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.
On 19 April 2017, Dr Liam Fox, the International Trade Secretary of UK opened the UK-GCC Public Private Partnership (PPP) conference to show how UK expertise can maximize the innovation of both public and private sectors to transform their societies.
The conference will bring together ministers and senior representatives from Gulf Cooperation Council (GCC) member states, led by H.E Dr Abdulatif bin Rashid Al Zayani, Secretary-General of the GCC, to look at how PPPs can be used to inform national diversification plans.
From the Qatar National Vision to Saudi Vision 2030, the Gulf is looking for opportunities to diversify and shape their economies to face the challenges of the future, from infrastructure to healthcare and education.
The UK has considerable experience in the area of public private partnerships, which enable the public sector to access the discipline, skills and expertise of the private sector and for many years has been home to one of the world’s largest and most experienced PPP markets. UK companies with a proven track record across a range of sectors will share their expertise at the conference.
The conference also presents the national transformation programs, and the economic diversification plans adopted by the GCC. It also presents the laws enacted by the GCC countries to increase opportunities for foreign investors in the sectors of infrastructure, health, telecommunications, energy, information technology and other sectors. This is in pursuit of strengthening their economies and diversifying their resources.
The conference will also provide a further opportunity to expand and deepen the trading relationship between the UK and the GCC. UK companies export over £30 billion worth of goods and services to the GCC nations every year and thousands of British companies are active across the Gulf, creating jobs and helping to deliver projects from energy expansion, to helping Qatar prepare to host the 2022 World Cup.