Increase of VAT rate to 15%
The KSA introduced a basic VAT rate of 5% to Taxable Supplies and Imports made in the Kingdom when VAT was implemented in January 2018. With effect from July 1, 2020, the basic VAT rate was revised to 15% (the "Revised VAT Rate").
Transitional rules have been implemented to define the VAT rate that will be applied to long-term contracts for continuous supplies beginning on July 1, 2020, as well as certain supplies for which invoices are produced or contracts are signed before May 11, 2020.
These guidelines, as well as additional information about the VAT rate change, including recommendations on specific types of supplies, are described in a supplementary guideline on the Revised VAT Rate.
This Guideline was initially published before the VAT rate was increased to 15%, and its content is based on the 5% rate in effect at the time of publication. When applicable to any Supplies or Imports made on or after July 1, 2020, and in compliance with the transitional rules, all references to the 5% VAT rate in this Guideline should be construed as 15%. In this Guideline, monetary examples or calculations that incorporate a 5% VAT rate should be construed as if the 15% rate applied to all Supplies or Imports made on or after July 1, 2020, and in accordance with the transitional provisions.
Who is required to register?
To find out if you are obliged (or qualified) to register, you must first assess if you engage in an Economic Activity. Natural persons (individuals) and legal persons can both engage in economic activity.
GAZT will assume that a legal person who makes regular deliveries of goods or services engages in Economic Activity.
Certain transactions can be carried out by natural persons as part of their Economic Activity or as part of their private activities. There are precise rules that must be followed to determine whether or not a natural person is subject to VAT.
If needed, natural and legal persons who engage in economic activity must register for VAT purposes, collect the VAT applicable to their taxable operations, and pay the tax collected to the Authority.
KSA Residents’ Mandatory Registration
All residents of the Kingdom of Saudi Arabia whose annual taxable turnover reaches a specific threshold must register.
A resident must register for VAT if their taxable supplies over the course of a year reach SAR 375,000 (the "Mandatory VAT Registration Threshold"). This is subject to the transitional conditions set forth in the Implementing Regulations, which exempt residents with a turnover of less than SAR 1,000,000 from required registration until 2019.
1 January 2018 - Registration
VAT was implemented in the Kingdom of Saudi Arabia on January 1, 2018. Until January 1, 2019, a transitional provision exempted any KSA resident with taxable turnover of less than SAR 1,000,000 from the requirement to register. Residents having an annual taxable turnover of less than this amount could nevertheless choose for voluntary registration.
Anyone whose taxable supply was projected to be worth more than SAR 1,000,000 in the 2018 calendar year was needed to register by December 20, 2017. GAZT is still able to accept and process applications from businesses that were obliged to register but have not yet done so.
0 - Rated Supplies
If a person's yearly taxable supply value exceeds the Mandatory Registration Threshold but the person only makes zero-rated supplies, the person is exempt from having to register for VAT.
GAZT is not required to be notified if this exception is used. It should, however, keep proof of overall turnover, as well as proof that all of its turnover is zero-rated, in its company records.
Non-compliance with the Registration
GAZT is collaborating with government agencies and businesses to ensure that firms are aware of their taxable turnover and VAT registration duties.
If a person fails to notify GAZT of their registration requirement, GAZT will attempt to notify that individual of their registration needs and how to complete registration.
GAZT may proceed with VAT registration based on information collected from competent sources and notify the person of their Tax Identification Number and effective registration date if the person does not register. The VAT registration will go into effect on the applicable date, which will be determined by the retrospective or prospective test.
KSA Residents’ Voluntary Registration
Voluntary registration is also possible for KSA residents who are not required to register but have:
- Made a total value of taxable Supplies, or
- Incurred a total value of taxable expenses that is not less than the "Voluntary VAT Registration Threshold" of SAR 187,500 at any time during the previous twelve months. The registration becomes effective on the date specified in the registration certificate by GAZT.
Voluntary registration cannot be requested based on anticipated future revenue.
When a company wants to claim VAT levied on its costs before issuing invoices or making an onward taxable supply, voluntary VAT registration may be the best option.
Businesses must register for VAT through GAZT's application portal, which is available on the company's website.
The Taxable Person is identified in the ordinary VAT registration process by the general Tax Identification Number ("TIN") provided by GAZT for all taxes. Taxpayers must have a valid TIN in order to register for VAT.
If you do not already have a TIN, you can apply for one on GAZT's website before registering for VAT.
Under special circumstances, taxable persons who do not have a commercial registration will need to apply for a TIN.
Taxpayers will be guided through a five-stage online application process once they visit the VAT application page.
The VAT Manual, which may be found at vat.gov.sa, includes screenshots of this process.
The following information will be necessary for the VAT registration process for domestic taxpayers:
- Information about the taxpayer - Users will be asked to provide the following information on the application's second page:
- Whether the company imports or exports products or services
- An IBAN number that will be linked to the company's VAT account
- The 'VAT Eligibility Commencement Date.' This is the date on which the business exceeded either the statutory VAT registration threshold or the optional registration threshold.
- Financial information: - The firm will be requested for financial details on the third page, which will be used to determine their VAT eligibility.
- Projected taxable sales for the next year
- Actual taxable sales for the previous year
- Projected taxable expenses for the coming year
- Actual taxable expenses for the previous year
After that, the applicant must sign an official declaration stating that the application is truthful and correct.
Certificate of VAT Registration
GAZT will issue a VAT registration certificate to the Taxable Person once the VAT registration has been reviewed and accepted. The name of the Taxable Person, the applicable VAT Account Number (the TIN for VAT – to be published on tax invoices), and the effective date of registration will be displayed on this certificate. A unique VAT certificate number is also assigned to each certificate.
