1What is Value Added Tax (VAT), and how does it work?
Value Added Tax (or VAT) is an indirect tax imposed on all goods and services that are bought and sold by businesses, with a few exceptions. VAT is applied in more than 160 countries around the world as a reliable source of revenue for state budgets. VAT will be collected by SEC from its customers by applying 5% on its supplies e.g. electricity, connection fees. SEC will subtract - from the VAT collected - its outgoing VAT (on SEC purchases). The net amount is paid to General Authorithy for Zakat and Tax (GAZT) on monthly basis. Therefore VAT is not revenue for SEC.
2Why is VAT being introduced?
The introduction of VAT is a key part of the Kingdom's broader plan to improve fiscal sustainability and diversify government revenues. VAT will provide a stable and sustainable source of funds to support the country’s ambitious programme of transformation, including investment in economic development, diversification and public services. This will have real benefits which will positively affect the public and businesses of all sizes across Saudi Arabia.
3Will VAT cover all goods and services? At what rate will VAT be introduced?
All goods and services will be subject to VAT. The VAT rate will be set at a standard rate of 5%. Few services and goods (e.g., qualified Medicines and Medical equipment) will be zero rated. For such list, please refer to Chapter 6 of the KSA VAT law. In addition, some goods and services will be exempt (e.g., rent of residential real estate, capital markets activities). Please refer to chapter 5 of the KSA VAT Law. As VAT is an indirect tax, it is not charged on salaries and wages of employees.
5What is the VAT applicability on customers? Will VAT vary based on categories of customers, e.g., Residential, Commercial, Industrial, Government, etc.?
Taxation will be based on the nature of goods and services provided according to the policy stated at GCC Agreement level as well as in the Implementing Regulations. All customers will be similarly charged, irrespective of their nature, size, categories e.g. residential, commercial, industrial, government.
6Are supplies to government organizations Subject to VAT?
Yes, government supplies are subject to VAT and the businesses supplying the government are liable to pay the VAT. 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
7Where can I access VAT Law?
VAT Law, that was published in 11-1438 H.
9How do I know if my business needs to pay VAT?
'-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 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.
12How are transactions between companies of the same group treated? Does this treatment change in case of companies being located in different companies?
Intercompany transactions for a Group operating in Saudi Arabia are not subject to VAT as long as they belong to a VAT group.VAT grouping is a facilitation measure by which 2 or more bodies corporate can be treated as a single taxable person for VAT purposes. A group of companies applies to be treated as a single taxable entity for VAT purposes. The registration is made in the name of the representative member, who is responsible for completing and rendering the single return on behalf of the group. Whilst the representative member is responsible for paying the VAT or receiving any repayment due, all the companies are jointly and severally liable for any VAT debts. Supplies between group members are normally disregarded for VAT.
15How are employee benefits treated under VAT?
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: '-Any form of entertainment, sporting or cultural services; '-Catering services in hotels, restaurants and similar venues; '-The purchase or lease of restricted motor vehicles, '-Repair, alteration, maintenance or similar services on restricted motor vehicles; '-Fuel used in restricted motor vehicles; or '-Any other Goods and Services used for a private or non-business purpose.
19How will the credit / debit memos be handled by SEC?
Debit note and credit note have same invoicing requirements as per Article 53 of the Regulations. They should contain same information as an invoice in addition to referencing the original invoice against which such debit/credit notes are issued.
26Will there be a grace period/ amnesty period?
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. There is no grace period if revenue is in excess of 1M.
29Do we need separate VAT number for each CR?
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).
33What will be the requirements for VAT registration?
Any registration application must contain the following minimum information: 1.The official name of the legal person or natural person; 2.Physical address of regular abode or place of business; 3. Registered address to receive electronic mail 4.Existing electronic identification number issued by the Authority, if any; 5.Commercial Registration identification number; 5.Value of annual supplies or annual expenses; and 6. Effective date of registration, or any alternative requested effective date
34How will group companies be treated? Is there a maximum revenue size for the group company above
which it will be treated as separate companies?
Two or more Legal Persons may apply to register as a TAX Group in the Kingdom if the following requirements are met: 1. Each Legal Person is resident in the Kingdom and carries out an Economic Activity; 2. 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 3. At least one of the Legal Persons is a Taxable Person eligible to be registered in its own right.
36How is reporting done to GAZT ?
SEC shall submit VAT return on monthly basis. SEC will be required to report the numbers required to be filed with GAZT. SEC will access the GAZT portal and populate the VAT return form online.
38How frequently will VAT need to be filed and how long after the deadline does the filing have to be received by GAZT?
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.
39What are the requirements/ conditions for invoice vs cash accounting?
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 will be required to report to GAZT on accrual accounting basis.
45How will invoices have to be adjusted to include VAT? (i.e., what lines)?
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: 1. The date of issue; 2. A sequential number which uniquely identifies the invoice; 3. The Tax Identification Number of the Supplier; 4. 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; 5. The legal name and the address of the Supplier and of the Customer; 6. The quantity and nature of the Goods supplied or the extent and nature of the Services rendered; 7. The date on which the supply took place, where this differs from the date of issue of the invoice; 8. 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; 9. The rate of Tax applied; 10. The Tax amount payable, shown in riyals; 11. In the case where Tax is not charged at the basic rate, a narration explaining the Tax treatment applied to the Supply; 12. 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.
48Will "self-billing' be used?
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.
51What is GAZT's policy regarding online document archiving? What are GAZT categories of documents and its prescribed archived time?
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: 1. 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. 2. Data entered into the computer system must be in Arabic and must be an identical copy of said books. 3. Original supporting documents for all entries in accounting books must be kept locally 4. 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. 5. The Taxable Person must document computer data entry and processing system of accounting entries for reference, when needed. 6. The Taxable Person must have necessary security measures and adequate controls, which can be reviewed and examined, to prevent tampering 7. The Authority may review electronically the systems and programs applied by the Taxable Person to prepare its computerized accounts.