GCC Indirect Tax Weekly Digest
September 30, 2018
KSA GAZT publishes English translations of several VAT guidelines
The Kingdom of Saudi Arabia (KSA) General Authority of Zakat and Tax (GAZT) has published the English translations of several VAT guides which were previously published in Arabic. These include:
- Economic activity guideline
- The economic activity guideline sets out GAZT’s interpretation of what defines ‘economic activity’, which is a term critical to determining the VAT treatment of transactions in KSA.
- Economic activity is defined in the guide as “An activity that is conducted in an ongoing and regular manner including commercial, industrial, agricultural or professional activities or Services or any use of material or immaterial property and any other similar activity.”
- The determination of whether an activity is an economic activity is required as a Taxable Person is defined as a person “…who conducts an economic activity independently for generating income, and is registered for VAT… or required to register for VAT in the Kingdom...”
- The guide includes sections on special cases, such as dormant companies and holding companies, and on government bodies (those that act as a public authority and those that also carry out commercial activities).
- Of interest, the guide also gives additional clarity on GAZT’s expectations around dealing with apportionment of input credits claimed where both taxable, and either exempt, or non-economic activities, benefit from the expense (and VAT) being incurred.
- Input tax deduction guideline
- This guide provides further details on the process of input tax deductions, including the partial deduction method.
- The guide addresses categories of input tax, eligibility for deduction of input tax, restricted input tax, and documents required to support deduction.
- The guide includes special cases, such as pre-registration VAT (VAT incurred on expenses before registration), and VAT incurred in other countries.
- Imports and exports guideline
- This guide addresses the VAT treatment and implications of importing and exporting goods and services into or from KSA.
- The guide includes sections on each scenario, (i.e. import of goods, export of services, etc.) with examples.
- Special cases are also addressed, such as supplies under customs suspension and re-exports of imported goods.
- Invoicing and records guideline
- The invoicing and records guideline clarifies GAZT’s position on issues that businesses might face with documentation related to VAT compliance.
- The guide includes situations where a standard tax invoice is required, where a simplified tax invoice is required, and where a tax invoice is not required.
- The section on record keeping includes details on the language and retention period requirements for VAT-related records.
GAZT will expect all taxable businesses to be fully aware of the clarifications included within the guides. A significant amount of guidance has been released which will impact on a broad range of businesses.
Saudi Customs publishes requirements for Approved Economic Operator status
Saudi Customs has published the requirements for businesses to obtain Approved Economic Operator Status (AEO). The AEO designation is part of the World Customs Organization (WCO) SAFE Framework of Standards adopted by the WCO Council in 2005.
AEO status provides accredited businesses which are deemed to be low-risk with certain advantages, such as simplified customs procedures and being able to move goods at a lower cost.
Saudi Customs has published the following requirements for businesses to achieve AEO status:
- compliance with Customs requirements and lack of criminal offences relating to customs activity in the previous three years;
- a proper electronic record-keeping system;
- financial solvency for the parent company and subsidiaries;
- a responsible contact person with extensive corporate knowledge of customs-related matters must be appointed;
- there must be a policy for security-focused training for personnel;
- satisfactory procedures for verifying the accuracy or Customs declarations and confidentiality;
- demonstrate that sufficient security measures are undertaken in regards to cargo containers, transport, company premises, and ensure the security of staff and workers;
- ensure that business partners adhere to security standards;
- have efficient crisis management and incident recovery systems; and
- be able to track key performance indicators to improve general performance, reduce risks, and enhance security.
Saudi Customs has also published a list of advantages of obtaining AEO status. These include, but are not limited to:
- dedicated fast lane at all points of entry;
- priority over non-AEO shipments in all customs procedures;
- possibility of clearing goods prior to arrival or departure; and
- reduced physical inspection.
Reports as to the date for implementing VAT in GCC Member States
We are aware that there are reports and increased speculation as to the date upon which various Member States may be announcing that VAT is to be implemented. Generally news such as this is unhelpful, as if/when reports proves not to be correct it has the potential to result in further speculation as to whether or not VAT will be implemented at all.
Accordingly, we will refrain from adding to this, other than to place the most recent reports and speculation in context.
For more information about the VAT-related services Deloitte can offer to businesses in the GCC, please contact any of your usual Deloitte contacts.
Oman may implement VAT by 1 September 2019
Statements have been made that VAT is coming to Oman, as early as 1st September 2019, by a senior member of the Omani Ministry of Finance. These statements have been reported in the press (including the Times of Oman and the Oman Daily Observer) with a message that business should start to prepare for VAT. Official clarifications are expected shortly.
For more information about the VAT-related services Deloitte can offer to businesses in Oman, please contact Robert Tsang or your usual Deloitte contact.
Bahrain to implement VAT in 2019
There is also significant talk and reporting as to when Bahrain may implement VAT. Suffice to say that the general intention has been that most Member States were to implement VAT by the end of 2019.
For more information about the VAT-related services Deloitte can offer to businesses in Bahrain, please contact Mike Camburn or your usual Deloitte contact.
It would be wise for any business making supplies in Member States yet to implement VAT to assess the impact that VAT would have on its operations, and what the critical path would be to achieving a successful implementation whenever it may occur.
The process should include multiple phases which involves personnel from various company divisions, such as finance, operations, HR, and legal.
Deloitte is well-placed to provide these services, and we have gained extensive experience by providing full VAT implementation services to businesses in the UAE and KSA.
This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.