Value Added Tax is an indirect tax levied on all goods and services that are bought and sold by businesses, with some exceptions. VAT is implemented in more than 160 countries around the world as a reliable source of revenue for state budgets. VAT is imposed at every stage of the supply chain, from production, through distribution, to the final sale of the good or service.
The implementation of the value-added tax in the Kingdom of Saudi Arabia was started from 14 - Rabi’ al-Thani 1439 AH corresponding to January 1, 2018 AD, according to the unified value-added tax agreement for the countries of the Gulf Cooperation Council.
Steps to prepare for VAT: (Small Businesses)
Understanding VAT
Gain a detailed understanding of VAT and define tax policies for your portfolio of products and servicesReconciliation of purchases
Create a system for recording and archiving billing and supplier detailssales matchmaking
Create a system for quoting, issuing receipts and recording sales Finding an appropriate way to display the prices of goods inclusive of (Value Added Tax) Issuance of sales receipts compliant with VAT requirements Finding a sales registration system compatible with the requirements of the Zakat and Income Authority Calculate and make tax filings. Finding what is needed to keep records, calculate the value-added balance and pay.Understanding VAT
Gain a detailed understanding of VAT and define tax policies for your portfolio of products and servicesReconciliation of purchases
Create a system for recording and archiving billing and supplier detailssales matchmaking
Create a system for quoting, issuing receipts and recording salesThe following are the highlights of the law:
Effective date of implementation - Article 53 stipulates that the law is effective from the beginning of the fiscal year following the date of publication of the law in the Official Gazette. Hence, VAT becomes effective in the Kingdom of Saudi Arabia on January 1, 2018.Fee range
Article 2 stipulates that all imports and supplies of goods and services are subject to value added tax in accordance with the provisions of the GCC Value Added Tax Framework Agreement and implementation regulations established by law.Tax rates:
The fixed rate of VAT described under the VAT framework for the countries of the Gulf Cooperation Council is 5%. However, some goods and services may be subject to a zero rate or be exempt from VAT.Register
Article 53 stipulates that everyone who is required to file value added tax must register with the General Authority for Zakat and Income Tax.Register
The general provisions for zakat and income.Tax Evasion and the Liability of Evidence
Article 39 states that the responsibility to prove that there is no intent (to evade tax) rests with the taxable person.Tax evasion:
After proving tax evasion, a fine of no less than the tax due and not more than three times the value of goods and services is imposed.Failure to apply for registration:
Anyone who does not apply for registration within the period specified in the regulations will be fined 10,000 Saudi riyals ($2,666).Submitting an incorrect tax return to the Zakat and Income Authority:
Any person who submits a tax return to the Zakat and Income Authority, or amends the tax return after its submission, or claims an incorrect amount of recoverable value added tax, will be fined an amount equal to 50% of the difference between the calculated tax and the real tax, and the law empowers the authority of the Zakat and Income Authority. to waive or reduce this penalty.Failure to file a tax return by the due date:
A fine of not less than 5% and not more than 25% of the value of the tax to be reported is imposed.Issuance of a Tax Invoice by an Unregistered Person:
A person who is not registered with the Zakat and Income Authority is subject to a fine not exceeding 100,000 Saudi riyals (26,660 US dollars) when issuing a tax invoice, without prejudice to any additional penalty stipulated by any other law.Failure to keep invoices, books, records and accounting documents:
A fine of no more than 50,000 Saudi riyals (US$13,330) is imposed for each tax period.Preventing or obstructing the employees of the Zakat and Income Authority from performing their duties:
A fine of no more than 50,000 Saudi riyals is imposed for each tax period.Violation of any other provisions of the law or implementing regulations:
A fine of no more than 50,000 Saudi riyals is imposed for each tax period. The penalties stipulated in the law are without prejudice to any other penalties stipulated in any other laws and furthermore, the penalties mentioned above shall be paid in addition to the VAT due.Penalty for repeat violation:
The fine may be doubled if the same offense is repeated within three years from the date of the final decision of the penalty.Time limit for filing an appeal:
A decision may be appealed by the competent judicial authority within 30 days from the date of notification of the decision, and after the lapse of 30 days, the decision is considered final, and it may not be appealed before any other judicial body.Issuance of implementing regulations:
The Board of Directors of the Zakat and Income Authority shall issue the regulations within 30 days from the date of publication of the law and the regulations shall become effective from the date of entry into force of the law.Interim condition:
Article 21 states that even if an invoice is issued or paid before the date of execution or registration, VAT is considered due if the date of supply of goods and services is on or after the date of execution or registration.Issuance of implementing regulations:
The Board of Directors of the Zakat and Income Authority shall issue the regulations within 30 days from the date of publication of the law and the regulations shall become effective from the date of entry into force of the law.The Act refers to implementing regulations that will provide more specific guidance on the following:
Registration requirements:
The original law shall be published in the Arabic language and in the event of a conflict between the original (Arabic) version and any translation, the Arabic version shall prevail.
