The General Authority of Zakat and Tax (GAZT) announced that a 5% VAT will be imposed on most goods and services across the Kingdom of Saudi Arabia, pointing out that in terms of VAT application some other goods and services will have a zero-rated, exempt or out of scope status.
As per the VAT implementing regulations, approved by the GAZT Board of Directors, a 5% VAT will be collected on all goods and services across the supply chain up to the end user. The implementing regulations defined the goods and services that will fall under the zero-rated, exempt and out of scope categories.
According to the GAZT, the zero-rated activities include the supply of medications and medical equipment that are qualified and listed by the Saudi Ministry of Health and the Saudi Food and Drug Authority and the supply of gold, silver and platinum for investment purposes, provided that the purity of such metal supplies is not less than 99% and that they are tradable in the international bullion market.
The zero-rated category also includes any exports to a non-GCC country, services supplied to non-GCC residents, the international transport of goods/people and the related services, and the qualified international transport as well as the related services including the supply of spare parts, maintenance, repair and modifications of qualified international transport.
For the exempt activities, the regulations stipulated that certain financial services are exempt from the VAT, including but not limited to, the issuance, transfer, receipt or transactions of cash or securities and the provision of any credit or credit guarantee to clients and life insurance and reinsurance contracts.
According to the regulations, the rents of residential units are exempt from VAT. For the purpose of these regulations, the residential unit is defined as a dwelling designed for permanent human occupation.
Any activity exercised by a government body in its capacity as a public authority – such as issuance and renewal of passports and driving licenses - shall not be deemed to be an economic activity and as such, falls outside the VAT scope and will not be subject to VAT.
The nature of the economic activity is the parameter that determines whether the exchange of goods and services falls under the VAT scope or not, the GAZT noted.
GAZT has called on all businesses to thoroughly read and understand the executive regulations available on VAT website in order to make sure that they are ready for VAT given the fact that only 56 days are left before the VAT application on 1 January 2018.
The VAT official website (VAT.GOV.SA) provides a wide range of tools and information that are considered a reference to support the enterprises to ensure their readiness, as well as visual aids, all the information on registration and preparation for VAT application, and a list of goods and services subject to VAT.