eligibility start date
11)    VAT taxable sales (expected over next 12 months)
12)    VAT taxable sales (past 12 months)
13)    VAT taxable purchases (expected over next 12 months)
14)    VAT taxable purchases (past 12 months)
15)    Financial details for the Tax Representative (only mandatory if you are not a Saudi resident)

1.3. Other inquiries

The registration period for companies below 1M SAR in revenues will extend until the end of 2018. Beyond this there will be no grace periods.

A taxable supplier is responsible for issuing an invoice with the appropriate VAT applied. Where a supplier is not registered for VAT, they are not entitled to charge any VAT and as such the company should not pay any VAT to the supplier. 

This is not always required. GCC internal supplies can take place under reverse charge mechanism, without a need for the supplier to register. 

Yes. The liability to register lies with each business. Taxpayers must consider the negative VAT effects of having an unregistered business partner.

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).

Yes, in order to register for VAT, businesses must first be registered at GAZT for Zakat and Income Tax.

2. VAT procedures and filing

2.1. VAT return filing

The VAT return form requires taxpayers to provide information about VAT collected on sales and paid on purchases.
The VAT return form is split into two distinct sections, the first of which deals with VAT on sales (output VAT) and the second of which deals with VAT on purchases (input VAT).
In addition, there are three columns that appear on the VAT return form:
1.       Amount
2.       Adjustment
3.       VAT amount

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 are registered as a VAT group shall be treated as a single taxable person for the purposes of this Law and as such should file VAT aggregated at Group level.

Companies that have applied and have been granted a group registration 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 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 does 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. 

GAZT utilizes audit procedures and confidential methods to validate overstatements versus understatements. 

VAT filing is conducted via the existing GAZT e-portal.

VAT registration, filings and other relevant processes are handled via the GAZT e-portal solution. This does not require a direct linking to company systems. 

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.

The VAT amount due or owed is calculated by subtracting your incoming VAT (on your sales) from your outgoing VAT (on your purchases). The net amount is paid or received to/from GAZT. It is thus calculated on an aggregate basis.

No. As per the GCC Unified Agreement, timeframes and periods stipulated in the Agreement shall be calculated according to the Gregorian calendar.

If the company is registered under the VAT system, it is entitled to deduct the taxes paid from the value of taxes collected from the customers and then pay this balance to the Authority. 

The eligible type of goods for which VAT is calculated on a profit margin basis will be specified by the Authority at a later stage.

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.
 

Businesses must pay GAZT the tax they owe via a bank transfer to GAZT’s designated account using the SADAD payment system.

If you are unable to pay VAT 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. 

Each business has a VAT account with the Authority showing all balances, taxes paid or payable, or taxes paid in excess across periods.

If you have already registered for VAT, then you have to submit your returns starting the date of application of VAT. If you are not yet registered, you have the option to extend your registration to begin from 1 January 2019 (your application to register must in all cases be filed by 20 December 2018), after which you are required to submit your VAT returns.

2.2. VAT invoices

VAT-registered suppliers must produce invoices documenting revenue and tax information on all taxable sales made to other taxable persons or to non-registered legal persons.

The VAT Invoice 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.

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 one thousand (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.

A simplified Tax Invoice may be issued for a Supply of Goods or Services valued at less than one thousand (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.

Any Supply of Goods or Services made in respect of a contract which does not anticipate the application of VAT to the Supply may be treated as zero-rated by the supplier until the earliest of the time the contract expires or is renewed, or 31 December 2018, provided that: 

a)    The contract was entered into before 30 May 2017
b)    The Customer is entitled to deduct Input Tax in respect of the Supply of Goods or Services in full, or is an Eligible Person entitled to a refund of the Tax; and
c)    The Customer provides a written certification to the Supplier that Input Tax is able to be deducted or refunded in full on the Supply.
 

A simplified invoice is an invoice that contains basic information and basic details about the seller and buyer and is issued only when the amount of the purchase is less than 1000 Saudi Riyals.

Businesses can use simplified tax invoices 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 invoice must be issued stating the value of the tax, even if the customer is not taxable. If the customer is required to register with the Authority, he must include the invoice on his ID number.

