GCC Indirect Tax Weekly Digest

KSA developments

ZATCA announces criteria for selecting taxpayers in third wave of e-invoicing

On 24 March 2023, the Kingdom of Saudi Arabia (KSA) Zakat, Tax and Customs Authority (ZATCA) announced the criteria for selecting resident taxpayers for the third wave of the e-invoicing integration phase.

Key considerations for taxpayers as per the announcement:   

• Resident taxpayers who reported taxable revenue of more than SAR 250 million in VAT returns filed for the calendar year 2021 or 2022 will be required to integrate their IT systems with ZATCA for clearance or reporting. 
• For the third wave of resident taxpayers, the integration will go live with the ZATCA Fatoora Portal on 1 October 2023, providing them with at least six months to comply with the integration phase requirements. 

Additionally, we understand that selected taxpayers will be notified by ZATCA in due course and should comply with the integration phase requirements by 31 January 2024 as per Administrative Resolution No. 54252, dated 28/08/1444H. 

UAE developments

FTA publishes updated VAT guide on Input Tax Apportionment

The United Arab Emirates (UAE) Federal Tax Authority (FTA) has recently released an updated version of its Value Added Tax (VAT) guide on Input Tax Apportionment, which provides businesses making a combination of taxable and exempt supplies with guidance on calculating the apportionment of input tax.

The guide covers the standard method of input tax apportionment, as well as special methods for certain types of businesses where the standard method may not be suitable.

The updated version of the guide provides additional clarity on the use of special methods and specifies that the outputs-based method is available for educational institutions. This method is considered appropriate where the VAT incurred by a business is directly linked to income earned, with a strong correlation between income and expenses.

UAE businesses subject to input tax apportionment are advised to review the updated guide to ensure that they are applying the correct method applicable to their business.

Egypt developments

VAT Guidelines for non-resident providers of digital and remote services

On 22 March 2023, Decree No. 160 of 2023 titled "VAT Guidelines for Digital and Remote Services Provided by Non-Residents" was published and is effective from 23 March 2023. The guidelines simplify VAT registration and filing procedures for non-resident vendors and operators of electronic distribution platforms (EDPs) providing “remote services” to consumers (B2C) in Egypt.

As per the new regulations, non-resident vendors and operators of EDPs providing remote services to Egyptian B2C customers must register under the “Simplified Vendor Registration Regime” (SVRR).

Registration process

• Non-resident e-service providers  mentioned above must now submit registration applications through the Egyptian Tax Authority (ETA) portal if the below threshold is met or exceeded. 
• The Simplified Vendor Registration Regime (SVRR) is currently in effect but will only apply to e-services starting from 22 June 2023.
• To register through the ETA's portal, foreign taxpayers must provide information about their registering entity, including:
  • Country of incorporation
  • Tax residency
  • National tax identification number
  • Registered address
  • Contact person's name, email address and cell phone number
  • Its URL.
• Upon completion of the data, the applicant will receive a registration number and certificate via email within 10 days.
• Once registered, foreign taxpayers can file a VAT return and pay the relevant VAT due within the month following the taxable period's expiration.
• The standard VAT rate of 14% applies to all services, except for professional services subject to a 10% rate.

Minimum threshold

• The SVRR registration requirement for non-resident e-service providers is applicable only if their revenue in Egypt meets or exceeds EGP 500,000 within a 12-month period. 
• However, professional and consultancy services providers must register under SVRR from the outset, regardless of the sales amount they make in Egypt.

Scope of “Remote Services”

• The updated regulations stipulate that only B2C transactions are covered by the SVRR.
• The “remote services" definition comprises services that are sold online/digitally through either of the following:
  • A portal/application owned by the non-resident “service provider”; or
  • An EDP utilized by the same.
• Depending on the above, variations will arise concerning the party liable to bear the VAT, as follows:
  • If the non-resident vendor utilizes its own portal/application to render the “remote services”, then it is incumbent upon the vendor to register through the SVRR. 
  • On the other hand, if the non-resident utilizes an EDP to render its services, the liability to register falls upon the EDP.

Out of Scope Services

The following “on-the-spot” services, since they require the physical presence of a customer in a specific location to receive it, do not fall under the scope of “remote services” even if booked online:

• Hotel booking services
• Physiotherapy services
• Entertainment and sport events entrance
• Passenger transportation
• Restaurants and catering.

Risk Review and Penalties

Non-compliance with the registration requirements will mandate the ETA to commence a “Risk Review”.

• A Risk Review will result in the ETA registering the foreign digital service’s supplier, assessing the due VAT, and applying the related penalties. Please note that such penalties are yet to be determined.
• Further repercussions may also include the banning of importation of commodities and services until the aforesaid debt is settled.

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.