Saudi Arabia: Proposed amendments to various provisions of VAT Implementing Regulations

Following amendments are proposed in the conditions to form a VAT group:

• The intended group member must have the right to register as a taxable person.
• Fifty percent (50%) or more of the market value of each legal person in the group must be owned directly or indirectly by the same legal person or persons.
• None of the members of the group should be licensed to operate in any special zones with customs suspension status and/or be a member of another VAT group.
• The applicant or any of the group members must not be a person eligible for refund according to the provisions mentioned in Article (70) of the VAT Implementing regulations.

The below amendments are proposed to improve transparency in the application process to form a VAT group:

• The relationship between group representative and new group members should be documented by an agreement which needs to be shared with ZATCA.
  
• The VAT group will be treated as an independent taxable person separate from the individuals participating in it.

ZATCA has proposed to add below provisions resulting from registering a VAT group:

• The economic activity carried out by any member of the VAT group is considered to be carried out by the VAT group.
  
• Any supply made by any member of the VAT group is considered to be made by the VAT group.
• Any import of goods or services by a member of the VAT group is considered to be imported by the VAT group.
• Any output tax imposed by a member of the VAT group is considered to be imposed by the VAT group.
• Any input tax incurred by a member of the VAT group is considered to be incurred by the VAT group.

Paragraph (7) provisions are proposed to amend for broadening the powers of ZATCA to cancel the VAT group registration or exclude a specific member from the VAT group from a past or future date.

Proposed amendment in paragraph (1) requires taxpayers to cancel their registration in case of transfer of economic activity resulting in cessation of the business.

Proposed new paragraph (13) requires the transferee to notify ZATCA within 30 days of the transfer of economic activity unless applied for cancellation of registration by taxpayer.

New proposed paragraph (14) mandates that if the VAT group registration is canceled, the taxable person must retain records according to Article 66 of the Regulations.

Proposed addition of paragraph (2) defines the services and includes cases of what constitutes a service.

The scope of nominal supplies under paragraph (1) proposed to be clarified to cover Agreement and entire regulations.

Paragraph (7) proposed to include instance of nominal supply where a person retained goods or is deemed ineligible for registration on cessation of economic activity.

Paragraph (8) proposes that where VAT has been deducted on costs related to goods or services involved in a deemed supply, the value of that deemed supply must be adjusted to account for the proportion of VAT that was reclaimed.

Paragraph (9) clarifies that if VAT was paid by the taxpayer but not deducted, no further nominal supply exist for supplies made without consideration. The taxable person must prove non-deduction of tax to ZATCA.

Amendment in paragraph (1) proposed to include the following additions in the event of transfer of business: 

• Both the supplier and the recipient must notify the Authority of the transfer by the end of the month following the transfer. 
• Specifies detailed information that must be included in the notification form

Proposed amendment in paragraph (2) includes obligation on transferee for both prior and future rights and obligations post transfer of business.

New paragraph (5) is proposed to add to clarify the transfer of economic activity does not transfer the supplier's tax identification number to the recipient.

Amendment in paragraph (6) proposes to include tax point date for deemed supply where the taxable person is no longer eligible for registration.

Paragraph (7) related to zero rating supply of goods to customs suspension zone has been proposed to be deleted with addition of a new and more detailed article, summarized hereunder:

• Supply of goods to customs duty suspension zone or within such zones will be subject to 0% VAT.
• The VAT on the import of goods to such zones will be suspended, however, VAT becomes due upon the release of the goods from such zones.
• Goods exit from such zones to outside GCC territory will be considered as exports

The article also includes conditions that should be satisfied to apply the VAT treatment for customs suspension zones in addition to other conditions such as document retention etc.

Amendment in paragraph (2) has been proposed to clarify that the "other person" under condition (c) must be related to the customer to consider as an exception applicable to general rule of export of services.

Services supplied to tourists related to tax refunds under Article (73) are proposed to subject to VAT at 0%.

Amendment in paragraph (2) proposed to ease the conditions of qualifying military goods by removing the requirement that the supplier must also be the manufacturer of such goods.

Proposed amendment in paragraph (1) broadens the applicability of FMV and now includes the supplies provided to affiliates as well.

Paragraph (1) proposed amendments aim to clarify that the value of supplies treated as deemed supply will be the purchase or cost value or FMV (as per provisions of Article 38) in cases where the purchase or cost cannot be determined.

Amounts paid by a government entity to the supplier are not considered subsidies if those amounts, or part of them, constitute compensation for the supply of goods or services to that government entity or for its benefit, has been proposed to be added as paragraph (2).

Paragraph (3) proposed amendment aim to clarify the adjustment will be required for tax due as against current tax declared values.

Paragraph (10) proposed amendments aim to clarify the period in which adjustment should be made for input VAT outstanding payment for 12 months. The rule does not apply to supplies under financing contracts (like leasing or murabaha) if the contract is active and undisputed. The supplier must have reported the full tax amount to the Authority, and the customer must have a written confirmation from the supplier, has been proposed to be added.

The title of the Article has been proposed to amend by including ‘special cases’.

