VAT rate increase to 15%

The Kingdom of Saudi Arabia (KSA) implemented an increase in its standard VAT rate from 5 % to 15 %.

The new 15 % VAT went into effect as of 1 July 2020 as part of the tax measures taken to support the economy during the COVID-19 crisis.

The VAT system was introduced in KSA in 2018 as part of the Common VAT Agreement (VAT Framework) agreed upon between the Gulf Cooperation Council (GCC) states with a VAT rate of 5 % to be implemented across all member states.

Taking into consideration that the framework agreement has not yet been implemented in all GCC states to date, it is unsure how the increase in the VAT rate will impact the application of the GCC framework agreement.

Such rate increase is to be agreed upon by the GCC member states and must be announced at least six months before implementation.

The General Authority of Zakat and Tax (GAZT) has issued VAT guidelines regarding the transitional provisions of the rate increase as of July 2020, shedding light on how to deal with the signed contracts and VAT invoices before and after the rate increase and the continuous supplies of goods or services by a taxable entity.

Specifically, for continuous supplies, the guidelines state that, provided that the following conditions are met:

• if the contract is signed before 11 May 2020 between two parties subject to VAT and
• the supplies are continued after 1 July 2020 and
• the customer is entitled to deduct input tax in respect of the supply of goods or services in full,

then the VAT is applied at 5% until the date of expiry or renewal of the contract or until the date of 30 June 2021, whichever comes first.

The guidelines also provide sample transactions where the tax point varies and the rates should apply in each case.