The law states that people whose gross annual income exceeds the mandatory limit of 375,000 Saudi riyals ($100,000) must register with the Zakat and Income Authority, and failure to register will result in a penalty of 10,000 Saudi riyals. The Zakat and Income Authority has published the implementing regulations in draft form, and these regulations provide a set of comprehensive provisions related to specific requirements for VAT, including zero-rated and exempt business sectors. The Zakat and Income Authority has chosen to apply a 5% VAT rate for most commercial transactions, and therefore, the scope of the VAT is wide, with limited deviations from the applicable rate.
The publication of the published VAT law states that companies must be prepared to calculate value-added tax as of January 1, 2018. This leaves businesses with five months to prepare for the value-added tax, which is a huge challenge for large companies.
Although many large companies have started studies to determine the impact of VAT on their operations, a large section of the business community is still waiting for the enactment of the law in order to establish financial budgets for VAT compliant projects. Given the very short time frame to achieve VAT readiness, it is important for all businesses to begin assessing the impact of VAT immediately and determining the impact of VAT on their operations.
This assessment should consider the impact of VAT on the following main areas:
The impact assessment should be used in a clear plan of the steps to be taken to be VAT ready by the start-up date of January 1, 2018.
What establishments must be registered?
Mandatory registration
All establishments or entities that supply goods and services subject to VAT whose annual revenues exceed 375,000 SAR are required according to the system to register for VAT before December 20, 2017. Noting that all taxable establishments whose value-added taxable supplies exceed the mandatory registration threshold and do not exceed one million Saudi riyals annually, will be exempted from the registration requirements until December 20, 2018.Optional registration
Establishments that supply goods and services subject to VAT and whose annual revenues exceed 187,500 SAR are eligible for voluntary registration in VAT. Voluntary registration also provides significant benefits to establishments as it allows input tax deduction.Registration for non-residents of the Kingdom who are obligated to pay VAT
Non-residents who engage in economic activities without having a fixed place of business or establishment in the Kingdom of Saudi Arabia are required to register if they are obligated to pay VAT in the Kingdom of Saudi Arabia. All non-resident taxable persons must appoint a tax representative in the Kingdom of Saudi Arabia, who shall be approved by the Authority. For more information about the tax representative, please follow the link: https://gazt.gov.sa The General Authority for Zakat and Income has the right to request documents from the taxable facility to prove that the above-mentioned requirements have been met.How to register?
In order for businesses to register for VAT, they must first be registered with the Authority for Zakat or income tax purposes. Some large enterprises will be automatically registered in the value-added tax system by the General Authority of Zakat and Income, especially enterprises registered for other taxes in the Kingdom of Saudi Arabia:The registration form will ask you to select the following:
Who can file a VAT return? And when?
All establishments subject to VAT that have an annual supply of goods and services whose value exceeds 40,000,000 SAR must submit a monthly VAT return. All other establishments subject to value added tax must submit a value added tax return every three months. The authority also allows establishments to have the option of submitting monthly applications after the approval of the General Authority for Zakat and Income Tax. All taxable establishments will have one month to file a VAT return, from the end of the tax period (specified above), for example:How to file a VAT return?
Taxable establishments must submit a tax return through the electronic portal of the General Authority of Zakat and Income. Those establishments will be required to fill out a special form for value added tax declaration by filling in the following information about their commercial activity:How is the payment made?
