How to record UAE VAT on Services sold to customers in KSA and Bahrain?
The GCC member states of the UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait have signed a common VAT agreement. Article 9 of this agreement set out how taxation on sales between these member states should be treated.
It says that if a taxable person in a member state receives taxable goods or services from a resident in another member state, then he shall be deemed to have supplied these goods or services to himself and the supply is taxable in accordance with the Reverse Charge Mechanism (RCM). Read more…
Do business selling across the GCC register in each country?
A business selling across the GCC will only be required/entitled to register for VAT in another member state if the nature of its supplies of goods and services requires it to be (e.g. the place of supply is in another GCC member state and the reverse charge mechanism cannot be used).
Will there be a common system of VAT registration so you can check whether you are dealing with a taxable person?
The GCC Agreement envisages an electronic matching system for intra-GCC systems. In practice, we do not think this system will be available for a while and so it is likely a VAT number checking system will be made available country by country.
Will there be group registration for companies in the GCC?
Based on the GCC Agreement, member states do have the discretion to implement VAT groups. The UAE and KSA laws indicate that grouping will be available for groups of legal persons established in these respective countries, depending on control requirements being met.
Will associations of persons (e.g. open consortium) be considered as a taxable person?
Whilst the GCC Agreement does make reference to companies being able to form VAT groups, it does not specifically confirm the legal form required to be VAT registered.
If only residents can be VAT registered, does this mean that offshore companies cannot be VAT registered?
There is a requirement for non-residents to register for VAT in the GCC, in the event that they need to pay VAT on supplies made by them in a GCC member state (e.g. the place of supply is in the GCC and the customer is not able to self-account for the VAT due under the reverse charge mechanism).
Will zero-rated supplies count for the registration threshold?
Yes, the taxable supplies including zero-rated supplies count for the registration threshold. However, note that it might be possible that some GCC member states will allow, under certain conditions, a company which only makes zero-rated supplies to be excluded from the mandatory registration on request. The UAE and KSA have indicated that they may allow such exclusions in certain cases.
What do we know about the establishment VAT registration requirement?
If an entity has a Permanent Establishment (PE) for corporate tax purposes in a member state, then it is very likely to also have an establishment for VAT purposes in that country. The bar for a PE is arguably higher than that for having an establishment for VAT purposes. Where it is unclear which establishment of a legal entity (i.e. the head office or the PE) has made the supply then an analysis would be required as to the establishment most closely connected with the supply. Where such a PE is considered to be making taxable supplies, a VAT registration would be required.
What will be the language used for registration?
The expectation is that the registration platform will be available in English. This is confirmed to be the case for KSA and the UAE.
What is the method of registration for VAT?
VAT registration is expected to be largely online. Additional documentation may be requested offline (likely to vary by GCC member state).
When to use your VAT number?
A customer VAT number will be needed to enable a supplier of goods and services to a recipient in another GCC country to invoice without VAT. In the long run, a portal to enable the checking of VAT numbers is expected to be made available.
What are the VAT registration requirements?
An established business in the GCC performing economic activities register for VAT if it performs taxable supplies or imports that exceed the mandatory registration threshold of SAR375,000 (or the local equivalent) and may choose to register for VAT voluntarily if its supplies and imports are less than the mandatory registration threshold but exceed the voluntary registration threshold of SAR187,500.
Which countries will implement VAT on 1 January ?
The issue of local laws in the KSA and United Arab Emirates (UAE) confirms earlier announcements by these countries that VAT will be introduced domestically in January 2018. It is unclear when the rest of the countries will implement currently but this is expected to progressively happen through 2018.
Do you think that there will be much variance in application of the rules between member states?
There will be a level of variance in application of the rules across the GCC member states. Similar to the EU, there are some provisions which are compulsory, and others which are optional, and others where there is a choice to be made on treatment at a local level. How each member state approaches the implementation of these provisions is likely to depend on their individual policy settings, economy, etc.
Will businesses established in one GCC member state and providing services to individuals (i.e. nontaxable persons) in another member state be required to register for VAT in that second member state?
It is unlikely that a second registration would be required. The place of supply for services supplied to individuals is normally the country of the supplier, which would require the supplier to charge VAT from the country in which the supply is made.
Can we ‘VAT group’ establishments in different GCC states?
We do not expect that it will be possible to ‘VAT group’ entities across GCC member states (e.g. grouping a KSA and a UAE entity), however, we do expect the majority of member states to adopt local VAT grouping provisions as best practice.
Which supplies will be subject to standard rate?
The standard rate of 5% VAT will be applied across the GCC countries. This is expected to apply to substantially all of the domestic supplies made in the normal course of business.
Also determine whether the supplies are under zero-rated or exempt supplies list.
What information needs to be provided for the Group Registration?
