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5 ways VAT will impact Saudi companies

It has been confirmed that a five per cent Value Added Tax (VAT ) will be introduced across Saudi Arabia at the beginning of 2018.

VAT will affect most goods and services, except for a list of essentials, such as medical supplies, books and daily necessities, as well as services such as education, health, transport and exported goods and services.

Here are five ways in which the introduction of VAT will affect companies in Saudi:

1. Firms to register

Companies exceeding an annual turnover equalling or exceeding SAR375,000 will be required to register for VAT.  Once registered, businesses are required to file VAT returns with the General Authority of Zakat and Tax (GAZT) and will need to keep record of all business transactions to remit any VAT payable by a specific date, which is yet to be announced.

Since many businesses trade across the GCC, it is imperative that attention is paid to new VAT regulations when operating in Saudi Arabia.

2. What companies need to do

Companies are encouraged to begin preparing to ensure they remain compliant when the new regulations apply.

Companies should ensure that financial records are available, clear and accurate, and also confirm the category of VAT they fall under.

While VAT will impact each business differently, businesses will need to consider the effect of VAT on all their transactions and the potential impact on prices and margins.

3. Impact of VAT on branch offices in the UAE and KSA

VAT will affect companies operating in both KSA and the UAE, and official guidelines on the process are expected to be announced shortly. The guidelines will cover the supply of goods and services from a supplier in one GCC country to clients in other GCC countries.

Some intra-company billing and imports will be affected by VAT introduction. Companies will need to document and report intra-GCC transactions and supplies and determine who the importer of record will be.

4. Effect of VAT on businesses whose clients are on their payroll

Salaries and services offered from one company to another within the same VAT registration will not incur VAT. However, the tax is applicable to most services offered by a third party.

Companies that use third-party services for clients locally will be charged VAT by the vendor. The VAT costs will then be passed onto the client receiving the service and will affect their invoice.

Exports are classified in the zero-rated VAT category, meaning the seller collects no output tax and the input tax is fully refundable.

5. Impact on businesses within the exempt category

If goods or services are exempt, then VAT will not be charged to the customer.

Businesses exempt from VAT will not be able to register for VAT and are therefore unable to claim for VAT.

Businesses that are partially exempt will be able to register for VAT and claim on expenses to the extent to which it is incurred in the making of taxable supplies. This means VAT incurred on common costs and overheads will only be claimable only to an extent.

(By experts at Proven Saudi Arabia, the leading business support provider for the KSA)