KSA Zakat and Tax Board Updates: July 2019

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Thomas Vanhee is the Founding Partner at Aurifer, a boutique tax advisory firm established in Dubai, and respected author for several international publications and tax technical magazines. Regarded as the authority for indirect tax law within the Middle East, Thomas is also an esteemed lecturer of VAT law.

This is an unofficial English Translation of the General Authority of Zakat and Tax’s Board Resolution. It has no legal or binding force. While this translation has been prepared with the utmost care, for any potential discussion around legal terms of this document, the original Arabic version prevails. The contents of this material are for educational purposes only and does not constitute any advice. Neither Aurifer nor Innovate Tax shall be held liable for any direct or indirect loss or profit or any other damages, including but not limited to special, incidental, punitive, consequential or other damages when relying solely on the contents of this material.

 

General Authority of Zakat and Tax Board Resolution No. (9-3-19) dated 30-10-1440 A.H. corresponding to 3-7-2019 A.D.1

 

Approval to amend some articles of the Implementing Regulation of the Value Added Tax (“VAT”) system

The Board of Directors of the General Authority of Zakat and Tax (“Board”), based on powers authorized by Article (Five) of the Authority’s regulation issued by virtue of Cabinet resolution no. (465) dated 20-7-1438 A.H. and upon the Board’s resolution no. (3839) dated 14-12-1438 A.H. stating approval on the Implementing Regulations of the VAT system.

Decided the following:

First: Approval of the amendments of some articles in the Implementing Regulations of the VAT system as per the attached provisions.

Second: Preparation of internal controls to be approved by the Board regarding the cases of the guarantee request.

Third: This resolution shall be published in the Official Gazette, it being deemed enforceable from the date of publication and the personnel responsible for execution of this resolution shall be informed therewith.

Allah is Arbiter of Success.

1 published in Umm Al-Qura Gazette, Issue No. 4787 dated 12 July 2019 (corresponding to 9 Dhu Al Qaidah 1440 H), https://www.uqn.gov.sa/articles/1563367850835491700/, consulted on 22 July 2019.

 

Amendments proposed to the articles of the VAT Implementing Regulation.

The most important amendments required to be made – Article Thirty-Three (Services supplied to non-GCC residents)

Current Text Text after the proposed amendment
1. A Supply of services made by a Taxable Person to a Customer without a place of residence in any Member State is zero-rated, provided that each of the following conditions is met:

  1. the Supply of those services does not take place in any Member State under the Special Cases listed in articles seventeen to twenty-one of the Agreement,
  2. the Taxable Person has no evidence that the Customer has any residence in any Member State and has evidence that the Customer is resident outside of Council Territory,
  3. the benefit of the services is not received by the Customer or any other Person when that Person is situated in a Member State,
  4. the services are not related to any tangible Goods or property located within a Member State during the Supply,
  5. the Taxable Person intends that the services are consumed by the Customer outside of Council Territory,
  6. the Taxable Person has no evidence that the benefit of the services will be enjoyed within Council Territory.
Will be completely deleted and replaced by clause (1), as follows:

1. With exception to the cases provided in the second paragraph of this Article, a supply of services by the taxable person to a customer who is not resident in any Member State is subject to a zero rate.

Add Paragraph (2)

2. Paragraph one of this article is not applicable in any of the following cases:

  1. If the place of supply of the service is located in any Member State pursuant to the special cases listed in the articles from seventeen to twenty first of the Agreement.
  2. If the customer is resident in any Member State.
  3. If the customer or any other person has directly benefited from the services when he is situated in a Member State and the other person is not eligible to fully recover the input tax.
  4. If the services are performed on tangible goods located in a Member State during the supply process.

