kingdom of saudi arabia - vat.gov.sa real... · 4 1version kog rdmfrf vkr seve 1. introduction 1.1....

1Version 1

Version 1

Kingdom of Saudi ArabiaVAT GUIDELINE FOR REAL ESTATE

December 2017

2 VAT GUIDELINE FOR REAL ESTATE

Contents

1. Introduction ...................................................................................................................................... 4

1.1 ImplementingaValueAddedTax(VAT)SystemintheKingdomofSaudiArabia........................ 4

1.1.1 GeneralAuthorityofZakat&Tax(GAZT)......................................................................................4

1.1.2 WhatisVAT?.......................................................................................................................................4

1.2 ThisGuideline..................................................................................................................................... 5

2 Definitions of Key Terms .................................................................................................................. 6

3 Economic Activity and VAT Registration .......................................................................................... 7

3.1 WhocarriesoutanEconomicActivity?........................................................................................... 7

3.2 Suppliesmadebyanaturalperson–saleorrent............................................................................. 7

3.3 Mandatoryregistration..................................................................................................................... 8

3.4 Optionalregistration......................................................................................................................... 9

4 The VAT treatment of Real Estate .................................................................................................. 10

4.1 SaleofRealEstate............................................................................................................................ 10

4.1.1 ContractsconsideredassalesofRealEstate.................................................................................. 11

4.1.2 Exceptionforsalesofowndwellings............................................................................................. 11

4.1.3 Specialrulesfortitletransfersaspartoffinancingproducts........................................................ 11

5 Rental of Real Estate ........................................................................................................................ 12

5.1 ExemptionforrentalofResidentialRealEstate..............................................................................12

5.2 CommercialrentalandothersuppliesofRealEstate.................................................................... 13

5.2.1 Shorttermaccommodation............................................................................................................ 13

5.3 RentalofdualpurposeRealEstate.................................................................................................. 14

5.4 Additionalservices........................................................................................................................... 14

6 Construction ..................................................................................................................................... 15

6.1 ApplicationofVATtoconstructioncontracts................................................................................. 15

6.2 AccountingforVATonconstructioncontracts............................................................................... 15

6.3 Retentionpayments......................................................................................................................... 15

6.4 DeductionofVATincurredduringaconstructioncontract........................................................... 15

7 Place of Supply ................................................................................................................................ 16

7.1 Residenceofsupplier....................................................................................................................... 16

7.2 RealEstateRelatedServices............................................................................................................ 16

7.3 ChargingVATonRealEstate........................................................................................................... 16

7.3.1 KSAresidentSupplier....................................................................................................................... 16

7.3.2 Non-residentSupplierintheKSA.................................................................................................... 17

7.4 RealEstatesituatedoutsideoftheKSA.......................................................................................... 18

3Version 1

8 Input VAT Deduction ....................................................................................................................... 18

8.1 GeneralProvisions............................................................................................................................ 18

8.2 ApplicationtoRealEstate................................................................................................................ 19

8.2.1 TimingofInputVATdeduction.......................................................................................................19

8.2.2 CapitalAssets.................................................................................................................................... 19

8.3 Partialdeduction:attributionofInputVAT.................................................................................... 20

9 VAT reporting ................................................................................................................................... 21

9.1 Dateofsupply.................................................................................................................................. 21

9.1.1 SaleofRealEstate............................................................................................................................ 21

9.1.2 Rentalandcontinuoussupplies....................................................................................................... 22

9.2 Issuinginvoices................................................................................................................................ 22

9.3 FilingVATReturns............................................................................................................................ 23

9.4 Keepingrecords............................................................................................................................... 23

9.5 Yourobligations............................................................................................................................... 23

9.6 Requestingaruling.......................................................................................................................... 24

9.7 Correctingpasterrors...................................................................................................................... 24

10 Penalties ........................................................................................................................................... 25

11 Transitional Rules related to Real Estate ........................................................................................ 25

11.1 Actualdateofsupply....................................................................................................................... 26

11.2 ContinuoussuppliesspanningVATintroductiondate................................................................... 26

11.3 ReliefforcontractsnotanticipatingtheapplicationofVAT(‘grandfathering’)......................... 27

11.3.1 Certification...................................................................................................................................... 29

11.3.2 Residentialrental............................................................................................................................. 29

12 Contacting us ................................................................................................................................... 29

Appendix: Frequently Asked Questions..................................................................................................... 30


1. Introduction

1.1. Implementing a Value Added Tax (VAT) System in the Kingdom of Saudi Arabia (KSA)

The Unified VAT Agreement for the Cooperation Council for the Unified Arab States of the Gulf(the“Agreement”)wasapprovedbyKSAbyaRoyalDecreeNo.M/51,dated3/5/1438H.TheSaudiArabianNationalVATLawissuedbyaRoyalDecreeNo.M113dated2/11/1438HanditscorrespondingImplementingRegulationsweresubsequentlyissuedbytheBoardofDirectorsoftheGeneralAuthorityofZakatandTax(“GAZT”)byResolutionNo.3839datedon14/12/1438H.

References in this guideline are related to “the Unified VAT Agreement”, the “VAT Law” and the“Implementing Regulations”.

1.1.1 General Authority of Zakat & Tax

GAZT,alsoreferredtoas“theAuthority”therein,istheauthorityinchargeoftheimplementationandadministrationofVATinKSA;inadditiontotheregistrationandderegistrationoftaxablepersonsforVAT;theadministrationofVATreturnfilingandVATrefunds;andundertakingauditsandVATvisits.GAZTalsohasthepowertolevypenaltiesfornon-compliancewithVATregulations.

1.1.2 What is Value Added Tax?

ValueAddedTax(“VAT”)isanindirecttaxwhichisimposedonmostgoodsandservicesthatareboughtandsoldbybusinesses,withafewlimitedexceptions,whichisimplementedinmorethan160countriesaroundtheworld.

VATisataxonconsumptionthatispaidandcollectedateverystageofthesupplychain,startingfromwhen a manufacturer purchases raw materials until a retailer sells the end-product to a consumer.Unlikeothertaxes,certaineligiblebusinesseswillboth:

• collectVATfromtheircustomersequaltoaspecifiedpercentageofeacheligiblesale;and

• payVATtotheirsuppliersequaltoaspecifiedpercentageofeacheligiblepurchase.

WhenaVAT-registeredbusinesssellsagoodorservice,a5%VATcharge–assumingastandardcase–isassessedandaddedtothesalesprice.Thebusinesswillaccountforthat5%fromalleligiblesalesseparatelyfromitsrevenueinordertolaterremitaportionofittotheAuthority.TheVATabusinesscollectsonitssalesiscalledOutputVAT.