The VAT shall be calculated based on the actual value that is recorded on the invoice after applying any discounts and reductions. 

The tax should be calculated individually at each item level and is then collected at the end.

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.

The group tax number should be recorded and added to all invoices issued by members of the tax group. 

In case this excess amount is received in exchange for advanced payment supplies, it is a taxable supply of 5%.

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 canceled 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.

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.

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.

2.3. VAT records requirements

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. 

The invoices, books, records and accounting documents required to be maintained by a Person in accordance with the Agreement must be kept for a minimum period of six (6) years from the end of the Tax Period to which they relate. 
Records with respect to Capital Assets must be kept for a minimum of the Adjustment Period for these Capital Assets prescribed in article 50 of these Regulations, plus five (5) years, from the date those Capital Assets are acquired by the Person. 
Records must be kept in the Kingdom either physically or through an access to the relevant server where these records are stored. In cases where the Taxable Person opts to store the records electronically, the following conditions must be met:

a)    The computer system or server must be physically located in the Kingdom. A Taxable Person who has a fixed establishment in the Kingdom may have its central computer outside of the Kingdom, provided it has with a terminal at the subsidiary in the Kingdom through which all data and entries regarding the account of the fixed establishment in the Kingdom can be accessed.
b)    Data entered into the computer system must be in Arabic and must be an identical copy of said books.
c)    Original supporting documents for all entries in accounting books must be kept locally
d)    Final accounts and balance sheet may be generated directly by computer. In the case of using a conventional accounting method with computer assistance for some account items, all settlement entries must be provided in Arabic. 
e)    The Taxable Person must document computer data entry and processing system of accounting entries for reference, when needed.
f)    The Taxable Person must have necessary security measures and adequate controls, which can be reviewed and examined, to prevent tampering
g)    The Authority may review electronically the systems and programs applied by the Taxable Person to prepare its computerized accounts. 
 

Taxpayer data will be stored for an extended amount of years. Exact details on the data storage will be disclosed in due course.

If you are a non-resident taxpayer, your designated tax representative is responsible for records maintenance.

Multinational companies that centralize their record keeping outside KSA must have a terminal inside the Kingdom where their KSA-related VAT records are accessible.

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.

2.4. VAT Audits

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. 

You may be selected for review or audit if your return and circumstances are not within acceptable boundaries. These conditions will change according to your business's reporting history. Businesses with a proven history of accurate reporting are less likely to be selected for review.
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 you have been selected for a review, then you 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.

‎3‎. Reviews and Appeals

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 deregistrations, VAT groups, refunds and penalty decisions.

A taxpayer can request to review incorrect re-assessments issued by GAZT.

A taxpayer can request to review cancellations of applications to change the proportional input deduction method.

A taxpayer can request to review cancellations of applications for VAT registration, cancellations of applications for VAT deregistration, Involuntary deregistrations, and cancellations of suspensions of filing obligations.

A taxpayer can request to review cancellations of applications to form VAT group, and cancellations of changes to a VAT group.

A taxpayer can request to review involuntarily offsetting of VAT credit, and cancellations of applications for refund to Eligible Persons.

A taxpayer can request to review 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 your 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.

The security deposit amount will depend on amounts payed on the original decisions and the amount under review.

Depending on your preference, security payments can paid through SADAD or through bank guarantees .

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.

4. VAT scope and coverage

4.1. Overview

Yes - some sectors could be fully exempt and some could be partially exempt (based on the activity, the product could be exempt or standard-rated). 

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. 

Intercompany transactions follow general VAT principles unless part of a VAT Group. 

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. 
 

Where a supply of goods or services actually took place after 1 January 2018, but an advance payment was received or an invoice was issued before such date, the payment is deemed to have been made or the invoice is deemed to have been issued on the actual supply date for the purposes of determining the date VAT was collected on those goods or services.

If the inventory is used in the context of an economic activity, the VAT is charged to the purchases, whether the commodity inventory of the purchases was deducted before or after application. 

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. 

A Non-Resident Person who changes their tax representative must notify the Authority within twenty (20) days of the change taking place.