Once the “SADAD” invoice is issued and sent to the facility, the amount of tax due must be paid through the bank account of the General Authority for Zakat and Income, through the electronic payment gateway “SADAD” online or through an automated teller machine. After completing the payment process, the facility will receive a receipt from the General Authority of Zakat and Tax, with the amount paid, attached to the tax return reference number.Payment application
The facility can make a payment up to the total amount due in the “SADAD” invoice, and the payment received by the General Authority for Zakat and Income is applied to the remaining balances in the following order:Please note the following:
The General Authority for Zakat and Income Tax has the right to use any credit balance of the value-added tax, to settle other taxes owed by the facility, and the General Authority for Zakat and Income will notify the facility in case the credit balance is used.Installing the amounts due
In the event that the entity provides evidence that it is unable to pay the amount of the tax due on the due date, or if it is found that paying the amount of the tax due through one payment may expose the entity to financial difficulties, the General Authority for Zakat and Income can allow the entity to pay the amount of tax due or Required fines. The facility must submit a request for the installment of the tax due within a specified period not exceeding 12 months. The amount will be scheduled into installments, after the tax return official approves the facility's request. Once the proposed schedule for paying the tax in installments is approved, the schedule will be in effect. For more information, please see Article No. 60 of the VAT Implementing Regulations.When must the tax be paid?
The amount of value added tax due after filing the tax return (unless there is a credit balance that can be settled with the amount of tax due) must be paid no later than the last day of the month following the tax period. In the case of a monthly payment period, the payment deadline will be the last day of the month following the one-month tax period. For example, February 28 is the deadline for paying dues for the January tax period, which runs from January 1 to 31. In the case of the quarterly payment period, the deadline will be the last day of the month following the 3-month tax period. For example, if the tax period is from January 1 to March 31, then the deadline for payment will be April 30. In the event that the deadline for paying the tax is exceeded, the fines will be applied and added to the amounts owed on the account of the establishment.What will happen if the establishment exceeds the deadline for paying the tax?
In the event that the facility exceeds the deadline for paying the tax, the facility will be notified on the day following the deadline, informing it of the penalties imposed on it due to the delay in paying the tax. After a certain period of time has passed without receiving any response from the facility, actions will be taken, which may include commercial penalties or legal actions.Migration and recovery
In the event that there is a credit balance after submitting the tax return, the facility can request that the credit balance be carried over to the subsequent tax period or request its refund. Before posting or recovering the credit balance, the General Authority for Zakat and Income shall verify that there are no other tax obligations before allowing the facility to recover or carry over that balance.value added tax
The value added tax imposed on the import and supply of goods and services at each stage of production and distribution, and includes the assumed supplyTaxable Person
A person who independently carries out an economic activity with the aim of generating income, and is registered or obligated to register for tax purposes in accordance with the provisions of the AgreementConvention
The Unified Agreement for Value Added Tax for the GCC Statestax group
Two or more legal persons residing in the Kingdom and registered as one taxable personThe economic activity
Activity that is practiced on an ongoing and regular basis and includes commercial, industrial, agricultural, professional, service or any use of tangible or intangible property, and any other similar activityimport goods
The entry of goods into the Kingdom of Saudi Arabia from outside the territory of the Gulf Cooperation Council countries in accordance with the provisions of the Unified Customs Lawoutput tax
Tax due and levied on any taxable supply of goods or services made by a taxable personinput tax
The tax borne by a taxable person in relation to goods or services supplied to him or imported for the purposes of carrying on an economic activityNet tax
The tax resulting from subtracting the deductible tax in a member state from the tax due in that country during the same tax period, and the net tax may be either payable or refundable.tax invoice
An invoice issued in respect of taxable supplies in accordance with the requirements stipulated in the VAT Law and its Implementing RegulationsTax-exempt supplies
Supplies that are not subject to tax, and the associated input tax is not deducted in accordance with the provisions of the Agreement and the local lawTaxable Supplies
Supplies on which tax is imposed in accordance with the provisions of the agreement, whether at the basic rate or at the zero rate. The associated inputs are deducted in accordance with the provisions of the agreementintra-regional supplies
Supplies of goods or services by a supplier residing in a Member State to a customer residing in another Member StateReverse charge (assignment)
The mechanism by which a taxable customer is obligated to the tax due on behalf of the supplier, and is responsible for all obligations stipulated in the agreement and local lawMandatory registration limit
The minimum value of actual supplies under which a taxable person becomes obligated to register for tax purposesOptional recording limit
The minimum value of actual supplies under which a taxable person may request registration for tax purposesAll rights reserved to Cloud management solutions ®
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