Thatsamebusinesswillalsopay5%VATontopofthegoodsorservicesitpurchasesfromothertaxablebusinesses.TheVATabusinesspaystoitssuppliersiscalledInputVAT.

FurtherinformationaboutVATcanbefoundintheKSAVATManualoratvat.gov.sa

5Version 1

1.2 This Guideline

ThepurposeofthisguidelineistoprovideadditionalclarificationwithrespecttotheVATtransactionsinbothcommercialandresidentialrealestatesectors.

ThisguidelineisdirectedforbusinessesandindividualsinvolvedintheRealEstatesector,includinganypersonswhobuy,sell,orleaseresidentialorcommercialproperty.

Thisguideline is issuedbyGAZTfor informationonly. It representsGAZT’sviewsontheapplicationand fair treatmentof theUnifiedVATAgreement, theVATLawand the ImplementingRegulationsconcerningtheRealEstatesectorasofthedateofthisguideline,butdoesnotinclude,orpurporttoinclude,alltherelevantprovisionsinrelationtotherealestatesectorfromthoselaws.ItisnotbindingonGAZToronanytaxpayerinrespectofanytransactioncarriedoutanditcannotberelieduponinanyway.

Forfurtheradviceonspecifictransactionsweencourageyoutoapplyforaruling;orsendanemailto [email protected];or visit theofficialVATwebsiteat (vat.gov.sa),which containsawide rangeofreferencetoolsandinformationtosupportthetaxpayersandenterprises,aswellasvisualguidancematerials, relevant information, and FAQs.


2. Definitions of Key TermsReal Estate refers to land and buildings. It is defined by the Implementing Regulations1 for VATpurposes to include:

a) anyspecificareaoflandoverwhichrightsofownershiporpossessionorotherrightsinremcanbecreated

b) anybuilding,structureorengineeringworkpermanentlyattachedtotheland

c) oranyfixtureorequipmentwhichmakesupapermanentpartoforispermanentlyattachedtothebuilding,structureorengineeringwork.

Residential Real Estate refers to property intended for use as a residence. It is defined for VATpurposes as:

“Apermanentdwellingdesignedforhumanoccupation,includingimmovablepropertyusedorintendedtobeusedasahome,suchashouses,flatsandapartments;andotherRealEstateintendedasaperson’sprimaryresidence,includingresidentialaccommodationforstudents.”2

Residential Real Estate includes the boundaries legally assigned to the property, including gardens,garagesoranyotherfeaturethat isconsideredapermanentpartof theproperty.3

Commercial Real Estatereferstorealestateusedforbusinesspurposesoranyothernon-residentialpurposes.ItisnotadefinedtermforVATpurposes.

Economic Activity defines the activities which fall within the scope of VAT. This includes businessactivitiesbutalsoanyotherongoingactivitieswhichmaybecarriedonbynaturalpersons.ThetermisdefinedbytheUnifiedVATAgreement4forVATpurposesas:

an activity that is conducted in an ongoing and regular manner including commercial, industrial,agriculturalorprofessionalactivitiesorServicesoranyuseofmaterialorimmaterialpropertyandanyother similar activity.

ActivitiesfallingwithinthescopeofEconomicActivitywithintherealestatesectorarediscussedsetforthinthisguideline.

Taxable Person or VAT registered person is any person–includinganybusinessoranyindividual-whocarriesonanEconomicActivity independently for thepurposeofgenerating income,who isregisteredorobligedtoregisterforVATwithGAZT.5

Residentisatermdefiningaperson(businessorindividual)whohasaplaceofresidenceintheKSAforVATpurposes,andanon-ResidentisapersonwithnosuchplaceofresidenceintheKSA6.TherulestodetermineresidencearediscussedinmoredetailinSection7(PlaceofSupply).

1Article23(1),[RealEstaterelatedservices],ImplementingRegulations.2Article30(2),[LeaseorlicenseofResidentialRealEstate],ImplementingRegulations.3Article30(4),[LeaseorlicenseofResidentialRealEstate],ImplementingRegulations.4Article1[Definitions],UnifiedVATAgreement.5Article2[TaxablePersonsrequiredoreligibletoregisterintheKingdom],UnifiedVATAgreement.6Article1[Definitions],UnifiedVATAgreement.

7Version 1

3. Economic Activity and VAT Registration

3.1 Who carries out an Economic Activity?

AllbusinessesthatcarryonanEconomicActivityarerequiredtocomplywithobligationstoregisterforVATwhererequired:andallVATregisteredbusinessesmustcollectandremitVATontheiractivities.

Businesscanbecarriedonbyalegalperson,suchasanincorporatedcompany,orbyanaturalperson(anindividual).Providedthatanincorporatedcompanyhasaregularactivitymakingsupplies(salesorincome),itwillbepresumedtohaveanEconomicActivity.

NaturalpersonsmayenterintotransactionsaspartofanEconomicActivity,oraspartoftheirprivateactivity.Astherealestatesectoroftenseesindividualssellingorrentingproperties,therearespecificrulestodeterminewhenanaturalpersonfallswithinthescopeofVAT.

3.2 Supplies made by a natural person – sale or rent

GenerallyanyregularactivityinvolvingmakingsuppliesofRealEstatebyanaturalpersonisconsideredanEconomicActivityforVATpurposes.IntheRealestatecontext,thisincludesanyrentalcontractonwhichrevenueiscollected.RentalswillthereforealwaysbecarriedonaspartofanEconomicActivity,althoughrentalofresidentialRealEstatewillbeexemptfromVATasdiscussedinmoredetailunderSection5(RentalofRealEstate).

AspecificruleappliestosalesofRealEstate.Inallcases,thesaleofanyproperty(whethercommercial,residential, or bare land etc.) will be considered an Economic Activity. However, this excludes caseswherethepropertybeingsoldwasusedorintendedtobeusedasapermanentdwellingbytheseller,oroneoftheseller’sclosefamilymembersbeforethesale.7

Aclosefamilymemberisanyrelativetothefourthdegree(includingaparentorgrandparent,childorgrandchild,sibling,aunt,uncle,nepheworniece,cousin,aspouse,orabrother-in-law/sister-in-law).8

Accordingly,whereapersonsellstheirownhomeorthatofaclosefamilymember,thiswillbepresumedtobeaprivatetransaction,i.e.notanEconomicActivity,andnotsubjecttoVAT.

