VAT in Saudi Arabia - An Overview

Saudi Arabia has recently announced implementation of value added taxation in the kingdom as an attempt to recover it's depriving economy.

The long-awaited tax law is still in its initial stages and has a long journey to cover. The law which is to be implemented from 1st January 2018 is indirect in nature and the burden of taxation would ultimately fall upon the end consumers resulting in increase in prices.

This would also result in increased Reserves of the kingdom and reduction in expenditures on luxury items other than goods having inelastic demand.

Certain key factors of this law are being elaborated as below.

Any resident person who's supplies for the year in actual or estimated is over and above the prescribed threshold is liable to be registered with the authorities as a taxable person.

The person should register himself as a taxpayer through the web portal and should submit the relevant documents within 20 days of the application.

GAZT has acknowledged during public information sessions that the obligations of the new VAT system will be felt particularly by smaller businesses.

Indeed, the draft regulations allow for the administrative burden to be eased from SMEs:

- Whilst the standard VAT registration threshold is SAR 375,000, businesses with annual turnover less than SAR 1,000,000 are initially exempt from the
mandatory registration requirement until January 2019, giving the smallest businesses more time to become ready for new rules;
- VAT reporting can be carried out on a ‘cash accounting’ basis for small businesses with turnover of less than SAR 5,000,000 – removing the administrative obligation of invoice accounting, and the additional VAT burden arising from unpaid customer debts for these businesses;
- All businesses with annual turnover less than SAR 40,000,000 may use a quarterly filing period, significantly reducing the number of VAT returns required per year and extending the time for making payment of VAT.

Salaried individuals are out of the Ambit of the said law and are not considered to be generating an economic activity.

Real estate sector except for residential property on the other hand has been included in the definition of economic activity and is therefore considered to be taxable.

Wired and wireless telecommunication services being intangible in nature have also been included into the VAT.

Financial services except for Life Insurance are also taxable under VAT.

Services provided to a non resident of a GCC is exempt from Tax under this law subject to certain conditions.

The international transport of goods and passengers is zero rated subject to certain conditions under this law.

The supply of a qualifying metal that is gold silver and Platinum is taxable at zero rate under this law.

The tax on import of goods should be collected at the time of custom duty and should be collected by the custom department however the taxpayer can also deposit tax himself if he submit return of income on monthly basis and imports items on monthly basis.

Input tax up to 6 months can be adjusted against output Tax under this law.

The taxpayer is required to issue a tax invoice not later than 15 days of the supply. The Tax period of taxpayers whose annual supply during the last 12 months does not exceed 40 million riyals is monthly. For all the remaining taxpayers the tax period shall be 3 months.

The payment of tax due that is after adjusting input tax against output tax shall be the last day of the tax period.

The taxpayer has an option to submit his return of income and tax through a registered tax representatives, tax agents and appointed persons.