Saudi Arabia’s General Authority of Zakat and Tax released the final implementing regulations to legislation governing the new GCC-wide value-added tax
The move, which was announced on GAZT’s website and in the official gazette, is a milestone for companies operating in both the Kingdom and the wider GCC, as they prepare for full implementation of the law on January 1, 2018.
The 5 percent VAT, which will be rolled out across the six-member states of the GCC under a unified agreement, will apply to all goods and services, though the treatment of certain sectors will be left up to individual countries. Financial services – to which an exemption is generally applied – as well as education, health care, real estate and local transport all fall into this category.
Tax revenue to help offset lower hydrocarbons receipts
The new tax is part of efforts by countries in the region to develop additional public revenue streams. While oil prices have rebounded somewhat this year, with Brent crude trading at around $57.50 per barrel as of mid-October, this is still roughly half its 2014 peak.
“The introduction of a VAT regime is representative of the economic climate in which we find ourselves. That can also be applied to the region at large,” Mishal A Al Hokair, deputy CEO and general manager of the entertainment division at Al Hokair Group, an entertainment and hospitality conglomerate, told OBG. “The reality of lower hydrocarbons revenue means we must adapt to sustain ourselves in the long term – this is the new reality.”
Direct revenue from the tax is expected to bring in the equivalent of 1.6 percent of the Kingdom’s GDP annually, according to estimates from the IMF.
Saudi businesses prepare for VAT registration
All companies with an annual taxable supply of goods and services of SR375,000 ($100,000) or higher are required to register by December 20; however, companies that do not exceed SR1m ($267,000) will be granted a one-year extension. This should go some way towards helping small and medium-sized enterprises achieve compliance smoothly.
Businesses with turnover below the threshold, but in excess of SR187,500 ($50,000), can register voluntarily to help recover VAT from their expenses.
The largest businesses in the country, particularly those already registered for other forms of tax, are being automatically signed up for VAT, and 55,000 businesses had already enrolled by the end of the first month of registration.
For companies that fail to register before the deadline, there will be a fee of SR10,000 ($2670). Other VAT-related offences include: failing to submit a VAT return when due, resulting in a fine of 5-25 percent of the due tax; failing to pay tax on time, resulting in a fine of 5 percent of the unpaid tax per month; non-registered companies issuing a VAT invoice will face a fine of up to SR100,000 ($26,700); while the punitive amount will be up to SR50,000 ($13,300) for those who hide or fail to keep proper records.
Source – Oxford Business Group