Weekly Spotlight: KSA long-term supply contracts which meet certain conditions will be treated as zero-rated for VAT
This week the spotlight is on VAT developments in Saudi Arabia, where the Kingdom’s General Authority of Zakat and Tax has announced long-term supply contracts which meet certain conditions will be treated as zero-rated for VAT purposes. The aim is to provide companies with a grace period to renegotiate contracts which did not anticipate the introduction of VAT in the Kingdom on 1 January 2018. The grace period applies only to contracts which did not anticipate VAT in advance and not to contracts which include a term on VAT or a mechanism to amend prices to account for the tax. To benefit from the grace period, a contract needs to have been signed before 30 May 2017 and a customer has to be fully entitled to deduct input tax in respect of the supply of goods or services. A customer should also provide a written certification to the supplier that input tax will be deducted or refunded in full. The Authority added the first year of VAT implementation will be considered to be a transitional phase which is why it has announced this grace period. All supply contracts continuing after 31 December 2018 will be subject to VAT at the rate set by the Implementing Regulations.
The Authority has also issued more VAT guidance ahead of its introduction in the Kingdom on 1 January 2018. The Authority has clarified the invoicing obligations in this latest guidance. The Authority confirmed two types of invoices are outlined in the Implementing Regulations to the VAT Law. The first is a simplified tax invoice for the supply of goods or services which total less than 1,000 Riyals. In these types of transactions the invoice must include the issue date, the name and address and VAT identification number of the supplier. It must also contain details of the goods or services supplied, the consideration to be received for the goods or services and a clear statement of the tax payable or indication of the total payment (consideration) includes the tax in respect of the supply of goods or services. A simplified tax invoice may not be issued for an internal supply or exports. The second is for transactions exceeding 1,000 Riyals, which require a more detailed invoice under Article 53 of the Implementing Regulations. This invoice, which must be in Arabic as well as any other language, must include the date of issue of the invoice, the serial number identifying and distinguishing the tax invoice, the supplier’s VAT identification number and the customer’s VAT identification number (if the customer is responsible for the calculation of the import tax and a statement thereof). It must also include the date the supply was signed, the name and address of the supplier and the customer, the amount and nature of the goods supplied and the scope and nature of the services provided. Finally it must contain the amounts subject to tax or specifically exempt, the unit price excluding tax and any discounts or rebates if not included in the unit price, as well as the applicable VAT rate and amount due in Saudi Riyals.