WhensalesofpropertybyanaturalpersondoesnotfallwithintheexceptionstatedinthisSub-Section,suchpersonswillbeconsideredtobecarryingonanEconomicActivity.SuchnaturalpersonsshouldthusregisterforVATwhererequiredbasedontheregistrationtestsdescribedbelowunderSection3.3.

7Article9(7),[Registrationprovisionsapplyingtospecificcircumstances],ImplementingRegulations.8Article37(2)[RelatedPersons],ImplementingRegulations.


Company / Business Individual

A business carrying on Economic Activity for VAT purposes

Consider rules for mandatory or optional VAT registration

Ongoing activity: e.g.property speculation or rental One off sale of property

Sale of otherproperty

Seller’s own house,or house of closefamily member

No EconomicActivity

Not aVAT-relevanttransaction

3.3 Mandatory registration

Registrationismandatoryforallpersonswhoseannualturnoverexceedsacertainthreshold.Ifthetotalvalueofaperson’staxablesalesduringany12monthsperiodexceedsSAR375,000(the“mandatoryVATregistrationthreshold”),thatpersonmustregisterforVATonthesaleandanyothertaxablesuppliesmade.910

Thetotaltaxablesalesdoesnotinclude11:

• Exemptincome–suchasanyresidentialrentalwhichqualifiesforVATexemption;

• SaleswhichrelatetorealestateoutsideoftheGCCStates;or

• Capitalassets–ingeneral,acapitalassetisconsideredtobeanassetintendedforlong-termbusinessuse12.Inarealestatecontext,GAZT’spositionisthatanyrealestatethathasbeenusedinabusinesscapacityforfiveyearsormoremaybeconsideredtobeacapitalasset.However,realestatewhichispurchasedwiththeintentionofresaleisnotacapitalassetandcountstowardstheregistrationthreshold.

Example:Abdullahhasaresidentialpropertywhichhehasrentedtoprivatetenantsfor12years.In2020,hesellsthepropertytoaninvestorforSAR1.5million.Neithertheexemptrental income nor the sale of the property as a capital asset are counted towards the VATregistration threshold. Abdullahdoesnotneed to register forVAT.

9Article50(1)(2)[MandatoryRegistration],UnifiedVATAgreement.10Article3[MandatoryRegistration-SuppliesExceedtheMandatoryRegistrationThreshold],ImplementingRegulations.11Article52[CalculatingtheValueofSupplies],UnifiedVATAgreement.12Article1[Definitions],UnifiedVATAgreement.

9Version 1

IfAbdullahhadpurchasedthehousein2019,thesalein2020wouldnotqualifyasalong-termcapitalasset.AbdullahwouldberequiredtoregisterforVATashisannualsalesexceedthemandatory threshold.

Incertaincircumstances,othertestswillapplyformandatoryregistration:

• Non-ResidentbusinessesarerequiredtoregisterwheretheymakeanyvalueofsalesforwhichtheyareobligedtocollectandpaytheVAT13

• During the transitional period (ending 1 January 2019), businesses with an annualturnoverexceedingSAR375,000butnotexceedingSAR1,000,000aregrantedagraceperiod for registration up to 1 January 2019 (provided applications to register aresubmittedno later than20December2018).14 Thisgraceperioddoesnotapply tobusiness with a turnover exceeding SAR 1,000,000.15

MoreinformationonmandatoryregistrationforVATmaybefoundatvat.gov.sa

3.4 Optional registration

AnyResidentpersonwhohastaxablesalesortaxableexpensesexceedingthe“optionalVATregistrationthreshold”ofSAR187,500inatwelve-monthperiodmayregisterforVATonavoluntarybasis.1617

OptionalVATregistrationmaybedesirablewhereabusinesswishestoclaimVATchargedtoitontheircostsbeforeinvoicesareraisedortheoccurrenceofanonwardsupply.

Example:ABCLLCisaKSAcompanywhohasacontracttoconstructacommercialbuildinginRiyadh,withinvoicesforitsmilestonepaymentsabletoberaisedstartingfromJanuary2020.However,itincurssignificantcostsofSAR2millionfromlocalsuppliersduringthefirstquarter2019inrespectoffeasibilityandplanningstudies,beforeanyinvoicesareraisedtoitscustomer.ABC LLC is able to register on an optional basis as its annual taxable expenses exceed thevoluntaryVATregistrationthreshold.

MoreinformationonvoluntaryregistrationforVATiscontainedatvat.gov.sa

13Article5(1),[MandatoryregistrationofNon-ResidentsobligatedtopayTaxintheKingdom],ImplementingRegulations.14Article79(9)[TransitionalProvisions],ImplementingRegulations.15Article79(9)[TransitionalProvisions],ImplementingRegulations.16Article7[VoluntaryRegistration],ImplementingRegulations.17Article51[VoluntaryRegistration],UnifiedVATAgreement.


4. The VAT treatment of Real Estate Bydefault,VATisappliedtoanyRealEstatetransactionsituatedintheKSA.However,someexceptionsapplyforResidentialRealEstatetransactions.

Sale of Residential Real Estate is standard rated. However sale of Residential RE is not anEconomicActivity(thusoutsidetheVATscope)ifpriortosupply,theREwasusedorintendedforuseasapermanentdwellingbythePersonorbyarelativetothe4thdegree.[Article9(7),Implementing Regulations].

BelowisasummaryoftheVATtreatmentofRealEstateinKSA:

4.1 Below is a summary of the VAT treatment of Real Estate:Sale of Real Estate

Thesale–bywayoftransferofownership–ofRealEstatesituatedintheKSAisconsideredasupplyofgoodsforVATpurposesand is subject toVATat5%.Thisapplies regardlessofwhetherornotthesupplierorrecipientisaResidentintheKSA.

Thestandardrateof5%appliestosalesofallRealEstate.Therefore,thisincludes:

• Thesaleofahouse,apartmentorotherResidentialRealEstate

• ThesaleofanycommercialRealEstate;

• Anytransferofownershipofbareorundevelopedland;

• Thesaleofpartlycompletedconstructionworks.

Commercial Estate Residential Real Estate

Sale Rent Sale

Standard Exemption

Rent

out ofscope exempt5% 5% 5%

Sale of Residential Real Estate is standard rated. However sale of Residential RE is not an Economic Activity (thus outside the VAT scope) if prior to supply, the RE was used or intended for use as a permanent dwelling by the Person or by a relative to the 4th degree. [Article 9(7), Implementing Regulations].

