12 Aug 2019
SAUDI ARABIA: New VAT Regulations Introduced for Non-Residents
The Kingdom of Saudi Arabia has amended the rules covering its assessment and collection of value-added tax (VAT) as given in its Implementing Regulations published last year. The changes should make VAT compliance easier for non-resident taxpayers in the country, which came into effect on 18 July, when they were published in the Official Gazette.
The country’s General Authority of Zakat and Tax (GAZT), responsible for the changes, has removed the mandatory requirement introduced in January last year for a non-resident taxpayer to use a ‘tax representative’ for registration and compliance purposes in the region. The taxpayer must still appoint a suitable person established in the KSA, however, if it opts not to use a tax representative; and must also use a third-party for the storage and maintenance of their VAT-related records in Saudi Arabia.
According to Pinsent Masons, an international professional services and law firm, this change will be welcomed by the international business community which has been struggling with identifying suitable tax representatives. The firm’s analysis stated: “On the face of it this would also look to benefit a non-resident business' overall VAT compliance costs for the region, with the removal of a tax representative's fees. This would be of particular interest to SMEs and international traders with low turnover levels, facing tight margins in the region.”
However, there is a trade-off. In the event of a non-resident taxpayer opting not to appoint a tax representative, the taxpayer will now need to submit a financial or a bank guarantee for the purposes of VAT registration in Saudi Arabia.
The amendment also provides some clarification relating to when zero-rated VAT is not applicable to services provided by a Saudi taxpayer to a non-resident customer. Specifically, the changes are aimed at making the current anti-avoidance provisions clearer and their scope less ambiguous.
Other changes to the rules include relieving certain designated entities, such as foreign governments and international organisations, from the restrictions that apply in relation to VAT refunds on purchases for which the associated input VAT is blocked under Article 50 of the VAT Implementing Regulations. GAZT may also now request additional evidence to support input tax claims submitted by designated persons. The amendment also specifies that a Gulf Cooperation Council (GCC) country implementing VAT will not be treated as a Member State for VAT purposes, unless the country implements an electronic services system.