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Insights Value Added Tax (VAT) Guidelines: Saudi Arabia

Value Added Tax (VAT) Guidelines: Saudi Arabia

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published on 6 April 2022

 

 

This country summary is part of the comprehensive Focus on VAT Fellows: International Value Added Tax (VAT) Guidelines »



1. The Kingdom of Saudi Arabia (KSA) as part of the GCC Countries

The Kingdom of Saudi Arabia is part of the Gulf Cooperation Council (GCC), which is comparable to the European Union. On the basis of the common framework legislation for the introduction of VAT in the GCC countries, the member states have agreed to implement the VAT by 1 January 2018 at the latest. So far, the VAT has only been introduced by the UAE and Saudi Arabia on 1 January 2018, and most recently by Bahrain on 1 January 2019. The Sultanate Oman has implemented the VAT as of 1 April 2021. 

 

2. VAT Scope, VAT Rates and VAT Exemptions

In general, all imports and supplies of goods and services are subject to VAT. Specific provisions as well as exceptions can be found in the VAT law and its implementing regulations. 
 
Tax is imposed on all taxable supplies of goods and services made in the Kingdom by a taxable person, or received in the KSA by a taxable person in instances where the Reverse Charge mechanism applies, as well as on imports of goods. 
 
A nominal supply of goods or services, made by a taxable person is treated as a supply of goods or services by the taxable person for consideration as part of the taxable person’s economic activity, except as otherwise provided. 
 
The standard VAT rate is 15 percent. Certain services and goods are taxable at a lower rate of 0 percent.  
 
Zero rated supplies, for example, are: 
  • Exports of goods or services outside the GCC territory backed by evidence of the movement of the goods/ services, it is noted that for several reasons also exports to GCC member states shall be taxable at 0 percent for a limited period (transitional approach)
  • Services provided to non-GCC residents 
  • Transportation services for goods or passengers outside the KSA and supplies relating to transportation 
  • Supplies of investment metals. 
 
There are some rules for VAT exemptions as well.
 
VAT exempted supplies without input VAT deduction eligibility are:
  • Financial services, except in cases where the consideration payable in respect of the service is by way of an explicit fee, commission or commercial discount
  • Lease or license of residential real estate. 
 
At present, it makes no difference whether goods and services are exported from the KSA to a GCC country or to a non-GCC state. Since not all GCC countries have introduced the VAT so far, transitional rules apply, accor­ding to which transactions between the KSA and GCC member states are equated with such transactions with third states. This approach will change and a stricter approach will apply once the Electronic Services System (ESS) is implemented in all GCC states.
 
At this stage it is not entirely certain when Qatar and Kuwait intend to implement the VAT as well. Discussions have been held since 2016.

 

3. VAT registration and simplifications

Whether an entrepreneur/company is required to register for VAT depends on its taxable annual turnover. In this context, the threshold for mandatory registration is riyals 375,000 and the threshold for voluntary regis­tration is riyals 187,500. The Zakat, Tax and Customs Authority (ZATCA) will provide a tax identification number (TIN).
 
If the person has failed to make an application to ZATCA, the authority may register such person without sub­mitting any application and such registration shall take effect from the relevant date.
 
A resident person in the KSA who is not required to register may apply to the ZATCA for registration in any of the following cases: 
  • the value of the person’s supplies or expenses during the then ended twelve months were equal to an amount not less than the voluntary registration threshold, 
  • the value of the person’s supplies or expenses is expected to be not less than the voluntary registration threshold within the following twelve months.
 
The registration rules which apply to local entities do not entirely apply to non-local entities providing taxable supplies in the KSA. A non-resident person who is not registered with the ZATCA but is obligated to pay tax on supplies made or received by that person in the KSA must apply to the authority for registration within thirty days of the first supply on which that person was obligated to pay tax. 
 
There is a simplification rule to avoid a registration for VAT purposes in the KSA which is called the Reverse Charge Mechanism. In this case, the importer is treated as if he had supplied the goods to himself. The tax liability shifts to the recipient of the service and exempts the supplier abroad from the collection and payment of the tax and thus from the obligation to register in the country of destination. It is noted that several specific criteria have to be fulfilled in order to benefit from the RCM.
 
The ZATCA may except a taxable person from mandatory tax registration upon his request if his supplies are only subject to the zero rate. The ZATCA shall review the exception from registration application and either accept the exception from tax registration or notify the taxable Person that his application is rejected.
 
In coordination with the competent authorities, ZATCA may approve persons who wish to act as tax represen­tatives or tax agents for taxable persons in respect of their VAT obligations in the KSA. 
 
It should be taken into account that all non-resident taxable persons shall have a tax representative. 
 
A taxable person who is resident in the KSA 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. 

 

4. Declaration requirements and penalty regime

The tax return of a taxable person must be filed by the taxable person or a person authorised to act on his behalf for each tax period with ZATCA no later than the last day in the month following the end of the tax period to which the tax return relates. A tax return filed validly on behalf of a taxable person shall be considered that taxable person’s self-assessment of tax due for that tax period. 
 
The Authority shall impose the penalties set out in the Law in accordance with the classification of violations and determination of penalties issued by a resolution from the Board of Directors taking into account the proportionality between the violation and the penalty. 
 
Tax evasion shall be punishable by a fine of not less than the amount of tax due and not more than three times the value of the goods or services which are the subject of the evasion. Any person who fails to pay the tax due during the period specified by the regulations shall be liable to a fine equal to 5 percent of the value of the unpaid tax for each month or part thereof for which the tax has not been paid. 
 
A non-registered person shall be liable to a fine not exceeding one riyals 100,000 for issuing a tax Invoice, without prejudice to any stricter penalty set out by any other law.

 

5. VAT recovery

A taxable person may claim a refund of the amount of excess tax paid in any of the following circumstances: 
  • Upon filing a tax return for a tax period where net tax is an amount due to the taxable person
  • Where the taxable person has paid an amount in excess of the amount of tax due
  • Where the taxable person has a VAT credit balance. 
 
Persons who are registered for VAT in another member state may submit an application for refund of VAT incurred in the Kingdom in accordance with the mechanism agreed between the member states. 
 
Persons who carry on an economic activity in a country outside of Council Territory may apply to be considered as eligible person and to request a refund of tax incurred on supplies of goods or services made to that person in the Kingdom. 
 
There are certain cases where businesses generally cannot recover VAT. For example:
  • Any form of entertainment, sporting or cultural services 
  • Catering services in hotels, restaurants and similar venues, 
  • Company car
  • Other associated goods or services determined by law.

 

6. Invoicing

There are several formal invoicing requirements, which differ according to the operation and customers. 
 
Each taxable person must issue or arrange for the issuance of a tax invoice in respect of either of the following events: 
  • Any taxable supply of goods or services which he has made to another taxable person or to a non-taxable legal person
  • Any payment made in respect of a supply of goods or services to a taxable person or non-taxable legal person before that supply takes place.
 
Tax invoices shall be issued in an electronic format in cases where this is prescribed in any regulations issued by the Minister of Finance or the Board of Directors surrounding the requirements and conditions for issue of electronic invoices, provided these regulations are in force as at the date of the Supply. 
 

7. Others

Two or more legal persons may apply to register as a tax group.

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