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Saudi Arabia released Circular on the Reverse Charge Mechanism (RCM) Application
Riyadh- July 1, 2021:
Zakat, Tax and Customs Authority (ZATCA) issued Circular No. 2106001 explaining the application of Reverse Charge Mechanism (RCM) in accordance with the unified VAT Agreement of the GCC States and KSA VAT Law. The circular throws clarification on the application of RCM rules to businesses that receive a supply of goods or services from non-resident suppliers.
Reverse Charge Mechanism is defined as the mechanism by which the Taxable Customer is obligated to pay the Tax due on behalf of the Supplier, and is liable for all the obligations provided for in the Agreement and the Local Law. Reverse Charge Supplies refer to Supplies on which the Customer is obliged to pay the VAT due under the Reverse Charge Mechanism
RCM is only due on services which are taxable in nature and received by:
- A VAT Registered Taxpayer from a non GCC resident supplier;
- A taxable customer from suppliers resident in another GCC state (until E-Service System for Intra-GCC supplies is implemented).
This circular is a must read for all taxable persons receiving supplies from non-resident suppliers to ensure that the tax treatment being followed is in accordance with the applicable VAT legislations. View the Circular in English or Arabic.
Kindly seek expert advice if you have any doubts on this subject.