Saudi Arabia’s decision to raise value-added-tax (VAT) from five percent to 15 percent, will come into effect starting from Wednesday, July 1.
The Kingdom’s decision to triple VAT was announced on May 11, as part of a new set of measures to mitigate the impact of the coronavirus pandemic on the economy.
Here’s how the new VAT will apply to individuals and private companies according to Saudi Arabia’s General Aurhority of Zakat and Tax (GAZT):
Which goods and services are subject to VAT?
According to GAZT, food and beverages, domestic transportation, commercial sale and rent of real estate, residential sale of real estate, rent in hotels, inns, guest houses, motels and serviced accommodation, private education, private health care, and domestic oil, oil derivatives and gas sector.
Which goods and services are exempt from VAT?
According to Mecca region’s official Twitter account the following are some of the items exempt from VAT:
Medical equipment and medicines on the list issued by the Ministry of Health and the Food and Drug General Authority, health care in public health centers, governmental services such as renewing a passport or a driver’s license, and supplies of investments in gold, platinum and silver, given that their purity level is no less than 99 percent and they can be traded in global markets.
The government pays VAT for citizens incurred for public education institutions, private hospitals, first housing for an amount of 850,000 riyals.
How much VAT do I have to pay if a tax invoice was issued prior to May 11, 2020 and the product was supplied after July 1?
The Authority gave the following example: An individual buys a car worth 80,000 riyals in March 2020. The five percent VAT is equivalent to 4,000 riyals. The tax invoice was issued on the same date of the purchase; however, the car was to be delivered in August 2020.
In this case, the VAT which applies is only five percent because the tax invoice was issued prior to May 11, 2020.
Which VAT rate applies for “periodic tax invoices issued for continuous supplies”?
The Authority said: “If a tax invoice issued for a continues supplies partially executed before.. or after July 1, a five percent VAT rate will be applicable to the invoice related to the part executed before July 1 and a 15 percent VAT rate will be applicable to the invoice related to the part executed on or after July 1.”
It explained using this example: An individual signs a health care insurance policy with an insurance company on May 1. The agreement dictates that the customer will pay for the insurance policy in monthly installments, and a separate invoice will be issued for each month.
In this case, the insurance services provided during the period between May 1 and June 30 will be subject to five percent VAT, and from July 1 onwards the services will be subject to 15 percent VAT.
Which VAT rate applies to contracts between two registered businesses if they were signed before May 11?
The Authority said: “If the contract has been signed before 11 May 2020 and the supply will continue on or after 1 July 2020 and the customer has the right to deduct the VAT related to this supply in full, a five percent VAT will be applicable to the supplies related to that contract till the end date of the contract, or contract renewal date or 30 June 2021, whichever comes first.”
The Authority gave the following example: Two VAT-registered businesses sign a one year contract on February 2020, to supply construction materials worth 300,000 riyals. The five percent VAT is equivalent to 15,000 riyals. The contract in this case states that the supply will be in a “phased manner” over the period of the agreement.
In this case, the VAT which applies is only five percent until the end or renewal date of the contract (whichever comes first).
Which VAT rate applies on contracts between two registered businesses if they were signed after May 11?
According to GAZT, If the two businesses signed the contract between May 11 and June 30, the VAT rate which applies is five percent, only if the supply is given in full before July 1.
If the supply will be delivered on July 1 or any date after, then the VAT rate which applies is 15 percent.
The Authority gave the following example: Two VAT-registered businesses sign a two-year contract on May 20, to supply raw materials worth 180,000 riyals. The five percent VAT is equivalent to 9,000 riyals. The contract states that the supply will be in a “phased manner” over the period of the agreement.
In this case, the supplies provided before end of June 2020 will be subject to five percent VAT, and 15 percent VAT will be applicable to the supplies provided starting from July 1.