 

The most important amendments to be made – Article Sixty-Five (Guarantee)

Current Text Text after the proposed amendment
1. In cases where the Authority has evidence or reason to doubt that a Taxable Person will not make his VAT and associated payments in an accurate and timely manner, it may require that cash security or a bank guarantee is provided as a precondition for VAT registration, subject to the following requirements: 

  1. Notification requiring the cash security or bank guarantee shall be given in writing and shall provide a minimum of twenty (20) days for the Taxable Person to provide the cash security or bank guarantee,
  2. the maximum value of the cash security will be determined based on the estimated average quarterly value of the Output Tax,
  3. any cash security must be held by the Authority in a separate account to the Taxable Person’s VAT account,
  4. the Authority shall retain the cash security or require the bank guarantee remain in force for a period of twelve months and in cases where formal collection procedures have commenced in respect of any amounts of VAT, penalties or associated amounts due, and these remain unpaid by the Taxable Person, the Authority may, subject to issuing notification to the Taxable Person, set off the cash security against the unpaid amounts due, or to require payment by the guarantor up to the amount due,
  5. in cases where the original cash security payment or bank guarantee is used to offset VAT, penalties or associated amounts due not paid by the Taxable Person, the Authority may require the Taxable Person to make a new security payment or provide a new bank guarantee,
  6. if the cash security remains held in account in the end of the twelve- month period, it may on the Taxable Person’s request be refunded to the Taxable Person or credited to the Taxable Person’s VAT account to offset any current or future VAT payment due or, based on a decision issued by the Authority, renewed for another one- year period.
1. With exception to the cases stated in the second and third paragraphs of this article, the Authority may request from the Taxable Person to provide a cash security or a bank guarantee against his tax liabilities, subject to the following controls:

  1. the Taxable Person shall be notified of the guarantee request by a written notice indicating the type, the value and the term of the guarantee required, provided that the term of the guarantee does not exceed twelve months. The Taxable Person shall be granted a certain period which shall not be less than twenty (20) days from date of notice to submit the required guarantee. The notice shall identify the period during which the guarantee shall be submitted.
  2. The Authority shall determine the value of the guarantee required from the Taxable Person based on his estimated average quarterly value for the Output Tax and the double of the estimated quarterly value of the Output Tax in the case of a non-resident Taxable Person who did not appoint a Tax Representative. The Authority may in certain cases, at its discretion, determine the minimum and the maximum value of the guarantee required from a Taxable Person, and it also has the right to use other accounting methods to determine the guarantee when it is deemed necessary.
  3. The amount of the cash guarantee shall be deposited in an account separated from the tax account of the taxable person.
  4. In cases where formal collection procedures have commenced in respect of any amounts in relation  to VAT and the concerned amounts are still unpaid, the Authority may, after notifying the taxable person, offset the amounts due and unpaid against the cash guarantee or it may liquidate the bank guarantee with the amount of the unpaid amounts.
  5. In cases where the cash guarantee or the bank guarantee is used to offset amounts due in relation to the VAT, the Authority may to request the taxable person to provide a new cash or bank guarantee subject to the controls stated in this article.
  6. After expiry of the guarantee period, the Authority may retain the cash guarantee or request to retain the bank guarantee valid for a similar period(s). The Authority may also decide to return the guarantee to the Taxable Person upon his request or credit it to his account as a settlement against any tax liabilities related to VAT.

 

The most important amendments to be made – Article Sixty-Six (Records)

Current Text Text after the proposed amendment
Clause Four:
4. The Taxable Person may appoint a third party to comply with the record storage requirements. The Taxable Person in all cases remains directly responsible for such compliance. 4.

  1. The Resident Taxable Person may appoint a third party established in the Kingdom in order to comply with the requirements of maintaining the invoices, documents, books, and records related to this Person, and the Taxable Person remains responsible for such compliance.
  2. the Non-Resident Taxable Person who does not appoint a Tax Representative in the Kingdom shall appoint a third party established in the Kingdom to fulfil the commitments of maintaining the invoices documents, books, and records set forth in the VAT system and these regulations.
Clause Five:
5. The Tax Representative of a Non- Resident Person with no establishment in the Kingdom must maintain the invoices, books, records and accounting documents of the Non-Resident Person. 5. The Tax Representative for the Non- Resident Person shall assume the responsibility of maintaining the invoices, documents, books and records related to activity of this Non-Resident Person.

