Saudi Arabia’s Shura Council has approved the proposed VAT Law on 13 July 2017. The approval follows the launch of a public consultation for the draft law in June by Saudi Arabia’s General Authority for Zakat & Tax (GAZT). The text passed by the Shura Council is in line with the uniform VAT agreement between the Gulf Cooperation Council (GCC) countries.
All six GCC countries signed the GCC VAT framework agreement in January 2017. Saudi Arabia is currently the only GCC country that has confirmed 1 January 2018 as the effective date for the VAT law.
On 1 May 2017, the cabinet of Saudi Arabian approved the Double Taxation Agreement (DTA) with Egypt for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
The Saudi Arabian Cabinet approved the Excise Tax Law on 2 May 2017 after also approving the GCC framework agreement in relation to Excise Taxes. The Excise Tax Law was published in the Saudi Official Gazette (UM-AL QURA), Issue no. 4672 on 26 May 2017. The Law will enter into force after 15 days from its publishing date.
The Excise Tax Executive regulation is expected to be issued soon to provide additional guidance to taxpayers on the procedures relating to this new tax and their responsibilities regarding registration and compliance. Businesses that perform any of the following activities will have to register for Excise Tax purposes, according to article 6 of the Excise Tax Law:
- Import of excisable goods;
- Production of excisable goods; or
- Acquisition of excisable goods under duty suspension arrangements.
There is no detailed list of goods subject to Excise Tax in the Excise Tax Law, however, according to information published by the tax authority (GAZT) the following products are expected to be subject to Excise Tax in Saudi Arabia:
- Tobacco products – 100%;
- Carbonated soft drinks – 50%; and
- Energy drinks – 100%.
Registration for Excise Tax purposes in the GAZT electronic filing system “ERAD” is possible and can be found using the following link:
The Government of Saudi Arabia has set a range of income tax rates for producers of oil and hydrocarbons, through a royal decree on 27 March 2017.
According to the decree, the tax rate for investments exceeding 375 billion riyals ($99.96 billion) will be 50% and the rates will increase for producers with smaller investments.
These new rates are effective from 1 January 2017.
The new VAT law will be implemented in Saudi Arabia by 1 January 2018. In the meantime, the General Authority of Zakat and Tax (GAZT) taking necessary sessions to build up awareness among business groups.
During this awareness sessions, the GAZT have discussed about the penalties that will apply in case of non-compliance which are as follows:
- A penalty of twice the amount of VAT payable will apply in case of failure to register for VAT;
- A penalty of not less than 50% of the undeclared net VAT amount will apply in case of inaccurate filing of VAT return;
- A penalty equivalent to SAR1,000 or 2% of the average value of the monthly VAT supply, whichever is higher will apply in case of failure to maintain records under the VAT;
- A penalty of not 50% of the VAT refund claimed will apply in case of overstating the refundable VAT amount;
- A penalty equivalent to a total of SAR1,000 (US$267) and an additional amount equivalent to 5% to 20% of the VAT payable will apply in case of delay in submission of VAT return. Although, the amount of penalty will depend upon the number of days of delay in the filing of the VAT returns;
- A penalty equivalent to SAR1,000 or double the amount of the VAT charged, whichever is higher will apply in case of non-registration of invoice with the authority and charging VAT by an unregistered person; and
- A penalty of SAR1,000 or 2% of the average value of the monthly taxable supply, whichever is higher will apply for non-compliance with the information requested by GAZT to submit . However, the amount of the penalty shall not exceed SAR20,000 (US$5,333)
The Kingdom of Saudi Arabia has published the GCC VAT framework agreement in the Official Gazette on 21 April 2017.
The General Authority of Zakat and Tax (GAZT) has issued public consolation inviting comments on the published VAT law by using an electronic form which is available on their website and the deadline for submitting the form is 29 June 2017. There is a questionnaire on the form which will be used to assess the readiness of KSA businesses for VAT implementation.
VAT is expected to be introduced in the Kingdom of Saudi Arabia from 1 January 2018.
The Gulf Cooperation Council (GCC) Value Added Tax (VAT) Framework Agreement for the Arab States has been published by the Kingdom of Saudi Arabia in the Official Gazette – UM AL QURA by way of Circular Number 4667 dated 21 April 2017. The agreement was ratified by Saudi Arabia through Royal Decree No. M/51 of 31 January 2017.
According to the standard VAT rate will be 5% except where the zero rate applies. The exempted sectors include Education, Health, Real estate, Local transport.
The Member States have the right to apply zero VAT rate on petroleum products, oil sector, gas, certain food products, medical care, intra-GCC, international transportation and export of goods to the jurisdictions outside the GCC Member States.
Member States also have the right to exempt financial services from VAT, but Member States may apply a different VAT mechanism to financial services.
A Reverse Charge Mechanism applies to the transaction of goods and services from a VAT registered person in one Member State to a VAT registered person in another Member State. VAT grouping seems to be permitted between two or more legal persons resident in the same Member State. The treatment of GCC free zones is not addressed and is left to each Member State to determine its own VAT treatment for free zones.
Companies with annual revenue exceeding $100,000 or equivalent in the currency of the Member State will be required to register for VAT purposes whereas companies with annual revenue between $50,000 and $100,000 will have the option to register for VAT purposes.
Officials at the Saudi Arabian Ministry of Finance (MoF) have indicated that the VAT regime will be applicable from 1 January 2018 and a 5% levy will apply to selected goods as set forth in the GCC agreement.