Services provided between two companies are subject to VAT depending on the agreement made between the two companies. If the amounts received by the company are in the form of salaries for employees and government services charges, which are then paid to employees and government agencies, only the commission is subject to VAT. If the amounts are received by the company as expenses, all fees are subject to a 5% VAT rate.

VAT is an indirect tax which is imposed on goods and services only. VAT is not applied on employee salaries.

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 scope/exempt supplies will not collect VAT on his sales and is not entitled to refund the tax paid on his purchases.

Yes, fines, penalties and commissions charged are subject to VAT. 

Penalties are out of the VAT scope if there is no actual supply of goods and services related to that penalty collected.

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.

Goods or services that a taxable business supplies to itself are not taxable (with the exception of nominal supplies). This includes instances where one member of a VAT group provides services to another member of that group.

Tax becomes due on the date of the supply of goods or services, the date of issuance of the tax invoice or upon partial or full receipt of consideration, whichever comes first, and to the extent of the received amount. Only if the taxpayer can clearly show that the down-payment does not relate to a supply, then this presumption could be set aside and VAT not reported. As a taxpayer, the company will have the best view of the commercial reality of these payments and must make a self-assessment of the appropriate VAT treatment.

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.  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.

VAT is calculated on the final value of the goods and services, including excise tax or any other taxes.

Yes, according to article 5(1) The Unified Agreement for Value Added Tax for the Cooperation Council for the Arab States of the Gulf (“Agreement”), transfer of ownership of a good is considered a supply of goods for VAT purposes.

On the assumption that you are acting as an intermediary (agent) in the name and on behalf of the supplier (not selling under your name), VAT can be charged on your fees/commission portion only. Alternatively, if you act in your own name towards the customer, you will be viewed as making the whole supply for VAT purposes.

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 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.

 

 

The value of the sale of fixed asset related to the activity shall be subject to VAT.

 

 

Generally, VAT is due at the earliest of the following:  
•    The date where goods are delivered or made available or performance of service is completed. 
•    The date when any tax invoice is issued in respect  of the supply
•    Partial or Full receipt of consideration, to the extent of the amount received
There are additional rules to determine the time of supply for VAT purposes for continuous supplies. 

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 the sister 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.

Companies whose value of supplies are below the voluntary registration threshold can register within a VAT Group if at least one member of the group is considered a taxable person.

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.

4.2. List of goods and services

The majority of goods and services used by any taxable person as part of their economic activity are subject to the standard 5% VAT.
The following exceptions apply: 

Zero rated goods and services: Goods and Services that are zero-rated include intra-GCC and international transport of goods, exports outside the GCC, exports of goods from the Kingdom, all re-exports of movable goods that were temporarily imported into the Kingdom for repairs, renovation, modification or processing, supply of any qualifying medicine or qualifying medical equipment, supplies of investment gold, silver, and platinum that are at least 99% pure and tradable in international bar market.
Exempt goods and services: Goods and services that are exempt from VAT include financial services, Islamic financial products, any Sharia compliant financial product, interest or loan fees and rental of residential real estate.
Outside the scope of VAT: Goods and Services that are outside the scope of the VAT are limited to government services (public healthcare, public education) and the supply of real estate that has been used or intended for use as a permanent residence by the person or by a related person. 
The list of goods and services subject to VAT can be accessed through the following link 
 

This is related to a list of 94 items in the GCC treaty that can be treated at the discretion of each country. KSA will standard rate it.

There are no exemptions for a "list of essential goods". The goods and services qualifying for zero rating or exemptions are residential real estate, defined financial services, international transport, specific medicines and medical supplies, investment metals and non-GCC exports.

4.3. Imports and exports

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.
 

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.

The GCC Framework Agreement specifies supplies between GCC member states. All other treaties and international obligations will remain unchanged.

As per Paragraph (7/A) of Article 79 of the Implementing Regulations, KSA will consider intra-GCC supplies to Gulf Arab States as imports and will be taxable at 5% at point of entry, until the E-Services System is developed among GCC States.

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 same rules apply for imports done by a VAT group as other imports. The importer of record should use the TIN number allocated to him by GAZT when he files the Customs declaration.

