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Saudi Arabia: End of the Transitional Period for VAT rate increase

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03 June, 2021

In brief

Further to VAT rate increase from 5% to 15% announcement effective the 1st of July 2020, the Zakat, Tax and Customs Authority (“ZATCA”) in Saudi Arabia has announced transitional rules governing supplies that are made during the transitional period for the VAT rate increase i.e. from 11 May 2020 to 30 June 2021. The transitional rules would not be applicable starting from the 1st of July 2021 onward and the VAT rate to be applied going forward should be 15% applicable to all supplies made (except where it is zero-rated or exempt by law).

In detail

On 11 May 2020, the Minister of Finance in Saudi Arabia has announced several measures to counter the financial and economic impact of COVID-19 on the Government budget. Such measures included an increase in the VAT rate from 5% to 15% effective as of the 1st of July 2020.

Furthermore, the ZATCA has issued transitional guidelines to summarize how the transitional rules will apply to the KSA VAT rate change taking effect from the 1st of July 2020. The transitional measures began on the day of the announcement of the new VAT rate, which was 11 May 2020. 

According to the above mentioned guidelines, the transitional period for the VAT rate increase is effective from the 1st July 2020 and expires on the 30th of June 2021. Many taxpayers and businesses have reviewed their contracts and invoices to understand the impact of the VAT rate increase and applied the old VAT rate of 5% on supplies made within the transitional period, subject to meeting specific requirements.

As the transitional provisions period expires on the 30th of the June 2021, taxpayers and businesses are now required to revisit the VAT treatment applied and make the necessary changes in their systems to charge VAT at the standard rate of 15% (instead of 5%) as of the 1st of July 2021. 

It is to be noted that the VAT treatment and rate to be applicable to credit notes to be issued after the 1st of July 2021 has not been changed and should be linked to the original tax invoice and the VAT rate applied to the original supply.

Also taxpayers who did not apply the transitional rules properly will have an opportunity to make the required amendments of  their filed VAT returns (related to the tax period from July 2020 till November 2020 and  the third quarter of 2020) and consequently benefit from the 50% waiver of penalties that is still applicable till the end of June 2021.

The Takeaway

Taxpayers and businesses are now required to revisit the VAT treatment applied for supplies made within the transitional period of the VAT rate increase, and make the necessary changes in their systems to charge VAT at the standard rate of 15% (instead of 5%) as of the 1st of July 2021.

Contact us

Mohammed Yaghmour

Leader, Zakat and Tax Leader - Saudi Arabia. Clients & Markets, PwC Middle East

Tel: +966 (12) 610 4400

Yaseen AbuAlkheer

KSA Tax Partner, PwC Middle East

Tel: +966544250540

Fehmi Mounla

Partner, Zakat and Tax, PwC Middle East

Tel: +966 2 610 4400

Mohammad Hussein Amawi

Partner, PwC Middle East

Tel: +966 126104400

Suleman Mulla

Partner, International Tax, PwC Middle East

Tel: +966 54 122 8051

Maher ElAawar

Partner, Middle East Indirect Tax and Fiscal Policy, PwC Middle East

Tel: +971 (0) 56 216 1109

Mohammed Al-Obaidi

Tax Partner, PwC Middle East

Tel: +966 1 465 4240

Fayez Aldebs

Partner in Tax, PwC Middle East

Tel: +966 11 0400

Chadi Abou Chakra

Partner, Indirect Tax and Fiscal Policy, PwC Middle East

Tel: +966 11 211 0400 Ext: 1858

Mohamed Harby

Partner, PwC Middle East

Tel: +966 56 907 2618

Ebrahim Karolia

Partner, International Tax and M&A Services, PwC Saudi Arabia

Tel: +966 11 211 0400 ext. 1771

Wael Osman

Tax & Zakat Partner, PwC Middle East

Tel: +966 13 849 6311

Mugahid Hussein

Partner in Tax, PwC Middle East

Tel: +966 (0)13 849 6311

Jay Riche

Partner and TLS Digital Solutions Middle East Leader, PwC Middle East

Tel: +971 56 385 4717

Hafez Yamin

Director, TLS Digital Solutions, PwC Middle East

Tel: +966 54 033 7096

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