11Version 1

4.1.1 Contracts considered as sales of Real Estate

ThetransferoffreeholdtitleinapropertyforconsiderationisasaleofRealEstate,whichtherecipientobtains“full”ownership,beingtherighttodisposeofthatproperty.

AnyothertransactionwhichhastheeffectofgivingtherecipientrightsoffullownershipinRealEstate,orwhichprovidestheoptiontoacquireorobtainfullownershipoftheRealEstateisalsoconsideredasupplyofgoodsandisthereforesubjecttoVAT.18

Example: A finance lease in Real Estate is an agreement which generally allows the lesseepossessiontotheRealEstateforasetperiod,withthelesseehavingtheoptiontoacquireorobtainfreeholdtitleatthecompletionofthecontractonpaymentofa‘balloonpayment’.Asthisleasecontemplatesthetransferofownership,itisconsideredasasupplyofpropertyasgoodsforVATpurposes(whetherornotfullownershipdoeslatertransfer).

AllpaymentsmadeundersuchacontractfortheRealEstate,includinganyballoonpaymentdue at completion, relate to the supply of the Real Estate. The financing component ofpaymentsmadeunderafinanceleasemay,however,betreatedasanexemptfinancialservice.AseparateguidelineprovidesfurtherinformationontheVATtreatmentoffinanceleases.

4.1.2 Exception for sales of personal dwellings

AnexceptiontotheaboveruleisappliedonthesaleofResidentialRealEstate.Priortothesupply, if theRealEstatewasusedor intendedtobeusedasapermanentdwellingbythePerson,orbytherelatedperson,itfallsoutsidethescopeofVATasitisnotconsideredtoformpartofanEconomicActivity.

Furtherdetailonsalesbynaturalpersonsisdiscussedinsection3.2above.

4.1.3 Special rules for title transfers as part of financing products

Insomecases,aspartofspecificfinancialservicesproducts(suchasloantopurchaselandorIslamicfinancingproducts),thetitletoaspecificpieceofRealEstatewillpasstothefinanceproviderorathirdparty.However,itisnotintendedthatpossessionoftheRealEstatewillchangeasthetitleisreturnedbackattheendofthecontract.

Inthesecases,thetitletolandisheldasasecurityonly;therighttodisposeofthepropertyisnottransferred(unlessanothereventsuchasadefaulttakesplace).Assuch,thetransferoftitlewithouttherighttodisposeofthepropertyisnotconsideredasupplyforVATpurposes19.Further information on these special rules is provided in a separate guideline on financialservices.

Example: Khalid requires financing and seeks a debt security against his personal propertypurchasedforSAR2.1million(price includesSAR100,000VAT inJune2018.ABCFinancingoffersadebtsecurity,butrequiresKhalidtotransferthetitledeedtohispropertyascollateral.ABCFinancingisunabletodisposeoftheproperty,unlessKhaliddefaultsonthedebtsecurity.ThetransferofthetitledeedtoABCFinancing,andthereturnofthetitledeedattheconclusionofthedebtsecurity,isnotconsideredasupplyofthepropertyforVATpurposes.

18Article5[SupplyofGoods],UnifiedVATAgreement.19Article29(4)[FinancialServices],ImplementingRegulations.


ForVATpurposes,thetransactionsarecategorizedasfollows:

1. HousesellersellsthepropertytoKhalid.VATischarged,whichisnotdeductibletoKhalid for thepurchaseofproperty.

Supplyofpropertybyhouseseller

ValueofSAR2,000,000 VATchargedat5%:SAR100,000collectedandpaidtoGAZT

2. ABCFinancingprovides loanofSAR1,000,000toKhalid. NoVAT ischargedontheissueofadebtsecuritybyABCFinancing.Thetransferofthetitleascollateralisnotasupplyofproperty.

ProvisionofloanbyABCFinancing

ValueofSAR1,000,000 VATexempt–noVATcollected

ProvisionoftitledeedascollateralbyKhalid

Noseparatevalue–usedascollateralonly

NosupplyofgoodsorservicesbyKhalid–noVATcollected

3.KhalidmakesmonthlyrepaymentsofSAR25,000overthecourseoftheloan–acrossafour-yearperiod,hepaysSAR1,2000,000.TheprofitelementearnedbyABCFinancingisVATexempt.

RepaymentsbyKhalidtoABCFinancing

MonthlyvalueofSAR25,000 ProfitelementisVATexempt–noVATcollected

4.Oncetheloanisrepaid,ABCFinancingreturnsthetitleofthepropertytoKhalid.Thetransferofpropertybyabusiness isusuallyasupplyofgoods–butthetransferofcollateralisnotthesupplyofproperty.

RepaymentsbyKhalidtoABCFinancing

MonthlyvalueofSAR25,000 ProfitelementisVATexempt–noVATcollected

Inthisexample,VATisonlycollectedontheinitialsupplyoftherealestate.NoVATarisesfromthepropertyfinancingprovidedbyABCFinancing.

5. Rental of Real EstateRentalisasupplybywayofleaseorlicenceofanyproperty.Inarealestatecontext,thisisdesignedtoincludeallagreementswhichallowapersontooccupyoruseRealEstatewithouttransferofownershiporequivalentlong-termrightsinaproperty.

Anexemptionappliestotherentalofrealestateforresidentialpurposes.

Afinance lease (orany lease-to-ownarrangement),wherethe lessee isgiventheoptiontoobtainfullownershipatalaterpoint,isconsideredasasaleoftheRealEstateasgoods.Suchtransactionsdonotqualifyfortheexemptionforresidentialrental.

5.1 Exemption for rental of Residential Real Estate TherentalofResidentialRealEstateintheKSAisexemptfromVATprovidedthat20:

20Article30[LeaseorLicenseofResidentialRealEstate],ImplementingRegulations.

13Version 1

• Thepropertyisapermanentdwellingdesignedforhumanoccupation;and

• Thepropertyisintendedforuseasaprimaryresidence.

The exemption for Residential Real Estate applies to the rental of properties used as theresidenceofanindividual,familyorothergroupofnaturalpersons.Thiswillincludehouses,flatsandapartmentsusedasa“primary residence”.

Aprimaryresidencemayalsoencompassotherdwellings,suchasresidentialaccommodationforstudents,oremployees–providedthisisadwellingwhichthepersonorpersonsuseasaprimaryresidenceonaregularorhabitualbasisandreturnsbacktoafterperiodsofabsence.Itisnotrequiredthataprimaryresidencebeaperson’ssoleplaceofresidence.