VAT should be added to the value of imported goods into the KSA , which is the value of the goods plus any applicable charges such as:

•    Customs duties
•    Excise duties
•    Insurance duties
•    Freight duties
•    Any other fiscal charges (except for VAT itself)
•    And any services incidental to the import of the goods (where not included in the dutiable value).
 

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.
 

If a taxable business is registered in more than one GCC state and supplies its Saudi business from an entity elsewhere in the GCC, that transaction is taxable. Such transactions are not seen as self-supply; instead they will be treated as imports from the non-Saudi branch’s original supplier to the Saudi entity, making the transaction taxable.
For example, if a Saudi business supplies itself with a computer from its Kuwaiti branch, that transaction is taxable. Let’s say the Kuwaiti branch originally bought that computer from a store in Kuwait. GAZT will view that transaction as the Saudi business importing the computer directly from the original store in Kuwait, making it taxable as an import.
 

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.

Per Article 79(6) of Implementing Regulations, the supply to a company in another GCC state which does not implement VAT is considered an exported service as a transitional measure - provided that the service would normally be considered as an export if supplied to a non-GCC resident - per the usual provisions of the KSA VAT Law or Implementing Regulations.

5. Dealing with discounts and free items

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 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.

6. VAT refunds

Yes they are required to pay. If account payables proof irrecoverable, the taxpayer may reduce his Output Tax for the Tax amount calculated on the Consideration not paid in the Tax Return. The adjustment can only be performed though when all of the conditions stated in Art. 40 (7) of the VAT Implementing Regulations are met. 

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 can be adjusted by the taxpayer.

A cash accounting scheme is available for companies below a certain threshold which would allow for paying VAT after receiving the amount only. For debts that exceed a certain threshold there will be the chance to qualify as "bad debt" and adjust.

GAZT is in charge of paying back refunds.

The company will have the option to make an adjustment to previous VAT filings.

If the claim is approved either partially or in full, the Authority will make the payment to the bank account indicated by the Eligible Person in the application within sixty (60) days from the date of approval of the request.

The Authority may offset any credit balance of VAT against any other taxes due by the Taxable Person. 

Once a refund is approved in full or in part, the Authority must conclude refund procedures and initiate payment within sixty (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.

This is not stipulated by law.

Input VAT can be deducted in the tax period when the supply is invoiced, in line with invoice accounting practices.
If the business is approved for cash accounting, then the input VAT can only be deducted in the tax period when the invoice is actually paid.
 

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.

A Taxable Person may submit a request to the Authority for refund by the Tax Return or through the taxpayer portal.  

Companies need to request and provide certification 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.

In some circumstances you may not have your credit refunded; these include:
•    Incorrect IBAN details
•    You have other VAT, CIT or excise tax liabilities - these will be offset against the VAT credit on your account.
•    You have chosen to carry-forward your credit to a future period
•    The goods and services are deemed to be received outside of the Economic Activity
•    The goods and services are related to making an exempt supply activity 

7. VAT penalties

For further information about penalties, please refer to the Law Chapter 16 on the following link

By law, taxpayers have the right to appeal against decisions of penalties issued by GAZT within 30 days of the date of notification. Taxpayers shall present the appeals to the VAT First Instance Committee. There will be a separate process to deal with other types of appeals, as mentioned in article 68 of the Implementing Regulations.

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.

8. Sector specific inquiries

8.1. Financial services

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.

Margin based activities are exempt; Non-margin based (i.e. fee based) are standard rated).

Islamic finance products are treated in the same way as traditional financial products, for the purpose of applying exemption from tax.

Any implicit interest charged by the financier is considered to be exempt from VAT. VAT applies only where an explicit fee is charged for financing or if the financier acts as the supplier of the underlying real estate.

Provided the statement contains the information required in a tax invoice, this will be accepted.

8.2. Education

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. The Royal Decree can be found on the following link

Private education establishments registered in the VAT system will issue tax invoices to Saudi citizens regarding the value of education services provided to them without VAT after confirming the identity 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.

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 (private health services / private education / first residence)".

The taxable person (the private school) must issue an additional tax invoice showing the value of the tax charged on all installments after the date of application of VAT in accordance with the provisions of the first paragraph of Article 79 of the Regulation. In accordance with the Royal Decree, the State will bear the VAT for citizens benefiting from private education services.

