VAT ALERT
Zakat, Tax and Customs Authority has formally published amendments to the VAT Implementing Regulations in the Umm Al Qura Gazette available in Arabic language. These updates aim to improve tax administration, clarify VAT interpretations, and ease compliance for businesses. Given their significance, the amendments require prompt compliance assessment and action from affected sectors.The new regulation includes mainly the following updated VAT articles summarized as below:
- VAT Group Registration: ZATCA has introduced new rules for VAT group registration, requiring tighter eligibility criteria, formal agreements for group formation, and treating the group as a single taxable entity. The amendments also expand ZATCA’s authority to cancel or amend VAT group registrations, with a 180-day grace period granted for existing groups to comply.
- VAT Deregistration: The amended regulations introduced additional cases for VAT mandatory deregistration.
- Definition of Supply of services: The amended regulation has clearly define the supply of services for VAT purposes.
- Nominal Supply: The amendments expand the definition of nominal supplies to include retained goods after business closure or VAT ineligibility.
- Transfer of an Economic Activity: stricter conditions now apply to business transfers, and mandatory notification to ZATCA must be submitted by both parties within one month of the transfer date.
- Date of supply and tax due date in specific circumstances: amended to revise the tax point for deemed supplies upon loss of registration eligibility.
- Exports of goods from the Kingdom: amendment update of VAT treatment for customs suspension zones and exports, with new conditions and documentation requirements.
- Services provided to non-GCC Residents: amendment clarify export of services rules and confirm zero-rating for tourist services under the tax refund scheme.
- Supplies of qualified military goods: amendment simplifies the criteria for qualifying military goods by removing the condition that the supplier must also be the manufacturer.
- Fair Market Value: expands the application of Fair Market Value (FMV) rules to also cover supplies made to affiliated parties.
Summary of Key Amendments (Continued):
- Value of specific taxable supplies – Nominal supplies: the amendment clarify valuation of deemed supplies and confirm that qualifying government payments are not treated as subsidies in certain situation.
- Adjustment to the value of supply: the amendment clarify how supply value adjustments and input VAT treatment on unpaid invoices should be handled, excluding active financing contracts.
- Persons liable to pay tax in special cases: The amendment clarifies the circumstances under which online platforms or marketplaces are deemed to be the supplier for VAT purposes
- Goods and services deemed to be received outside economic activity: the amendment expand the list of non-deductible input VAT items and clarify vehicle-related exceptions.
- Credit and Debit Notes: updated to set a 15-day deadline for issuing credit and debit notes after the month-end of the triggering event.
- Extension of time to pay tax: amended to allow tax installment extensions beyond 12 months with ZATCA Board approval.
- Correction of Returns: amended to set criteria for correcting VAT errors, allow adjustments in future returns, and limit overreporting corrections to within five years.
- Examination and assessment procedures: amended to allow ZATCA to examine returns beyond the standard period with taxpayer consent.
- Appeals: update the basis for filing an appeal (Royal Order No. 25711) has been added.
- Refund of overpaid Tax: amended to allow ZATCA to offset or withhold refunds against outstanding dues and to examine related tax periods within one year of the refund request.
- Refund of Tax to Designated persons: fully restructured to introduce refund thresholds, tighter deadlines, and expanded eligibility for specific entities. Refunds now follow quarterly or annual periods based on applicant type, and might be on monthly basis upon ZATCA confirmation.
Summary of Key Amendments (Continued):
- Refund of tax to Tourists : the amendment introduces a VAT refund scheme for tourists, with clear rules on eligible goods, service provider roles, and required documentation. Tourists from GCC states are temporarily treated as non-GCC residents for refund purposes.
- Publication of Notifications: clarifies the copy of notices in accordance with Article 65 and 66 must be made electronically.
The Takeaway
Businesses across all sectors particularly those involved in VAT groups, cross border trade, digital platforms, or regular refund claims must urgently review their VAT compliance frameworks. This includes reassessing eligibility, documentation, reporting timelines, and platform liabilities to align with ZATCA’s amended regulations and avoid potential penalties or disruptions.
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