Example:Abdullah’sfamilylivesinthemainfamilyhomeinLebanon,butAbdullahworksinAlKhobar,andrentsanapartmentwherehestaysfromSundaytoThursdayeachweek.Theapartment isusedbyAbdullahonaregularbasisashisprimaryresidence,despitehimalsohavingahomeinLebanon.

Example:ABCSchoolhasonsiteboardingunitswherepupilsliveduringtheschooltermforanadditionalfee.Thisisthepupil’sprimaryresidenceduringtheschoolterm,towhichtheywillreturnaftereachschoolholiday.TheprovisionofaccommodationintheboardingunitsareaprimaryresidenceandthechargesbytheschoolareexemptfromVAT.

Apropertyusedasseasonalholidayaccommodation,orasshort-termworkeraccommodationwillnotbeviewedasResidentialRealEstate.TherentalofthisaccommodationwillbesubjecttoVATat5%.

Temporaryaccommodationinhotels,inns,guesthouses,motels,servicedaccommodationoranyotherbuildingthatisdesignedtooffertemporaryaccommodationtovisitorsortravellersarenotconsideredasResidentialRealEstateanddonotqualifyforexemption.

Example:Afourmonthstaybyatravellerinabuildingofferingservicedapartmentsisnotasupplyofresidentialrentalastheservicedapartmentsarenotheldoutforrentalasresidentialunits. Only accommodation held out for rental as residential units and used as a regularresidencequalifyforexemption.Therefore,theaccommodationwillbesubjecttoVATat5%.

5.2 Commercial rental and other supplies of Real EstateAllothersuppliesofRealEstateintheKSAthataremadeaspartofanEconomicActivityaretaxable.

ThisincludestheleaseorlicenceofanycommercialpropertyoranyotherpropertywhichdoesnotqualifyasResidentialRealEstate.Thisincludes,forexample:

• Annualleaseofofficeblocks;

• Rentalofaplotofvacantland(regardlessofwhetherthisiszonedascommercialorresidential property);

• Alicencetouseamanufacturingorindustrialfacility.

ThezoningoflandascommercialorresidentialdoesnotaffecttheVATtreatment.AnysupplieswhichdonotmeettheexemptionforResidentialRealEstatearesubjecttoVATat5%.

5.2.1 Short term accommodation

The provision of accommodation or lodging in a hotel, motel, guest house, servicedaccommodationorsimilarestablishmentdoesnotqualifyforVATexemptionasaresidentialrental21.Aguestinthesefacilitiesdoesnotstayhereasaregularorprimaryresidence;these

21Article30(3),[LeaseorlicenseofResidentialRealEstate],ImplementingRegulations


areusedastemporaryaccommodationonly.Anybuildingwhichisdesignedtooffertemporaryaccommodation to visitors or travellers, or which holds itself out as the provider of thisaccommodation does not qualify for exemption.

Similarly,hostedaccommodationandotherrentalofferedthroughonlineplatformsandheldoutforuseasshort-termaccommodationwillbepresumedtobeshort-termaccommodationandsubjecttoVAT(providedthesupplierisaVAT-registeredperson).

Thereisarangeofaccommodationofferingsinthemarket,andtheindividualcharacteristicsofthesemaydifferinpractice.TodeterminewhethertheVATexemptionapplies,thesupplyshouldbeassessedbasedon:

a)whetherthepropertywillbeusedasaregularresidence;and/or

b)whetheritisheldoutforrentalonashort-termorservicedbasis.

Forexample,seasonalorholidayaccommodationisnotusedasaregularplaceofresidence,andthereforedoesnotqualifyforVATexemptionastherentalofresidentialaccommodation.

5.3 Rental of dual purpose Real Estate

IncaseswherealeaseorlicenceisgrantedtothesameRealEstateforbothresidentialandcommercialornon-residentialpurposes,suchasabuildingwithcommercialtenantsoccupyingthelowerfloorsandresidentialdwellingsontheupperfloors,thisisamixedsupplyofbothtaxable and exempt Real Estate. VAT should therefore be charged on the portion of thesupplieswhichrelatetothecommercialornon-residentialuse.

Incaseasinglepriceischargedforthewholebuilding,includingboththeresidentialandnon-residentialparts,thelessormustsplitthevalueofthesupplyinawaythataccuratelyreflectsthevalueoftherelevantcomponents.Inamixedbuilding,asplitbasedontheproportionoffloorspacebetweenresidentialandnon-residentialpartsmaybeusedasadefaultunlessthisdoesnotaccuratelyrepresentthevalueofthecomponentsofthebuilding.Commonareasmaybesplitdependingonestimatedusage,ordisregardedwheretheseareancillarytotheremainderoftheproperty.Itisthesupplier’sresponsibilitytoreviewanyapportionmenttoensurethatitaccuratelyreflectsthecorrespondingvaluesoftaxableandexemptsuppliesmade.

Example:IbrahimownsafifteenfloortowerinRiyadh,withfivefloorsbeingusedforcommercialactivitiesandtheothertenbeingregularresidentialapartments.

HechargesapropertymanagementcompanyanannualleaseofSAR150million.Usinganapportionment based on floor space, VAT would only be charged on the non-residentialcomponent of the lease, being SAR 50 million.

5.4 Additional services

Inmanycases,alandlordmaymakeanadditionalchargeforservicesprovidedinconnectionwith the rental of commercial or Residential Real Estate – for example: maintenance fees,chargesforutilities,carparkingetc.ChargesforadditionalservicesaregenerallyaseparatesupplyofserviceswhichwillbesubjecttoVATinaccordancewiththenormalVATtreatmentapplyingtothosesupplies.TheydonotfallwithintheexemptionforrentalofResidentialRealEstate,evenwhereprovidedinconnectionwitharesidentialcontract.

15Version 1

Example:AlandlordrentsmultipleapartmentstoindividualtenantsforSAR5,000permonth.Therearealimitednumberofcarparkingspaces,sotenantsmaychoosetopayanadditionalSAR300permonthformonthlyuseofthecarpark.TherentalisexemptfromVAT,buttheoptionalchargeforcarparkusageischargedwithVAT.

6. Construction6.1 Application of VAT to construction contractsAllconstructionservicesperformed intheKSA,oranycontracttoconstructaresidentialorcommercialbuildingintheKSA–includingtheactivitiesofsub-contractorsonanysuchproject-isasupplyofserviceswhichissubjecttoVATatthe5%rate.

ThisincludesEngineering,ProcurementandConstructioncontracts(EPC)andLumpSumTurnKey(LSTK)contracts.Whilstthesecontractsinvolvetheprovisionofcomponentparts,theyareseenintotalityasonecontractforservices.