Information required from the Group Representative:
- VAT eligible sales/purchases information at the total Group level
- Effective date requested for Group Registration
Information required for other Group members:
- Tax Identification Number if any
- VAT eligible sales/purchases information
- Proof of association with Group member with common control, e.g.
- Articles of association/memorandum of association
- Audited documents such as audited financial statements
- Other documents evidencing “common control”
How to register for a VAT Group?
A request to form a VAT Group should be made by one of the Group members – who must already be individually registered for VAT. The Group representative will have the primary obligation to comply with the obligations and rights of the Group on behalf of all members, without prejudice to the joint liability of the remaining members of the Group.
As part of the registration process, the applicant will be required to provide supporting documentation to evidence that the eligibility criteria are met.
If the application is approved by GAZT, the VAT Group will inherit the VAT account number of the Group representative. The VAT account numbers of the other Group members will be deactivated. Deactivation of the VAT account number prevents Group members from receiving individual filing obligations but it does not mean that they are deregistered from VAT.
Group registration will be available through the GAZT e-portal once activated.
When is it possible to register as a VAT Group?
Taxpayers may wish to register as a VAT Group, provided they meet all the following criteria
- Each legal person is a resident in Saudi Arabia and carries out an economic activity
- Each legal person is under common control
- At least one of the legal persons is a taxable person eligible to be registered for VAT in its own right
This is particularly relevant for large companies and their subsidiaries.
As long as one member of the Group is a taxable person, other entities whose annual taxable supply is below the voluntary registration threshold are eligible to join a VAT Group.
What is Group registration?
Group registration is the process by which 2 or more legal persons apply grouped together for the purposes of VAT treatment. The Group is treated as a Single Taxable Person with consolidated supplies and joint responsibility.
After GAZT approves the application for registration of the group, the group is treated as one person for VAT purposes, without prejudice to the joint liability of each group member.
This service also provides facilities to register as a group through the portal of the GAZT.
How to apply for VAT De-Registration?
Applications for de-registration will be submitted through the GAZT e-portal once available. The taxpayer will be required to attach documents to evidence their eligibility to de-register.
What is VAT De-Registration?
A registered taxpayer who was eligible for VAT in the past but is no longer eligible, as per the regulations specified under Article 13 of the draft implementing regulations, should apply for de-registration. After a successful deregistration application, VAT taxpayer will no longer be liable to submit his future VAT returns. However, he must fulfill his existing filing obligation and pay outstanding liabilities.
How to file VAT Returns?
Taxable persons will need to file the VAT Return through the GAZT e-portal once available.
The VAT return form will require you to provide various details about your business during the tax period:
- Standard rated domestic sales
- Sales to registered customers in other GCC states
- Zero-rated domestic sales
- Zero-rated exports
- Exempt sales
- Standard rated domestic purchases
- Imports subject to VAT paid at customs
- Imports subject to VAT accounted for through the reverse charge mechanism
- Zero-rated purchases
- Exempt purchases
- Corrections from previous period (up to 5,000 SAR)
You will also need to specify any relevant adjustments.
Note that for corrections (due to an error or omission) of more than 5,000 SAR, the taxpayer will need to complete a voluntary disclosure form.
Where the taxable person fails to file the VAT Return within the prescribed period, GAZT may make an assessment of the tax.
Who files for VAT returns and when?
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.
From the end of the tax period (as defined above), all taxable persons will have one month to file their VAT return. For example:
- If monthly returns are required, for the tax period 1 January 2018 to 31 January 2018 the VAT return must be filed by 28 February 2018
- If instead quarterly returns are required, for the tax period 1 January 2018 to 31 March 2018, the VAT return must be filed by 30 April 2018
What is VAT Return?
A VAT eligible taxpayer pays VAT on his taxable purchases and collects VAT on his taxable supplies.
In essence, the taxpayer is collecting VAT on behalf of the General Authority of Zakat and Tax (GAZT) and has the right to claim back VAT paid on his taxable purchases.
Taxpayers will be required to file their returns to provide details of transactions related to taxable supplies and purchases. Following the submission of VAT return form, taxpayers will be asked to either pay the VAT liability or may claim back VAT refund depending on their situation. This set of activities is commonly referred to as VAT return filing.
GAZT has the right to issue a new assessment which adjusts a prior assessment, providing formal notice to the taxable person.
Who can I contact for clarifications for VAT Related Queries?
For clarification on requirements or all VAT-related queries, please call toll free number 19993. The hotline is open from 7 am to 11 pm Saturday to Thursday.
What documents or information do I need to provide for VAT Registration?
