United States

Saudi Arabia’s value-added tax for electronically supplied services

Founded in 1932, the Kingdom of Saudi Arabia (KSA) is the world’s largest oil producer and exporter, and is the first Arab country to be part of the group of leading rich and developing economies known as the G-20.

The following content was reviewed and updated as of Jan. 10, 2019.

Legislative effective date

Jan. 1, 2018

Name of tax

Value-added tax (VAT)

Statute of limitation

  • Five years
  • Tax evasion 20 years

Standard rate of VAT

5 percent

Electronic supplies

Digital economy considers economic activities carried out through an electronic means including:

  • Goods or services purchased through a website or electronic platform
  • Services provided over an electronic or digital medium

As defined for VAT purposes, electronic services include “wired and wireless telecommunication services and electronic services.” The implementing regulations provide a nonexhaustive list of examples which are included within this definition as follows:

  • Any service relating to the transmission, emission or reception of signals, writing, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems
  • The transfer or assignment of the right to use capacity for such transmission, emission or reception
  • The provision of access to global information networks
  • The provision of audio and audio-visual content for listening or viewing by the general public on the basis of a program schedule by a person that has editorial responsibility
  • Live-streaming via the internet
  • Supplies of images or text provided electronically, such as photos, screensavers, electronic books and other digitized documents or files
  • Supplies of music, films and games, and programs on demand
  • Online magazines
  • Web-site supply or web hosting services
  • Distance maintenance of programs and equipment
  • Supplies of software and software updates
  • Advertising space on a website and any rights associated with such advertising

Registration

For resident suppliers, registration is mandatory if the taxable turnover exceeds Saudi Arabian Riyal (SR) 375,000 (approximately $100,000 U.S. dollars). Persons whose value of annual supplies exceeded the mandatory registration threshold but did not exceed SR 1,000,000 (approximately $266,666 U.S. dollars) were exempted from the requirement to register in the KSA until Dec. 20, 2018. However, that date has now expired and registration is required.

A nonresident person who is not registered with KSA tax authorities, but is obligated to pay tax on supplies made or received by a person in the KSA, must apply for VAT registration in KSA within thirty (30) days of the first supply on which that person was obligated to pay tax. If a nonresident supplier only makes business-to-business (B2B) supplies into the KSA, then no registration obligation exists.

Customer identification

B2B transactions in the KSA are required to self-assess VAT on the supply via the reverse charge mechanism. Accordingly, B2B customers should provide their VAT registration number to nonresident suppliers of electronic services to verify that they have the capability and obligation to self-assess VAT.

All other customers are deemed to be end consumers (B2C) without the capability or obligation to self-assess VAT. In these situations, the nonresident supplier is required to register for VAT and charge/collect/remit VAT on the supply.

Customer location

Supplies of electronic services are chargeable using both the KSA as location of actual use as well as the KSA customer’s usual place of residence.

The specific location where the actual use or benefit of the electronic service takes place is used where possible.

However, in most cases this is not possible and the place of supply is established using the customer’s usual place of residence via proxies (where possible, at least two proxies should be used). Some examples of these proxies are as follows:

  • Invoicing address of the customer
  • Bank account details of the customer
  • The internet protocol address used by the customer (IP address)
  • The country code of the SIM card used by the customer

Supplier identification

Suppliers are located at their usual place (country) of residence or where they are established (if they operate from more than one location).

If an agent is used when making the supply, the agent can either act in the name of the principal, or in their own name. The difference between these two arrangements are as follows:

Agent acts in the name of the principal

  • Where an agent acts in the name of the principal, VAT applies to the transaction between the supplier and the customer as normal.
  • The agent charges a fee or commission for its agency services (separate taxable supply).

Agent acts in his own name

  • If the agent acts in his own name, he is considered, for VAT purposes, to act as a principal toward a third party.
  • The commission charged by an agent acting in his own name is not a separate supply. As such, for VAT purposes, the supply made to the agent will be customer price less commission charged.

Procedural matters

B2B customers may be required to self-assess VAT by applying the reverse charge for services received, even if the (nonresident) supplier is VAT registered in the KSA.

VAT registration is required for electronically supplied services provided to B2C customers by nonresident entities. The process for registering a nonresident business for VAT purposes is quite involved, and could include the need to open a local bank account as well as providing a range of supporting documentation.

Tax invoices must be issued by a VAT registered supplier.

Tax is collected through the submission of periodic VAT returns, submitted online via the General Authority of Zakat and Tax (GAZT) website, by way of the SADAD payment system.

Various penalties are imposed for failure to:

  • Submit VAT returns when due
  • Failure to pay tax when due
  • Failure to maintain the prescribed books and records
  • Submission of false documents, etc.

Historic transactions

VAT applies to all transactions taking place on or after Jan. 1, 2018, based on the date of supply rules, and all imports of goods made on or after Jan. 1, 2018.

In the interest of anti-avoidance efforts, any supplier who issues an invoice or receives consideration for a supply before Jan. 1, 2018, where the actual supply of goods or services takes place on or after Jan. 1, 2018, shall be considered to make the supply for VAT purposes on the actual date of the supply, regardless of the earlier invoice or payment date and should therefore be subject to VAT. Conversely, if the actual supply took place before Jan. 1, 2018 and the invoice was issued or the consideration was received after this date, the supply will not be subject to VAT.

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