 

The most important amendments to be made – Article Seventy (Refund of Tax to Designated Persons)

Current Text Text after the proposed amendment
Clause Eight:
8. Tax will not be refunded in respect of Supplies of Goods and services which are prescribed by article fifty of these Regulations to not be incurred in the course of a Taxable Person’s Economic Activity. 8. Tax will not be refunded in respect of Supplies of Goods and services which are prescribed by article fifty of these Regulations to not be incurred in the course of a Taxable Person’s Economic Activity. As an exception to this, requests for refund of VAT submitted by Designated Persons approved in accordance to paragraph two of this article are eligible to be refunded.
Clause Eleven:
11. The Authority may request copies of Tax Invoices or additional information from the Eligible Person either electronically or in physical form. In such cases, the applicant must provide the requested information within twenty (20) days from the Authority’s request. 11. The Authority may request copies of Tax Invoices or additional information from the Eligible Person either electronically or in physical form. Such requirements must be provided within the period which is specified by the authority in its request and which shall not be less than twenty (20) days from the date of the authority’s request in all cases.

 

The most important amendments to be made – Article Seventy-Seven (Tax Representatives and Appointed Persons)

Current Text Text after the proposed amendment
Clause Two:
2. All Non-Resident Taxable Persons must have a Tax Representative. The Tax Representative shall be jointly liable for payment of any Tax due by the Taxable Person until such date the Tax Representative is confirmed by the Authority as ceasing to act on behalf of that Taxable Person. 2. The Non-Resident Taxable Person can appoint a Tax Representative resident in the Kingdom to represent him in all matters related to VAT. The Tax Representative shall be jointly responsible with the Taxable Person for payment of any financial commitments related to the VAT. The annual responsibility of the Tax Representative shall not exceed the double of the average quarterly value of the Output Tax for the concerned Taxable Person. The Tax Representative shall remain responsible until such date the Tax Representative is confirmed by the Authority as ceasing to act on behalf of that Taxable Person.
Clause Three:
3. A Taxable Person who is resident in the Kingdom may appoint a Tax Agent to act on that Taxable Person’s behalf in respect of its VAT obligations in the Kingdom by submitting a notification. Notwithstanding the appointment of a Tax Agent, the Taxable Person shall maintain individual responsibility for all such obligations. 3. All Non-Resident Taxable Persons shall provide a guarantee subject to the requirements set forth in Article Sixty-Five of this regulation as a prerequisite for the purposes of the VAT registration.

 

The most important amendments to be made – Article Seventy-Nine (Transitional Provisions)

Current Text Text after the proposed amendment
Clause Six:
6. Any Member State which has not introduced VAT following 1 January 2018 will be considered a country outside of Council Territory in accordance with the Agreement. A Supply treated under the provisions of the Agreement as made in such Member State shall be considered as being made in a third country outside of Council Territory and persons who is a Resident Person in such Member State will be treated as residents of a third country. 6. Any Member State which has not introduced VAT, or which has no Electronic Services System linked with the Kingdom of Saudi Arabia, will be considered a country outside of Council Territory in accordance with the Agreement. A Supply made between the Kingdom and such a State shall be considered as being made with a third country outside of Council Territory and a person who is a resident in such a Member State will be treated as resident of a third country.
Clause Seven:
7. Prior to the introduction of the Electronic Services System in all Member States:

  1. a Taxable Person who receives Goods into the Kingdom from another Member State shall be deemed to have imported the Goods into the Kingdom, and Tax will be collected in accordance with the provisions for other imports,
  2. Supplies of Goods involving transport of the Goods from the Kingdom to another Member State shall be treated as an Export of the Goods for VAT purposes.
7. Supplies of goods made prior to the introduction of the Electronic Services System shall be treated as follows:

  1. When a Taxable Person receives goods into the Kingdom from another Member State, he shall be deemed to have imported the goods into the Kingdom, and Tax will be collected in accordance with the provisions for other imports.
  2. For VAT purposes, supplies of goods involving transportation of goods from the Kingdom to another member State shall be considered as an export of goods.

 

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