The Registration form will require you to specify:
- Whether you are an importer
- Whether you are an exporter
- IBAN number (for refunds) – not required if already logged with GAZT
- VAT eligibility start date
- VAT taxable supplies (expected over next 12 months)
- VAT taxable supplies (past 12 months)
- VAT taxable purchases (expected over next 12 months)
- VAT taxable purchases (past 12 months)
- Financial Representative details (only mandatory if you are not a Saudi resident)
How should businesses register for VAT?
In order to register for VAT, businesses must first be registered at GAZT for Zakat and Income Tax.
Some large companies, particularly those already registered for other forms of tax in Saudi Arabia, will be auto-registered for VAT by GAZT:
- If this applies to your business, you will receive a notification from GAZT notifying you of this
- In that case, we advise you to log-in to check the validity of the information and to upload any supporting documents you may have.
If your company is not auto-registered, registration is open to all eligible companies and businesses through the following link:https://gazt.gov.sa/, then click on user login.
Which businesses need to register for 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 by 20th December 2017.
However, all taxable persons whose annual taxable supplies exceed the mandatory Registration threshold but do not exceed SAR 1,000,000 will be exempted from the requirement to register until 20th December 2018.
Those which make an annual taxable supply of goods and services in excess of SAR 187,500 are eligible for voluntaryRegistration. Voluntary Registration provides significant benefits for the companies since it allows the deduction of input tax.
Registration of taxable persons not Resident in Saudi Arabia
Non-Residents, who carry on economic activities but have no fixed place of business or fixed establishment in Saudi Arabia, will be required to register if they have the obligation to pay VAT in Saudi Arabia.
All Non-Resident taxable persons must have one Tax Representative established in Saudi Arabia and who is approved by GAZT.
GAZT may request documentation from the taxable person to evidence that the above requirements are met.
What happens of an invoice is issued before VAT implementation and delivery happens after the implementation?
In such a scenario, according to Article 21, if an invoice is issued or payment is done before the implementation of VAT but the goods are delivered after the implementation date, then the VAT will be considered due.
What is the fine for not registering for VAT?
A hefty fine of SAR 10,000 will be applicable to businesses that fail to apply for the registration within the specified period, according to Article 41.
Will imports be subject to VAT?
All imports and supplies of goods and services in the KSA will be subject to VAT, according to Article 2.
By when should businesses register with the GAZT?
Article 53 states that all persons liable to the VAT will have to register with the General Authority for Zakat and Tax (GAZT) within 30 days of the date issuing the law, that is 30 days from July 28, 2017.
Where can I find additional information on the introduction of VAT?
More details on the introduction of VAT kindly visit this website gazt.gov.sa to stay up to date with the latest news.
How do I ensure that VAT does not impact my business profitability?
By ensuring your business is fully prepared for the introduction of VAT, it should be possible to minimize the financial and operational impact. For example, via adoption of the widely available accounting software, cash register terminals and point-of-sale tools along with a bank account will allow for efficient processing.
What are the responsibilities of businesses related to VAT?
In addition, businesses will need to ensure timeliness and completeness of their financial and business records. This includes collecting invoices and accounting for the goods or services bought and sold as well as the VAT paid and charged.
Once a business is registered, what will it need to do?
Registered businesses will need to file to the authority, on a regular basis, VAT paid and VAT collected and settle the net difference with the authority.
How do I know if my business needs to pay VAT?
All businesses with an annual revenue of sales of VAT taxable goods and services of 375,000 SAR or above will need to register for VAT with the General Authority for Zakat and Tax. Businesses which are below this threshold but still generating revenue of at least 187,500 SAR annually can voluntarily register for VAT.
Businesses that provide goods and services which are not subject to VAT are not required to register for VAT.
At what rate was VAT introduced in KSA?
The VAT rate was set at 5% – one of the lowest rates for VAT anywhere in the world. The Kingdom of Saudi Arabia introduced Value Added Tax (VAT) on January 1, 2018.
The Government of the Kingdom of Saudi Arabia (KSA) announced an increase to 15% from the current 5% Value Added Tax (VAT) rate, effective 1 July 2020.
Does VAT cover all the goods and services?
All supplies of goods and services made in the KSA are to be considered taxable supplies for VAT purposes unless the supply in question is specifically exempt. Certain specific supplies are zero-rated. VAT applies to goods and services supplied in the KSA by a resident or a non-resident, as well as imports of goods.
When was VAT introduced?
VAT was introduced in the Kingdom of Saudi Arabia on January 1, 2018.
Why is VAT being introduced?
Saudi Arabia’s ambitious economic transformation strategy will be supported by the introduction of VAT, by helping to build an economy and the state budget with a reduced dependency on oil and gas revenues.
In addition, the GCC Unified Agreement for Value Added Tax is part of efforts across the region to support the diversification of government revenues. The introduction of VAT will create a new source of stable and predictable revenue for governments which can then be used to finance important public services.