VAT is implemented in the Kingdom of Saudi Arabia with effect from 1st of Jan 2018. Even the first monthly return was due on 28th of Feb 2018. This being a transactional tax change, it has impacted the way business was done apart from the cash flow and P & L to a great extent.
In our experience, all the implementations of such indirect tax come with a lot of on-going changes with the help of tax rulings. The decree can be passed anytime in many of the aspects and the implementation may be expected from the next day itself. These are clarifications and sometime even change in the procedure or rates to meet the practical situation.
We thought of listing down such ongoing clarifications, press releases and changes and interpret the impact on the businesses due to changes in this write-up.
1) General Authority of Zakat and Tax exempts lease-to-own and rent-to-own contracts signed before January 1, 2018, from VAT (Riyadh, January 3, 2018)
- The General Authority of Zakat and Tax (GAZT) announced the exemption of lease-to-own and rent-to-own contracts of assets (e.g. automobiles or real estate) delivered before January 1, 2018, from VAT.
- These types of contracts are legally viewed as non-continuous supplies and thus exemptions related to continuous supplied do not apply to them, therefore VAT will not be collected on the installments due for these contracts after January 1, 2018.
- All lease-to-own and rent-to-own contracts signed after January 1, 2018, will be subject to the standard 5% VAT rate, GAZT clarified.
- Vat will be calculated based only on the contract asset ‘s value , since profit or interest rate are exempt from tax.
2) GAZT issues 120 VAT violations against non-compliant businesses (Riyadh, January 1, 2018)
- Not registering for VAT despite being mandated to do so
- charging VAT before the date of implementation
- Issuing VAT invoices that do not include all the required information.
- Customers also have the option of reporting infractions by calling GAZT’s Call Center hotline (19993).
- GAZT advised consumers to use the dedicated VAT Application recently launched by GAZT.
- Consumers are also advised to make sure that they receive VAT-compliant invoices upon making purchases from businesses registered in VAT.
- These must include the tax amount due, VAT identification number of the business, and either the standard 5% tax rate or – in the case of zero-rated goods and services - 0% rate.
3) The General Authority of Zakat and Tax explains the mechanism of collecting VAT from private education sector (Riyadh, January 12, 2018)
According to VAT implementing regulations, private sector education services are subject to the standard tax rate of 5%
As Mandated by the Royal Decree No. (A/86) dated 18/4/1439 AH GAZT has announced the mechanism by which the government bears the value added tax (VAT) on behalf of Saudis benefiting from services provided by the private education sector.
GAZT set up a new mechanism in coordination with the Ministry of Education for tax collection. As per the mechanism, private education institutions registered in the VAT system are required to issue tax invoices to Saudi citizens on the amount due for the education services provided to them, but without VAT. The institutions must also confirm the identity of the recipients of the service and include their national identity information on the issued tax invoices to them.
As for the educational services provided to non-Saudis, the institutions are required to issue tax invoices including the 5% VAT, as per VAT law and regulations.
When filing their tax returns through the VAT website, GAZT stated that 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)"
Like other sectors, the private education institutions registered with VAT are entitled to deduct the tax due on inputs, as outlined by VAT law and regulations.
4) GAZT calls on enterprises whose supplies exceed SAR 40 million annually to file their January tax returns before the end of February 2018 (Riyadh, January 23, 2018)
- All enterprises registered in value added tax (VAT) whose supplies of goods and services exceed SAR 40 million annually to file their tax returns on a monthly basis, before 28th February 2018 as stipulated by the VAT Law and Implementing Regulations.
- Enterprises whose supplies of goods and services total SAR 40 million or less, are required to file tax returns every 3 months. The first tax returns for this latter category are due before the end of April 2018 at the latest.
- GAZT further noted that failing to file the tax return within the required tax period results in a fine ranging from 5% to 25% of the tax amount the enterprise was obliged to file. Enterprises in violation will also face a late payment fine equal to 5% of the tax amount due for every month or part thereof for which the tax goes unpaid, as well as suspension of several government services.
5) Exports from the Kingdom are zero-rated under VAT (Riyadh, January 25, 2018)
- The General Authority of Zakat & Tax (GAZT) clarified that exports from Saudi Arabia are zero-rated under the VAT Law and Implementing Regulations.
- Enterprises who export the goods or services are entitled to deduct Vat eligible input taxes they paid, provided they file their tax returns as required.
- Zero rating exports is one of many incentive as given under Vat and implementing regulations.
- In case , if it is not proven that the supply was transported outside GCC region, then t5he standard 5% Vat will be applied to that particular supply.
- GAZT has issued reminder note to all the enterprises registered under VAT whose value of annual turnover exceed SAR 40million to file their tax returns on a monthly basis, as said by Vat laws.
6) GAZT invites non-resident entities to register for VAT (Riyadh, February 6, 2018)
GAZT invites nonresident to carry economic activities as in the kingdom to register for Vat purposes, and to appoint a tax representative to be responsible for carrying out the nonresident VAT obligations such as tax filings and record maintenance.
GAZT urges approved firms authorized to act as tax representative to register the nonresident businesses in the kingdom to register in GAZT’s website.
GAZT clarified that the unregistered nonresident taxable businesses must apply for VAT within 30days, starting from the date of the first taxable
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