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I'm honoured that I'm in history, but I don't think it would mean anything if it doesn't change anything. - Raha Moharrak
History is being made in Saudi Arabia. Come 2018, and the Kingdom of Saudi Arabia will implement Value Added Tax (VAT) in the country. While this measure has been taken by the Government to increase the revenue in the country, for businesses, it has become crucial to understand VAT and take measures for smooth transition to VAT and compliance under VAT.
Let us first briefly understand VAT in Saudi Arabia.
VAT stands for Value Added Tax. It is a tax imposed on the supply of goods or services. The tax is levied on the value addition at each stage in the supply chain, from the production and distribution to the final sale of the product or service to the consumer.
VAT will be applicable from 1st January, 2018.
The deadline for registration under VAT is 20th December '17.
VAT will be applied at the rate of 5% to most goods and services. The rate structure under VAT will broadly be as follows:
Rate structure |
Applicable for |
Taxable @ 5% |
Most goods and services, such as food and beverages, commercial sale and rent of property, etc. |
Taxable @ 0% |
Includes supply of medicines and medical equipment specified by the Ministry of Health and the Saudi Food and Drug Authority (SFDA), supply of gold and silver for investment purposes provided they are at least 99 percent pure and tradable in global markets, exports outside the Gulf Cooperation Council (GCC) |
Exempt |
Includes financial services such as dealing in money or securities, providing credit or credit guarantee for customers, and life insurance and reinsurance contracts, renting of residential property |
Out of scope |
Services provided by government agencies as public authorities, such as the issuance and renewal of passports and driving licenses, public education, public healthcare, etc. |
Type of business |
Frequency of Return filing |
Business with taxable supplies exceeding SAR 40 million |
Monthly returns |
Business with taxable supplies up to SAR 40 million |
Quarterly returns |
Filing of VAT return and payment of tax will be due within a month after the end of a month/quarter (as applicable).
For businesses in Saudi Arabia, this is the time to step up and get familiar with the provisions of VAT and prepare accordingly. From 1st January, 2018, beginning from the task of maintenance of transaction records as per VAT rules to issue of VAT compliant invoices and filing of accurate returns by the due date, everything has to be compliant to VAT rules and regulations. Businesses which have, till now, maintained manual records of their transactions will find it very difficult to continue the same under VAT.
Let us list down, broadly, the activities that every business has to perform under VAT:
Keeping track of each compliance activity, preparation of records, returns, paying taxes on time, etc. will require considerable investment of time, employees and energy to do these tasks manually. It is, hence, very important for businesses to evaluate the various software available and select an appropriate software which will ease the compliance activities and leave you with enough time and resources to focus on your business.
For tax practitioners also, this is a crucial period to learn, understand and prepare for VAT and the compliance activities which will arise with the implementation of VAT. It is important for them to prepare themselves, their teams as well as their clients for VAT.
While history is being made in Saudi Arabia with the implementation of VAT, this is the opportunity for businesses to capitalise on the new business environment under VAT through adequate preparation and planning.
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