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Kingdom of Saudi Arabia (KSA): The VAT impact

The Value Added Tax (VAT) Law was published in the KSA official gazette (UMM AL-QURA) in its issued number 4681 dated 27 July 2017.

The VAT Law indicates that VAT will come into force from the start of the fiscal year following the date of its publication in the official gazette (1 January 2018). In addition, it gives a taxable person in the KSA 30 days from the date of publication of the VAT Law to register with the Commission/Authority (i.e. from 27 July 2017).

The VAT draft law is divided into 18 chapters which contain 53 articles which highlight the main VAT principles that will be applicable in the KSA. The VAT Law also makes reference to the VAT implementing regulation that should be officially released by the General Authority of Zakat and Tax (GAZT) within 30 days from the date the VAT Law was issued in the official gazette. Till date, the GAZT has released a draft version of the implementing regulation for public consultation purposes which can be used as guidance.

A brief summary of the key provisions of the VAT laws has been provided below:
Registration and VAT Grouping
  • All business who are liable to register for VAT must apply for VAT registration within 30 days of the published law (i.e. 30 days from 27 July 2017).
  • Businesses who do not apply within the 30 days period will be fined SAR 10,000.
  • The VAT regulations shall provide cases in which two or more resident legal persons may elect to register as VAT group, where they carry on economic activity and have close economic or financial links with each other. Persons registered as a VAT group would be treated as a single taxable person. All members of the tax group shall be responsible, individually and jointly, for the tax liabilities of that group arising during their term of office.
Tax Calculation
  • The rate of tax due shall be the percentage applied at the date of supply or on the date of importation.
  • If an invoice or payment is made for the goods or services before the effective date or before the date of registration and the date of supply is after the implementation or registration date, the tax shall be due on such supply.
Tax Refund
  • The Regulations shall specify the terms and conditions for granting foreign governments, international organisations, diplomatic, consular and military bodies and missions the right to request a refund of the tax they have incurred on goods and services in the KSA and the conditions and controls necessary for the application of the tax at zero percent on the supply of goods and services to these entities.
  • As per the terms and conditions prescribed in the regulations, the Authority may exclude certain categories from the payment of the tax upon receipt of goods and services in the KSA and allow it to recover the tax it incurred on goods and services.
Penalties and Fines
  • Article 40 provides the penalty for tax evasion which shall be a fine not less than the amount of the tax due and not more than three times the value of the goods or services.
  • Any person who fails to pay the tax due shall be liable to a fine equivalent to 5% of the value of the unpaid tax for each month or part thereof for which the tax has not been paid.
  • A fine of not more than SAR 50,000 shall be imposed on each of the following:
    1. Non-maintenance of tax invoices, books, records and accounting documents within the period stipulated. The fine shall be for each tax period.
    2. Preventing or obstructing the employees of the Authority or any of its employees from performing their duties.
    3. Violate any other provision of the Law or regulations.
  • If the same offence is repeated within three years from the date of the final decision of the penalty, the fine may be doubled
  • The Board of Directors of the Authority shall issue the regulations within 30 days from the date of issuance of the Law and shall come into effect from the date of its entry into force. It shall also issue the decisions and instructions necessary to implement the provisions of the Law and the regulations.
  • The system shall be effective from the beginning of the financial year following the date of its publication in the official gazette.
SKP's comments
With the 
release of the final KSA VAT Law, it is evident that the government of the KSA is determined to implement the VAT Laws in the KSA from 1 January 2018. As an immediate action point, the taxpayers need to determine their taxability under the KSA VAT Law and determine the requirement for obtaining VAT Registration as per the draft VAT implementation regulations released last month.

Furthermore, within the stipulated timelines, the taxable persons/businesses who are liable to register should make appropriate efforts to register with the Commission/Authorities to mitigate the potential penalties. I
t is also advised to make the requisite VAT implementation and impact related changes in the business and other areas such as accounting, invoicing, information systems, etc. to ensure a smooth transition without any disruption in the upcoming VAT era.
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