GCC Indirect Tax Weekly Digest

KSA developments

VAT rate increase to take effect from 1 July 2020

The standard Value Added Tax (VAT) rate in the Kingdom of Saudi Arabia (KSA) is set to increase from 5% to 15% on 1 July 2020. With only one week remaining until this major change, we recommend that businesses review their existing contracts in light of the transitional provisions and amended VAT legislation (detailed below), and take immediate action to ensure that they are in a compliant position when the change takes effect.

GAZT publishes amended VAT legislation

The General Authority of Zakat and Tax (GAZT) has published amended versions of its VAT Law and Executive Regulations. This follows the announcement of the increase in the country’s standard VAT rate from 5% to 15%, effective from 1st July 2020.   

GAZT has also published a summary of the amendments to the VAT legislation in Arabic.

The amendments include, but are not limited to, the following:

• New provisions setting out a special registration process for persons carrying on an economic real estate activity, principally applying to persons supplying real estate without a commercial or
  similar license;
• Added provision that a nominal supply does not arise where a taxable person previously incurred input tax on direct costs related to the supply and did not recover the input tax;
• Additional provisions related to the above-mentioned special registration process; and
• Transitional provisions relating to the VAT rate increase.

GAZT publishes Circular on VAT treatment of liens and mortgages

GAZT has published a Circular on the VAT treatment of liens and mortgages, which are often used as forms of collateral against the repayment of a loan.

The Circular includes GAZT’s interpretation of the definition of each type of security interest, and states that the distinction between the security interests should not affect the VAT treatment.

The Circular states that the grant of collateral in the borrower’s property does not constitute a supply of goods and is not subject to VAT. Additionally, the release of collateral also does not create any VAT obligations for the lender or
borrower.

In cases where a borrower defaults on its obligations and the lender is able to take possession of the property or sell the property to use the proceeds against the unpaid loan amount, the transfer of collateral ceases to be temporary and the borrower makes a supply of goods for VAT purposes. In such an event, the
following rules apply:

• Where the lender takes possession of the property for their own use or later sale, VAT is applicable only if the borrower is a Taxable Person.
• Where the lender arranges for the sale of the property to a third party without holding the property as their own asset, GAZT considers the lender to be arranging a supply of goods directly from the borrower to the third party, and VAT is only applicable if the borrower is a Taxable Person, and the borrower must issue a Tax Invoice and report the VAT due.
   

Oman developments

Excise Tax expansion from October 2020

The Oman Tax Authority has announced that the Sultanate of Oman (Oman) will levy Excise Tax, also referred to as Selective Tax, on sugary and sweetened beverages at the rate of 50% effective from 1st October 2020.

Excise Tax was earlier introduced on 15 June 2019 and covered 5 products - carbonated drinks, energy drinks, tobacco products, pork and alcohol. The scope of sugary or sweetened beverages/drinks is likely to be very wide and is expected to cover:

• All types of juices, sports drinks, fruit/malt syrups, pre-mixed ready to serve coffee and tea drinks, which “contains sugar or any of its derivatives” (regardless of the percentage of sugar contained).
• Concentrates, powders, gels, extracts or “any other forms” that can be converted into sweetened drinks.

This expanded scope of Excise Tax will impact most of the businesses dealing with sugary or sweetened beverages and will have a primary bearing on:

• Producers or manufactures;
• Importers; 
• Tax warehouse keepers; and
• Stockists, who may have tax obligations at the date of implementation, such as retailers, supermarkets, restaurants, hotels and Food & Beverage outlets
  

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.