8.3. Online and e-commerce

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.

8.4. Contracting and construction

VAT is calculated at 5% of the value of the invoice for goods and services provided, and therefore when any invoice is issued under this contract, VAT must be calculated on this invoice.

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.

 The provision of construction services 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. 
 

The retention of payment 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.

An advance payment 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.

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.

8.5. Insurance companies

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. 

If such medical insurance is mandatory 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.

8.6. Real estate

Real Estate refers to land and buildings.  It is defined by the Implementing Regulations for VAT purposes to include:
a)    any specific area of land over which rights of ownership or possession or other rights in rem can be created,
b)    any building, structure or engineering work permanently attached to the land,
c)    any fixture or equipment which makes up a permanent part of or is permanently attached to the building, structure or engineering work.
 

Residential Real Estate refers to property intended for use as a residence.  It is defined for VAT purposes as: a permanent dwelling designed for human occupation, including immovable property used or intended to be used as a home, such as houses, flats and apartments, and other Real Estate intended as a Person’s primary residence, including residential accommodation for students or school pupils.

Commercial Real Estate refers to real estate used for business purposes or any other non-residential purposes.  It is not a defined term for VAT purposes.

 A primary residence may also encompass other dwellings, such as residential accommodation for students or school pupils, or employees – provided this is a dwelling which the person or persons uses as a primary residence on a regular or habitual basis and returns back to after periods away.  It is not required that a primary residence be a person’s only place of residence.

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%.
 

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.

Any person engaged in economic activity for the purpose of earning income is taxable and should register if his revenues exceed the mandatory registration threshold, this does apply to individuals that sell residential lands as an economic activity. 
However, if the individual is selling real estate, that has been used or intended for use as a permanent residence by the person or by a related person, then it is not subject to VAT. 
If the person is engaged in selling real estate as an economic activity, he should apply and issue a commercial register in case he does not have one already.
 

Maintenance work and after-sale services are subject to VAT. In the case of maintenance and service work done within the warranty period, the supplier (the seller) is obliged to issue a tax invoice and collect the tax due whether the recipient (customer) is taxable or not .

In accordance with the provisions of the VAT Implementing Regulations, when a person sells a property that was used or intended for use as a permanent dwelling by the person, or by a related person, he is not considered to be conducting an economic activity for the purpose of generating an income. Therefore, he is not subject to tax.

The taxable person is entitled to refund tax paid on renting a property for the purpose of performing an economic activity.

A property used as seasonal holiday accommodation, or as short-term worker accommodation will not be viewed as Residential Real Estate.  The rental of this accommodation will be subject to VAT at 5%.

Temporary accommodation in hotels, inns, guest houses, motels, serviced accommodation or any other building that is designed to offer temporary accommodation to visitors or travelers are not considered as Residential Real Estate. These services are subject to VAT at 5%.

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.

All sales of Real Estate in the KSA, and services relating to Real Estate in the KSA will be subject to the VAT in KSA. 
This is regardless of the country in which the supplier or recipient are Resident.  The residence of the supplier and customer only affects the mechanism for how VAT is charged.
 

The supply of Real Estate situated outside of the KSA falls outside the scope of KSA VAT.  Likewise, the supply of Real Estate related services which relate to Real Estate situated outside of the KSA are not subject to VAT in KSA.

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.
 

The main criterion is the license and actual formal usage of the real estate. So, if the building is intended for use (contracted) as a residential dwelling, then it shall be exempted from VAT for every supply made in the supply chain. But if it is not intended for use (contracted) for residential purposes, it will be subject to VAT.

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. 

Only the portion of the lease related to the supply that will take effect on or after 1 January will be applicable for VAT purposes (i.e. subject to tax at 5% for a commercial lease and exempted in case of a residential lease).

 

Lease contracts are considered as a continuous supply of services. Therefore, the taxable event will be on the earlier of the date of issuing the invoice or the date of receiving the payment.  If the lease contract provides for payment of consideration in set instalments, then the taxable event for each instalment is on the earlier of the payment due date or the date of receiving the payment.

No, only the lease of units that are qualified as residential units and used as a regular residence are exempted from VAT. The lease of serviced apartments and hotel accommodation is subject to 5% VAT.