6.2 Accounting for VAT on construction contractsTheprovisionofconstructionservices isconsideredtobea“continuous”supplyofservices.Therefore, VAT becomes payable based on each progressive payment, according to thefollowing rules:

• Wherecontractshave specifiedpaymentduedatesat setmilestones,VATbecomespayableontheduedateorthedateofactualpayment,whichevercomesfirst.22

• In all other cases, VAT becomes payable for each progress payment at the date ofissuing the invoice or the date of actual payment, whichever comes first.23

FurtherdetailsondeterminingthedateofsupplyisgiveninSection9[VATReporting].

6.3 Retention paymentsApartofthepaymentduetotheserviceproviderunderthecontractmaybewithheldasaretentionpaymentbythedeveloperorrecipientuntiltheworkiscertifiedascomplete.Theretentionpaymentdoesnotaffecttheaboverules:VATwillstillbedueonthebasisofthefullamountinvoicedorfullamountdueatthatmilestone.

6.4 Deduction of VAT incurred during a construction contractAcontractorisabletoregisteronanoptionalbasiswhereitsexpensesexceedthevoluntaryVATregistrationthresholdofSAR187,500(seeSub-Section3.4OptionalVATRegistrationforfurtherdetail).Thisallowscontractorstoregisterbeforeinvoicesareabletoberaisedinrespectofaconstructionproject.

ForanyVAT-registeredperson,deductionofinputVATchargedonmaterials,sub-contractors,orothersuppliersisavailableinthemonthlyorquarterlyperiodinwhichitisincurred,onthebasisthatitisintendedforuseinaconstructionprojectonwhichthatpersonwillchargeVAT.

22Article20(1)[DateOfSupplyInSpecificCircumstances],ImplementingRegulations.23Article20(2),[DateOfSupplyInSpecificCircumstances],ImplementingRegulations.


7. Place of Supply

7.1 Residence of supplier

Where a supply of Real Estate is made by a Resident Supplier, that Supplier is responsiblefor registering forVAT (inaccordancewith the registration rules)andchargingVATat theappropriaterate.AResidentSuppliermaybeacompanyifitisformedunderSaudiArabianregulationsor if itscentralmanagementis locatedintheKSA. IfacompanyorotherlegalpersonisincorporatedoutsideoftheKSA,buthasabranch,placeofbusinessorothertypeoffixedestablishmentintheKSA,thatcompanyisalsoaResident.24

7.2 Real Estate Related Services

ThereareparticularrulestodeterminethecountryinwhichVATischargedonmostprovidedservicesrelatedtoRealEstate,i.e.,”RealEstate-relatedservices”.

RealEstate-relatedservicesarethosewhichaffectorarerelatedtoaspecificareaofRealEstateortoaspecificsiteofimmovableproperty.25

Generally,servicesthatarerelatedtoRealEstatearethoseserviceswhereaspecificareaofRealEstateisanintegralpart.Forexample,therentalofRealEstate,orprovisionofaccommodationinvolvesthesupplyofaspecificareaofRealEstatethatisacentralpartoftheservice.Therefore,thisisasupplyofRealEstate-relatedservices.

ServiceswhichaffectRealEstatearethosedesignedtolegallyorphysicallyalteraspecificareaofRealEstate.Thisincludes,butisnotlimitedto,thefollowingexamples:

Legally altering land – includes professional services such as those supplied by estateagents,auctioneers,architects,surveyors,engineersandothersinvolvedinmattersrelatingtoaRealEstate.

Thisdoesnot includegeneralconsultancyprovidedbytheseprofessionalswhichdoesnotrelatetoaspecifiedproperty.

Physically altering land -construction,demolition,conversion,reconstruction,alteration,enlargement,repairormaintenanceofabuildingorRealEstate.

7.3 Charging VAT on Real EstateAllsalesofRealEstateintheKSA,andservicesrelatingtoRealEstateintheKSAwillbesubjecttotheVAT26,regardlessofthecountryinwhichthesupplierorrecipientresides.TheresidenceofthesupplierandrecipientonlyaffectsthemechanismforhowVATischarged.

7.3.1 KSA resident SupplierAResidentSuppliermustissueataxinvoiceforasupplyonwhichVATischarged.

Fortaxablesuppliessubjecttothestandard5%rate,VATischargedat5%ofthetotalvalueofthesupply.ThevalueofthesupplyistheVAT-exclusiveamount.Dependingontheagreement

24Article1[Definitions],UnifiedVATAgreement.25Article23(2)[RealEstateRelatedServices],ImplementingRegulations.26Article19,[SupplyofRealEstateRelatedServices],UnifiedVATAgreement.

17Version 1

betweenthesupplierandthecustomer,theVATwilleitherbecalculatedinadditiontotheagreedprice,oraspartofaVAT-inclusiveprice.

Incaseswherethesupplierreceivesasingle(VAT-inclusive)amountofconsiderationforthesupply,VATisincludedwithintheconsiderationreceived(calculatedas5/105oftheamountreceived).Inthiscase,thevalueofsupplyistheamountofconsiderationminusVAT.

Furtherinformationonspecialrulesfor‘grandfathering’existingcontractsissetoutinSection11below.

Example:ABCLLCchargesXYZWLL,aBahraini company, for rentalofvacant landnear toDammam.AsthelandissituatedintheKSA,ABCLLCmustchargeKSAVATonthesupplyofservices.

ThepriceisagreedatSAR6,000permonth.Ifthepriceisexpressedas“VATexclusive”,orthecontractallowsABCLLCtochargeVATontopoftheprice,theinvoicewillshow:

MonthlyRental 6,000 (Valueofthesupply)

VATat5% 300 (Vat=Valuex5%

Totaldue 6,300 (Totalconsiderationpayable)

Ifthepartiestothecontracthaveagreedthatthepriceis“VATinclusive”,theVATmustbecalculatedas5/105ofthetotalprice.Theinvoicewillshow:

MonthlyRental 5,714.29 (Valueofthesupply)

VATat5% 285.71 (VAT=considerationx5/105)

Totaldue 6,000 (TotalVAT-inclusiveconsiderationpayable)

7.3.2 Non-resident Supplier in the KSAIfasupplyofRealEstateismadebyanon-ResidentSuppliertoarecipientresidingintheKSAandisregisteredforVAT,theSuppliershouldnotchargeVAT. Therecipient isresponsibleforreportingVAT(attheappropriaterate)ontheirVATreturnthroughthereversechargemechanism. The non-Resident Supplier would not need to register for VAT with GAZT toreportthesesupplies,andisnotsubjecttotherequirementsforissuingtaxinvoices.FurtherinformationonthereversechargemechanismisprovidedintheVATManual.