Paragraph (2) has been proposed to clarify the following:

• The marketplace is seen as purchasing and re-supplying electronic services from a non-resident supplier.
  
• The electronic marketplace must pay the tax on services supplied in the Kingdom through it.
• Exemptions: This rule does not apply if:
  • The non-resident supplier is clearly identified in transaction documents.
    
  • The marketplace does not manage the service consideration, billing, payment, complaints, offers, or terms

Paragraph (3) has been proposed to clarify the following:

• When intermediating for a non tax registered resident supplier, the marketplace is considered to have bought and re-supplied the goods/services
  
• The electronic marketplace is responsible for paying the tax on these supplies.
• Exemptions: This does not apply if:
  • The unregistered supplier is clearly identified in transaction documents.
  • There is a direct contract between the supplier and the customer, with the supplier setting all terms.
  • The marketplace does not manage the supply consideration, billing, payment, complaints, offers, or terms

New paragraph (4) has been proposed to define “electronic marketplace” as a distribution service operated electronically - including through an internet intermediary, a website, an internet portal, a platform, a store, or a distribution portal - that enables suppliers to supply services electronically to customers through electronic means.

Both the transferor and transferee are jointly liable for paying any tax and fines owed by the transferor before the transfer date if the Authority is not notified as required by Article 13(13) is proposed to be added as a  new paragraph (5).

Paragraph (1) proposed amendments aim to provide clarity/ add further items on negative list of items on which input VAT is not admissible.

Paragraph (2) amendments aim to refine restricted vehicles criteria and vehicles which should not be considered as restricted.

New paragraph (6) proposed additions clarifies the timing for issuing credit and debit notes (no later than fifteen days after the end of the month following the date of any event requiring the issuance of the note).

Proposed amendment in paragraph (5) allows the extension of due date for installment beyond twelve months if approved by the Board of Director.

Proposed amendment in paragraph (1) clarifies and limits the correction in the event of discovery of error only by using the prescribed criteria.

Paragraph (2) proposed the adjustment of overpayment of VAT in error by way of reducing the amount of net tax due.

Paragraph (3) proposed amendments further clarifies that an error resulting in a shortfall in net tax due of SAR 15,000 can be rectified by adding up to SAR 15,000  to the net tax due in the tax return for the period in which the error is discovered.

Corrections for errors leading to an over reporting of net tax due cannot be made for tax periods older than five years from the end of the calendar year in which those periods fall, has been proposed to be amended in paragraph (4).

New paragraph (10) is proposed to add which empowers ZATCA to conduct an examination and assessment of any tax return after the prescribed period after obtaining the taxable person’s consent.

Proposed amendment to update the basis for filing an appeal (Royal Order No. 25711) has been added.

Proposed amendment in paragraph (5) clarified that the Authority may offset refundable amounts against any tax, fines, or other dues under its supervision and may withhold the refund until any outstanding assessments are resolved.

New paragraph (7) is proposed to be added which provides the Authority the right to examine any tax period related to a refund request within one calendar year from the request date subject to certain provisions.

Proposed amendments in paragraph (1) to (13) provide a comprehensive refund process, including registration requirements, eligible categories, and specific documentation needed.

The proposed changes also set a higher minimum refundable amount of 5,000 riyals and include specific exceptions for non-deductible supplies, as well as details about international agreements and reciprocity.

Proposed addition of new paragraphs (15) to (20) empowers the Authority to review refund requests and may request additional documentation, which must be provided within 20 working days.

Approved refunds are paid within 30 working days but can be offset against any dues.

If a refund is wrongly received, the individual must notify the Authority and repay the amount. Registration of an eligible individual may be canceled for various reasons, but obligations before cancellation remains.

The Board of Directors of Authority may allow VAT refunds based on simplified invoices and establish other refund procedures not specified in the article

Highlights of proposed changes includes:

Tax Refund for Tourists: ZATCA may refund VAT to tourists on eligible goods purchased in KSA, which they carry with them upon leaving, following decisions and controls issued by ZATCA Governor.

Service Providers: ZATCA can delegate service providers to handle refunds, who must verify eligibility and process refunds. They can deduct a commission and must retain all related records.

Tourist Definition: A tourist is someone without permanent residence in KSA or VAT applying member states, not part of transport crews, and meeting other criteria set by ZATCA.

Eligible Goods: Refunds apply to personal-use goods not consumed in KSA, excluding items like vehicles, tobacco, food, and certain other goods.

Request Process: Refund requests are submitted through approved service providers while still in KSA. ZATCA may verify requests, reject them if necessary, and will pay the approved amount to the service provider.

Record Keeping: Approved service providers must keep records for the specified period and are jointly responsible for any erroneous refunds.

Member State Tourists: Tourists from Member States are treated as non-GCC tourists until a unified electronic system is in place.

Regulations and Controls: ZATCA’s Governor sets the procedures and conditions for refunds, including service provider authorization, eligible goods, and refund request requirements.

Proposed amendment in paragraph clarifies the copy of notices in accordance with Article 65 and 66 must be made electronically.