Generally, supplies which actually take place in full before 1 January 2018 are not subject to VAT, regardless of whether an invoice is issued or the consideration is received in 2018. As the supply has taken place by virtue of transfer of ownership before the effective date of VAT (1 January 2018).  VAT will not apply on the supply even the payment is received after 1 January 2018.

 

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).

Generally, any taxable supply provided by a Taxable Person should be subject to VAT. Yes, you should apply VAT on all taxable supplies made in the course of your business. The status of the person who sold the house is not relevant to your sale.
 

8.7. Healthcare

In accordance with the Royal Decree no. (A / 86), the State will be responsible for paying the value added tax due for the health services provided to citizens, representing 5% of the value of the health service provided through the private health sector.
The tax to be incurred by the State shall include the amount of the tax due on the amounts paid in cash by the citizens for the full taxable health service or the insured citizen's tax liability for any additional amounts s/he pays her/himself as the agreed rate of the policy with the insurance company. Otherwise, the Insurance companies are responsible for payment of VAT on health services covered by the insurance policy of the insured within the limits of the percentage borne by the company. Based on the above, the citizen will not bear any tax payments.
The mechanism for the implementation of the Royal Order concerning how to pay / refund the private sector facilities will be announced in due time.
The Royal Decree can be found on the following link

 

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.

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 (private health services / private education / first residence)".

The list of zero-rated medicine and medical equipment is announced on GAZT website. Any medicine that is not on this is taxable.

Article 35 of the 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.
The list of zero-rated medicine and medical equipment issued by KSA Ministry of Health and SFDA can be found on the following links:
- Zero-rated human drugs
- Zero-rated vitamins
- Zero-rated medical equipment
 

8.8. Transportation

In accordance with the VAT law and its implementing regulations, domestic transportation is subject to the standard 5% rate.

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 
 

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.

A journey within the KSA is considered domestic transportation since the plane’s destination is not outside the KSA nor is it arriving from outside the KSA.  This is regardless of where it is booked. 
Domestic transportation is subject to VAT at the standard rate. The GCC registered supplier will need to account for VAT in the KSA if the recipient is not VAT registered in the KSA.
 

8.9. Investment metals

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.
 

8.10. Government

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.
 

Not all governmental bodies are entitled to claim back VAT. A list that names governmental bodies that are allowed to claim refund on VAT paid on inputs will be provided.

8.11. Retail

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. 

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.

8.12. Other sectors

Taxable supplies are treated differently depending on whether they are consumed domestically, within GCC countries or outside GCC countries. Supplies to outside of GCC will be zero-rated.

Corporate Social Responsibility is considered part of the business activity and relevant costs can be offset against VAT output. If there is no VAT output (all sales are exempt) then there can be no refunds for CSR activities.

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.

All services with the exception of international transportation, defined financial services and residential rent are taxed. All have to issue invoice and have to file for tax through the standard online interface.

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.

Public service bills are subject to a 5% VAT.

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. 

9. Interaction with other gov. entities

9.1. Customs

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.

9.2. MLSD

9.3. Other government agencies

Companies should follow the instructions on the letters/ messages. If required to call 19993 they should give their CR and content of the message.

The ministry of finance defines the primary principles relating to the design of VAT and the objectives being pursued under it. 

10. Technical inquiries

10.1. Website registration issues

Please make sure you have entered the correct e-mail address and check if the e-mail was sent to your Spam or Junk mail folder.

It is possible to correct the wrong information except for financial details information. These cannot be changed. 

You may not be eligible for VAT, in case your annual income is less than 187,500 Saudi Riyals. 

You can apply to cancel the VAT registration through the portal and you need attach any supporting documentation to validate the cancelation.

You can apply to cancel the VAT registration through the portal and you need to attach any supporting documentation to validate the cancelation. 

The Zakat and income account is different from the VAT account. You must use the username and password sent to you via e-mail to access your VAT account.

10.2. Issues logging in to your GAZT account

Please click on “Forgot password” icon, then enter the e-mail address registered in your GAZT account. Once you receive an activation message on your mobile phone, you can proceed with completing your registration. In case your mobile phone details are different than the ones registered on your GAZT account, you can request to update your mobile phone details.