Example:XYZWLL,aBahrainicompanychargesABCLLC,aKSAcompany,forpaintingtheircommercialpremisesinDammam.AstheservicesareconnectedwithRealEstateintheKSA,VATischargeableintheKSA.However,asthesupplierisanon-ResidentandABCLLCisregisteredforVAT,itisABCLLCwhomustreporttheKSAVATonthesupplyofservices.


ThepricefortheservicesareagreedatSAR4,000.Theinvoicewillshow:

Services 4,000 (Valueofthesupply)

CustomertoaccountforVATundertheReverseChargeMechanism

- (Customerwillself-accountforVATat5%ofthevalue)

Totaldue 4,000 (Totalconsiderationpayable)

NoVATwillbeshownontheinvoice,butthecustomer,ABCLLC,willincludetheimportedserviceinBox9ofitsVATreturn:

Amount(SAR) VATAmount(SAR)

9 ImportssubjecttoVATaccountedthroughReverseChargeMechanism

4,000 200

Ifasupplyismadebyanon-Residentsuppliertoacustomerwhoisnotregistered,thesupplierisresponsibleforregisteringforVATandchargingVATasappropriate.

7.4 Real Estate situated outside of the KSAThe supply of Real Estate situated outside of the KSA falls outside the scope of KSA VAT.Likewise,thesupplyofRealEstaterelatedservicesinconnectiontoRealEstatesituatedoutsideoftheKSAarenotsubjecttoVATinKSA.27

8. Input VAT Deduction8.1 General ProvisionsAVATregisteredpersonmaydeductInputVATchargedongoodsandservicesitpurchasesorreceivesinthecourseofcarryingonitsEconomicActivity.InputVATmaybedeductedon:

• VATchargedbyaVAT-registeredsupplierintheKSA;

• VATself-accountedbytheVAT-registeredpersonundertheReverseChargeMechanism;or

• ImportVATpaidtotheCustomsDepartmentonimportsofgoods.

As a rule, input VAT which is related to the taxpayer’s VAT exempted activities, such asResidential Real Estate, is not deductible as input VAT.

Inaddition,inputVATmaynotbedeductedonanycostsnotincurredaspartoftheEconomicActivity(includingsomeblockedexpendituretypessuchasentertainmentandmotorvehicles),oronanycostswhichrelatetomakingexemptsupplies.28

ThisinputVATisacreditenteredontheVATreturnwhichisoffsetagainsttheVATchargedonsupplies(outputVAT)madeduringthatperiod.

InputVATmayonlybedeductedwheretheTaxablePersonholdsataxinvoice,orsufficientevidenceoftheamountofInputVATpaidorpayableifapprovedbyGAZT29.

27Article19,[SupplyofRealEstateRelatedServices],UnifiedVATAgreement.28AdetailedlistoftheblockedexpendituresislistedunderArticle50oftheImplementingRegulations.29Article49(7)[InputTaxDeduction],ImplementingRegulations.

19Version 1

8.2 Application to Real Estate

8.2.1 Timing of Input VAT deductionIngeneral,an InputVATdeduction shouldbeavailable in themonthlyorquarterlyperiodwherethegoodsandserviceswerepurchased,providedthetaxpayercanprovetheyrelateto(currentorfuture)taxabletransactions.ItisnotnecessarytomakeaspecificonwardssupplyinordertodeducttheInputVATascredit.

DeductionofInputVATisbasedonintendeduseatthetimeofpurchase.InRealEstatesales,alongperiodmayfallbetweenthepurchaseandanyonward‘use’byresale.

Propertiesmayberentedonashort-termbasisasasecondarypurposetotheprimarypurposeoftheironwardsale.Therefore,InputVATdeductionshoulddependontheprimarypurposeuponresale.

Example:HusseinischargedVATonthepurchaseofanapartmentwhichheintendstosell.Herentsouttheapartmentasaresidencefortwelvemonthswhilstsearchingforapurchaser.HusseinchargesVATwhenhesellstheapartment,buttherentalincomehederivesisexempt.

Hussein’s intentionat the timeofpurchase is to sell theapartmentand theexempt rentalis a short term activity and not as an Economic Activity. The purchase of the apartment isdeductible as it is directly attributable to the onwards sale.

8.2.2 Capital AssetsCapitalassetsareheldfora long-termasabusiness investment.VATdeduction isavailableupfrontbasedontheintendeduseatthetimeofpurchase.

Intherealestatesector,taxpayersarerequiredtomonitortheusageofbuildingsandRealEstate which are long-term capital assets over a ‘useful life’ period of 10 years, and makeannual adjustments to the upfront VAT deduction where the actual use changes.30

Example:ABCLLCpurchasesavilla in January2019 forexclusiveuse in its taxablebusinessactivities.ItpaysSAR10.5million,includingSAR500,000ofVAT.ABCLLCdeductsallofthisasInputVATinitsVATreturnuponpurchase.

It continuesusing thebuildingexclusively for taxablepurposes for thenext7 years, and isthereforenot required tomakeanyadjustmentat theendof these years.

InJanuary2026,itreceivespermissiontorenthalfthevillaasapermanentresidence–anditsusethereforeimmediatelychangesto50%taxableand50%exempt.Fortheremaining3yearsofthe10-yearusefullife,itisrequiredtoadjusttheInputVATdeductedupfronttoreflectthepartlyexemptuse.

Eachyear’sportionoftheinputVATisSAR50,000.AnadjustmentofSAR25,000mustbemadeattheendofeachyeartoreducetheInputVATrecoveredupfrontby50%.

FurtherdetailsandexamplesregardingCapitalAssetswillbeprovidedinaseparateguideline.

30Article52[CapitalAssets],ImplementingRegulations.


8.3 Partial deduction: attribution of Input VAT

VATincurredwhichrelatestoataxpayer’sVATexemptactivities,suchasresidentialrental,isnotdeductibleasInputVAT.ApersonmakingbothtaxableandexemptedsuppliescanonlydeducttheInputVATrelatedtotaxablesupplies.

Forthesebusinesses,availableInputVATmustbedeterminedusingthefollowingprocess:31

InputVATdirectlyattributedtotaxpayer’staxable sales

Deductinfull

InputVATdirectlyattributedtotaxpayer’sexempt sales

Nodeduction

OverheadsandallotherinputVATthatcannotbedirectlyattributed

Partialdeductionbasedonapportionment

The overhead costs/expenses incurred by the Taxable Person for making both taxable andexemptedsuppliesmustbeapportionedtomostaccuratelyreflecttheuseofthosecostsinthetaxableportionofthetaxpayer’sactivities.