A resident person who is subject to VAT and has registered with the Authority in the VAT system must display the VAT certificate at his main place of business and all of his branches in a public area. In the event of a violation, the violator will be subject to the penalties set forth in the law.
The GAZT maintains a central database of all Taxable Persons. Customers and other individuals can use the VAT lookup function on the GAZT website's "E-Services" section to see if a specified VAT registration is valid and current (vat.gov.sa). The VAT lookup tool can be used to look for information using the VAT Account Number (TIN), Commercial Registration Number (CRN), or VAT Certificate Number (VCN). The specific VAT application released by GAZT, which is available for free download from top app stores, can also be used to search for VAT numbers.
The Unified VAT Agreement requires a Taxable Person to apply to deregister in the following circumstances:
a) cessation of Economic Activity;
b) cessation of Making Taxable Supply;
c) if the value of the Taxable Person's supplies falls below the Voluntary Registration Threshold.
The Implementing Regulations for the application of (c) in the KSA lay out three tests to determine if the value of supply falls below the threshold, depending on turnover in the previous two years and predicted for the coming year.
Any of the foregoing occurrences must be reported within 30 days of the occurrence of the application. A person who has been registered for less than twelve months is not eligible to apply until twelve months have passed since the date of registration. In all situations, the registration is cancelled on the date set by GAZT once it has approved the deregistration. This date can be backwards to reflect the date when the appropriate circumstance necessitated deregistration.
Deregistration applications are submitted electronically through the taxpayer portal. GAZT may request paperwork to prove that the Economic Activity has ceased or the value of Taxable Supplies supplied or expected to be made before authorizing the deregistration.
Deregistered Taxable Persons are nevertheless responsible for fulfilling all VAT requirements for the period in which they were registered, such as issuing tax invoices, filing tax returns, and making all payments owing to the Authority. For the required time period, the Taxable Person must keep all relevant records.
All supplies made upon deregistration, including a nominal supply for tangible business assets kept on deregistration, must be included in the final tax return, which includes the date of deregistration. The nominal supply is determined using the assets' fair market value at the time of deregistration.
When a VAT-registered business offers "taxable" goods or services in the KSA, VAT is most typically charged.
A Taxable Person in the Kingdom of Saudi Arabia is any natural or legal person who engages in economic activity and is registered for VAT in the Kingdom of Saudi Arabia, or is required to be registered for VAT in the Kingdom of Saudi Arabia.
If your yearly turnover reaches the Mandatory Registration threshold but you are not registered for VAT, you will be considered a Taxable Person and compelled by law to register. You will be responsible for VAT on supplies for the whole period you were required to register.
Supplies on which Tax is imposed in line with the conditions of the Agreement, whether at the regular rate or zero-rate are defined as taxable supplies.
Almost all sorts of supplies are subject to VAT, with the majority of them falling under the normal 15% rate.
The date the supply occurs (also known as the "date of supply" for VAT purposes) must be indicated on each Tax Invoice for a Taxable Supply. The day on which the VAT on that supply "becomes due" is this date.
Physical (printed) or electronic (electronic) Tax Invoices are to be provided. There is no requirement that the Tax Invoice be signed or have an official stamp of the provider for VAT purposes. However, including a signature or official stamp on a printed invoice is advised and preferred.
Input Tax incurred on goods and services purchased or imported for the purpose of carrying out an economic activity in the course of making Taxable Supplies may be deducted by a Taxable Person. On the VAT return, the Deductible Tax is entered and offset against the VAT levied on supplies (output VAT) made during that time.
The Customer's entitlement to deduct is based on goods and services purchased (or imported) for the purpose of carrying on business in the course of making Taxable Supplies.
The wording "for the purpose of carrying out an economic activity" and "in the course of making Taxable Supplies" suggest that a deduction is only possible if the supplies acquired have a sufficient link to the Taxable Person's subsequent supplies. It is not required, however, for items to have a direct link to a subsequent Taxable Supply to qualify for a deduction.
The tax period in which the supply occurs is the typical timing for a Taxable Person (who uses the standard invoice accounting basis to report VAT) to exercise the right to Input Tax deduction. This is usually the day when the goods and/or services are delivered and the Tax Invoice or other documentation is delivered to the Taxable Person. Deduction cannot be claimed until the Taxable Person who is the Customer in relation to the supply receives a valid Tax Invoice for the supply that is issued within that tax period (or an earlier tax period).
To be eligible to deduct the Input Tax on the purchase of certain goods or services, no particular onward supply (of the products or services purchased) is required.
VAT Filings and Recordings
For each monthly or quarterly tax period, each VAT registered person, or the person entitled to act on his behalf, must file a VAT return with GAZT. The VAT return serves as the taxable person's self-assessment of tax owed for the given period.
For taxable persons with yearly revenues above SAR 40 million, monthly tax periods are required. The typical tax term for all other VAT registered persons is three months.
The VAT return must be filed by the last day of the month following the end of the tax period to which the VAT return relates, and the corresponding payment of net tax due must be made by the last day of the month following the end of the tax period to which the VAT return refers.
Taxable Persons must keep certain records for VAT purposes, including the applicable books, records, and accounting papers, for at least the legal minimum term. For VAT purposes, the Unified VAT Agreement, VAT Law, and Implementing Regulations establish these obligations. They exist in addition to any other obligations imposed on individuals in the Kingdom of Saudi Arabia to keep records under the Law of Commercial Books or other applicable legislation.
All records must be preserved for at least 6 years, which is the normal minimum retention period. For all records relating to moveable and intangible Capital Assets, a longer minimum length of 11 years is required by law (calculated as the asset's statutory useful life for VAT purposes plus another five years). In all circumstances, tax invoices, books, records, and papers connected to real estate must be kept for at least 15 years.