10.3. Other technical inquiries

11. Data privacy and confidentiality

Yes, procedural safeguards and rules exist to ensure taxpayer confidentiality. 

12. Suppliers and customers management

The public registry that lists all VAT-registered taxpayers with basic information related to VAT can be found on the following link

New contracts do anticipate the application of VAT to the Supply hence this needs to be reflected in the drafting of the contract.

Taxation is based on the nature of goods and services provided by the taxable person according to the policy stated at GCC Agreement level as well as in the Implementing Regulations.

When receiving services from non-residents, the taxable person must calculate the amount of VAT due by way of the reverse charge mechanism.

As a provider of services or goods under these contracts, there is no distinction between clients whose revenues are below SAR 187,500 and clients whose revenues exceed SAR 375,000. In all cases, as the service/goods supplier (the vendor), you are required to issue a tax invoice that includes the information specified in the regulations, and to collect the tax.

The VAT value should be included in the sales invoice when billing non-registered customers. The customer's registration number will be included if it is available to the supplier.

Both the supplier and customer must fully comply with their tax obligations to issue, collect and retain relevant documents for VAT records. Providing correct information, setting controls and measures to ensure proper reporting is part of these obligations.

The responsibility for the payment of VAT rests with the supplier. You are only entitled to deduct input VAT which is correctly charged and if it holds evidence of a correct VAT invoice. In order to be able to deduct VAT, you must ensure that the supplier issues a VAT invoice with the correct amount of VAT. In case you are aware that the VAT amount invoiced is not correct, deduction of input VAT mentioned on the invoice is not allowed.

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.

13. Grandfathering of Contracts

Any Supply of Goods or Services made in respect of a contract which does not anticipate the application of VAT to the Supply may be treated as zero-rated by the supplier until the earliest of the time the contract expires or is renewed, or 31 December 2018, provided that: 
a)    the contract was entered into before 30 May 2017
b)    the Customer is entitled to deduct Input Tax in respect of the Supply of Goods or Services in full, or is an Eligible Person entitled to a refund of the Tax; and
c)    the Customer provides a written certification to the Supplier that Input Tax can be deducted or refunded in full on the Supply.
 

The suppliers should have renegotiated / are expected to renegotiate these contracts reflecting the VAT due. This is a contractual point. If the price is agreed to be inclusive of all taxes (and there are no ‘change of law’ provisions in the contract which allow this to be changed for a material change in the law), then the price should include the VAT charged.

Any supplier who issues an invoice or receives consideration before 1 January 2018 for a supply where the actual supply of goods or services takes place on or after 1 January 2018 must charge VAT based on the actual date of the supply.  This ignores the rules to move the date of supply forward for a tax invoice or pre-payment, and prevents VAT being avoided by early payment or invoicing.

In general, subject to the refund or return of goods agreement between the supplier and customer, there should not be VAT implications for the return of goods which were originally supplied before 1 January 2018 without VAT.

By default, the price stated in an agreement should be assumed to be inclusive of VAT, if the contract does not anticipate VAT being applied. The transitional provisions allow the application of zero-rate on the eligible contracts before 30/05/2017 until the contract date of expiry, date of renewing the contract, or 31/12/2018, whichever comes first. The early payment may affect the time at which VAT becomes due. Please refer to the transitional provisions guideline for additional details.

The supplier should send a request to the customer to confirm its ability to fully deduct to apply the zero-rate. The request may apply to a single or multiple supplies of goods and services during a set time period.
The request must provide: The name and TIN of the supplier, the name of the customer, and a description of goods or services subject to the request, or the start and end date for supplies subject to the request, or other information which clearly identifies which supplies the request relates to.
The customer’s response must confirm that he/she is able to deduct Input VAT in full on the supplies subject to the request. This response is considered to be a written certification.
A written certification can be made over any means (including electronic communication) from the customer. Please refer to the transitional provisions guideline for additional details.

VAT is applied to the sale of goods based on the date when the goods are delivered or made available to the customer (unless an earlier payment is received or invoice is issued).  If the goods were delivered or made available before January 2018, VAT will not apply regardless of when the payment is made.