Home / Knowledge Hub / News
Introduction Of Value Added Tax (VAT) In The Kingdom Of Saudi Arabia
On 03/05/1438 H (corresponding to January 31st, 2017 G), Saudi Arabia ratified the Gulf Cooperation Council (GCC) Value Added Tax Framework Agreement (the "Framework Agreement") by virtue of Royal Decree No. M/51.
Set out below are some of the key features of the Framework Agreement:
The standard VAT rate to take effect on January 1st, 2018 will be 5% except where a zero rate or exemption applies; The GCC Member States may apply a zero rate or exempt the following sectors from the VAT:
- Local transport; - Health; - Real estate; - Education.
-Companies with an annual revenue ranging between SAR. 187,500 and SAR. 375,000 have an option to register and be subjected to VAT;
- Companies with an annual revenue in excess of SAR. 375,000 shall be under an obligation to register for TVA VAT purposes; - Each GCC Member State is given the freedom to regulate the VAT in its free zones; - The concept of group of companies is recognized in reach Member State for a consolidated VAT treatment; - Supplies of goods and services from a VAT registered person in one Member State to another VAT registered person in another Member State are subject to the reverse charge mechanism; - Export of goods to countries outside of the GCC Member States will be subject to a zero VAT rate; - Member States have the right to subject medical supplies to a zero VAT rate; - Member States may subject certain food products to a zero VAT rate; - Member States are allowed to subject oil derivatives and gas to a zero VAT rate; - Intra GCC and international transport will be subject to a zero VAT rate; - Member States are allowed to exempt Financial Services from VAT. Although Financial Services are not defined, they are broadly understood to cover money and securities' transactions, foreign exchange operations, deposits, trade credit facilities and related intermediary services.
Saudi Arabia is looking to implement VAT on January 1st, 2018. It is expected that the VAT law will be issued by the end of May 2017. The VAT registration process will be managed by ERAD, the DZIT's online electronic filing system.
Businesses are advised to prepare themselves for the implementation of VAT in order to secure compliance with the law and its implementing regulations which will be issued in July 2017 for public consultation and comments.
Set out below are some of the key features of the Framework Agreement:
The standard VAT rate to take effect on January 1st, 2018 will be 5% except where a zero rate or exemption applies; The GCC Member States may apply a zero rate or exempt the following sectors from the VAT:
- Local transport; - Health; - Real estate; - Education.
-Companies with an annual revenue ranging between SAR. 187,500 and SAR. 375,000 have an option to register and be subjected to VAT;
- Companies with an annual revenue in excess of SAR. 375,000 shall be under an obligation to register for TVA VAT purposes; - Each GCC Member State is given the freedom to regulate the VAT in its free zones; - The concept of group of companies is recognized in reach Member State for a consolidated VAT treatment; - Supplies of goods and services from a VAT registered person in one Member State to another VAT registered person in another Member State are subject to the reverse charge mechanism; - Export of goods to countries outside of the GCC Member States will be subject to a zero VAT rate; - Member States have the right to subject medical supplies to a zero VAT rate; - Member States may subject certain food products to a zero VAT rate; - Member States are allowed to subject oil derivatives and gas to a zero VAT rate; - Intra GCC and international transport will be subject to a zero VAT rate; - Member States are allowed to exempt Financial Services from VAT. Although Financial Services are not defined, they are broadly understood to cover money and securities' transactions, foreign exchange operations, deposits, trade credit facilities and related intermediary services.
Saudi Arabia is looking to implement VAT on January 1st, 2018. It is expected that the VAT law will be issued by the end of May 2017. The VAT registration process will be managed by ERAD, the DZIT's online electronic filing system.
Businesses are advised to prepare themselves for the implementation of VAT in order to secure compliance with the law and its implementing regulations which will be issued in July 2017 for public consultation and comments.
Click here to view the article online.
| Published: | May 2017 |
| Title: | Introduction Of Value Added Tax (VAT) In The Kingdom Of Saudi Arabia |
| Publication: | Mondaq |
| Authors: |
Cyrille Naffah |
Related Insights
TikTok lures Gen Z with personal finance advice, but what are the risks
Antoine Iskandar recently spoke with Arabian Business answering the following...
General Commercial Gaming Regulatory Authority (GCGRA) – New Era in Legal Gaming
The Emirates News Agency recently announced the official establishment of...
Embracing the New Tax Era in the UAE: How CIT is Reshaping M&A Strategies
The introduction of the Corporate Income Tax (CIT) in the...
UAE Corporate Tax: New Tax Procedure Law
The Ministry of Finance recently announced Cabinet Decision No 74...
Navigating the Changing Landscape of Government Procurement in KSA
The Kingdom's regulatory environment is constantly evolving in response to...
Corporate Tax in the UAE: Staying prepared
Senior Associate Tyne Hugo recently spoke with Gulf News regarding...
Saudi Arabia's Innovative Special Economic Zones Set to Propel the Kingdom's Economy
IntroductionSaudi Arabia has recently unveiled four new Special Economic Zones...
SVB's Collapse: Implications for FinTech Startups in the Middle East
The factors that contributed to the collapse of Silicon Valley...
Navigating the Changing Landscape of Government Procurement in KSA
The Kingdom's regulatory environment is constantly evolving in response to the dynamic global business landscape. The most recent evolution comes...
(Re) Insurance Legal Update – Saudi Arabia: The New Saudi Civil Code– Coverage Issues and Wider Implications for the (Re)insurance markets
Writing and reinsuring business from and within the Kingdom of Saudi Arabia has always presented challenges to the (re)insurance markets,...
Saudi Arabia's Innovative Special Economic Zones Set to Propel the Kingdom's Economy
IntroductionSaudi Arabia has recently unveiled four new Special Economic Zones (SEZs) across the country, bolstering its reputation as a global...
Electronic Promissory Notes in KSA: The Nafith Platform
Promissory notes are an important part of financing transactions in the Kingdom of Saudi Arabia as it is a relatively...
The New Companies Law in the Kingdom of Saudi Arabia: What to Expect.
On June 28, 2022, the Saudi Council of Ministers in the Kingdom of Saudi Arabia (the ‘Kingdom’ or ‘KSA’) approved...
The New Anti-Concealment Law in Saudi Arabia
As part of the Saudi Vision 2030, which aims to reduce the Kingdom of Saudi Arabia's (the "Kingdom") dependence on...
GCC Restructuring & Insolvency Report
The worldwide economic distress caused by the ongoing Covid-19 pandemic has certainly not spared the GCC region. The pandemic has...
Update Saudi Companies Law
Update to the Saudi Companies Law,Reporting of losses in Saudi Companies, Appointment of auditors, and Remote Board of Directors Meetings...
Clarified legal landscape for KSA offers investors potential new playground
Speedier commercial cases, reshaped economic rights for women and local HQ requirements all prove good news for cohesion in the...
Saudi Central Bank Launches Open Banking Initiative
The Saudi Central Bank (SAMA) is launching a new initiative – Open Banking - that promises to stimulate growth and...