All entities and companies with an annual revenue of more than 375,000 Saudi riyals (£77,087, $99,981, €84,175) are required to register with the General Authority of Zakat and Tax (GAZT) by 20 December 2017 via its dedicated VAT website.
“GAZT starts VAT pre-registration. Eligible businesses will receive a notification with further details,” a note on the website said.
There will be a fine of 10,000 Saudi riyals for eligible businesses and entities that do not register by the deadline.
The kingdom’s 250 largest businesses, already registered with GAZT for tax, are being registered automatically for VAT.
Dwindling revenue
Saudi Arabia’s registration deadline comes as part of the efforts from the six Gulf Cooperation Council (GCC) states, which in June 2016 agreed to introduce a 5% VAT on goods and services across the region.
The council’s decision seeks to replace oil revenue as barrel prices remain at around half of their 2014 peak.
The six member states of the GCC union are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
To each its own
Each GCC country is developing its own 5% VAT regime. While there is a requirement for all GCC countries to have VAT in place by the end of 2018, the aim is to implement it by 1 January 2018 to avoid distortions between those who have and have not implemented a tax regime.
In relation to what particular sectors and industries will be exempt from VAT, the official says that the Gulf Cooperation Council countries agree on the basics and the framework of the tax, but individual countries have the authority to exempt certain sectors as it deems fit.
For instance, in the UAE the value-added tax on schools and kindergartens will be imposed at a 0% rate, a consultant in the UAE’s Federal Tax Authority told the Thomson Reuters Zawya news site last month.
At the same time, Saudi Arabia will introduce the 5% VAT rate on private educational institutions in the kingdom, GAZT told Zawya.
Operational challenges
Once a business has their internal systems are in place, registration, reporting and payment will be performed online through the VAT portal.
The change will bring uncertainty and operational challenges according to ratings agency Fitch, which in February warned that the introduction of VAT in GCC countries “will create risks for companies and put pressure on performance and cash flows.”
In particular, the agency referred to the costs associated with new procedures and staff training, the set-up of the IT systems and the compliance costs in collecting tax at a central level and remitting it to the relevant jurisdictions.
Companies that supply goods and services between GCC members or operate within or between free zones are also likely to face additional complexities, as agreements between individual GCC members could vary.
Fines
Implementation of the penalty system for non-registration or non-payment of VAT will begin in January, a GAZT told local newspaper Al Madina.
Other than the 10,000 riyals fine for failing to apply for registration before the deadline, penalties include:
- a fine of up to 25% of the tax due for failing to submit a tax return within the specified period;
- a fine of 5% per month for failing to pay the tax due by the deadline;
- a fine of up to 100,000 riyals for a non-registered person who issues a tax invoice; and
- a fine of up to 50,000 riyals for those failing to keep proper records or hiding them from the authorities.