Aprescribeddefaultmethodofproportionaldeductioniscalculatedonthevaluesofsuppliesmadeintheyear,usingofthefollowingfraction:

ThevalueofTaxable SuppliesmadebytheTaxablePersoninthelastcalendaryear

ThetotalvalueofTaxable SuppliesandExempt SuppliesmadebytheTaxablePersonduringthelastcalendaryear

ThefractionforthedefaultmethoddoesnotincludesuppliesofCapitalAssetsmadebythetaxpayer,asthesedistorttheuseofinputVAT.

Example:ABCLLCprovidesboth long term residential rental (VATexempt)and short termaccommodation (charged with VAT) in one complex.

During2019,ithadthefollowingoutputsandinputs

Sales and outputs (in SAR) Value VAT charged

Short-termaccommodation 750,000 37,500

Residentialrentals(exempt) 500,000 -

Saleofformerofficebuilding 2,000,000 100,000

Expenses and inputs Value Input VAT VAT deduction

Relatingtoshort-termaccommodation

250,000 12,500 12,500

Relatingtoresidentialrentals(exempted)

60,000 3,000 NoVATdeduction

Relatingtosaleofofficebuilding 40,000 2,000 2,000

Overheads–notattributedtoanyactivity

80,000 4,000 2,400Proportional

31Article51[ProportionalDeductionOfInputTax],ImplementingRegulations.

21Version 1

ABCLLCcandeductinputVATdirectlyrelatingtoitstaxableincome.Foritsoverheads,itmustcompletethevalueoftaxableandexemptsupplies,lessthesaleoftheofficebuilding(whichisacapitalasset)

Proportionalrecovery: TotalTaxableSupplies = 750,000 =60%

TotalTaxableplusExemptSupplies 1,250,000

ABCLLC’sproportionaldeductionofInputVATonoverheadsis60%x4,000=SAR2,400

Alternativeattributionmethods,usingcalculationapproachesotherthanthevalueofsuppliesmaybeapprovedbyGAZTincaseswherethesebetterreflecttheactualuseofVATincurred.FurtherinformationaboutdeductionofVATandproportionalVATrecoverywillbeprovidedinaseparateguideline.

9. VAT Reporting

9.1 Date of supply

9.1.1 Sale of Real Estate

ForthesaleofRealEstate,VATbecomesdueonthedatethatpropertyistransferredtotherecipient.However,VATcanbecomedueearlierif:

• ataxinvoiceisissuedbythesupplierbeforethetransferdate;or

• therecipientpaysadepositoranyotheramounttothesupplier.

VAT becomes payable on the earlier date of invoicing or payment only to the extent thatpayment is made.32

Example:AlandownersellsOmarapieceofbarelandforSAR2.1million(includingVATofSAR100,000).OmarpaysadepositofSAR525,000(includingSAR25,000VAT)on29March.Thelandownerissuesaninvoiceon14Aprilandthepropertytransferson30April.

29 March 14 April 30 April

VAT due ondeposit amount:

SAR 25,000

VAT due onremainder of invoice:

SAR 75,000

Real estate supplied,but VAT already due

on early payment/invoice

32Article23(1)[DateofTaxDueonSuppliesofGoodsandServices],UnifiedVATAgreement.


VATisduebythelandownerasfollows:

Depositpaidon29March(25%ofthelandvalue) 500,000

VATdueat5%on29March 25,000

TotaldepositpaidbyOmar 525,000

Invoiceissuedon14April(75%oftheremainingvalueoftheland)

1,500,000

VATdueat5%on14April 75,000

FinalpaymentpaidbyOmar 1,575,000

Thepaymentofasecuritydeposittoanotaryorotherthirdparty,whichisheldandnotmadeavailabletothesupplier,isnotanadvancepaymentforVATpurposes.ThisformofdepositdoesnotresultinVATbecomingdue.

9.1.2 Rental and continuous supplies

MostservicesintheRealEstatesector,includingrentalandconstructionservices,areviewedas a continuous supply. This is because the goods or services are supplied to the recipientcontinuallyoveraperiodoftime,ratherthanhavingonedateofdelivery.VATbecomesdueoncontinuoussuppliesacrosstheperiodthegoodsandservicesareprovided,inlinewiththeinvoicing and payment arrangements.

Instalment agreements: Where the rental agreement requires payment of periodicinstalmentswiththedatesandvaluesofeachinstalmentagreedupfront,eachinstalmentis viewed as a separate supply. VAT becomes due on each supply at the earlier of the instalment due date or actual payment.33

All other continuous agreements:ifnoperiodicinstalmentsarespecifiedintheagreement,aseparateinvoicewillgenerallybeissuedforeachsupplyofgoodsprovidedduringaperiod.Eachsuccessiveamountinvoicedorpaidisviewedasaseparatesupply.VATbecomesdueateither the invoice date or actual payment, whichevercomesfirst.34

9.2 Issuing invoices

AsuppliermustissueataxinvoiceforeachtaxablesupplymadetoanyVAT-registeredpersonortoanyotherlegalperson,bynolaterthanfifteendaysfollowingtheendofthemonthinwhichthesupplyismade.

The tax invoice must clearly detail information such as the invoice date, supplier’s taxidentificationnumber,taxableamount,taxrateapplied,andtheamountofVATcharged.35

FurtherinformationontherequirementsfortaxinvoicingcanbefoundintheVATmanualorat vat.gov.sa.

33Article20(1),[DateofSupplyinspecificcircumstances],ImplementingRegulations34Article20(2),[DateofSupplyinspecificcircumstances],ImplementingRegulations35Article53,[TaxInvoices],ImplementingRegulations

23Version 1

9.3 Filing VAT Returns

EachVATregisteredperson,or thepersonauthorisedtoactonhisbehalf,must fileaVATreturnwithGAZTforeachmonthlyorquarterlytaxperiod.TheVATreturnisconsideredthetaxableperson´sself-assessmentoftaxdueforthatperiod36.

MonthlyVATperiodsaremandatoryforbusinesseswithanannualturnoverexceedingSAR40million.ForallotherVATregisteredpersons,thestandardtaxperiodisthreemonths.37

TheVATreturnmustbefiled,andthecorrespondingpaymentofnettaxduemade,nolaterthanthelastdayofthemonthfollowingtheendofthetaxperiodtowhichtheVATreturnrelates.

IftheVATreturnresultsinVATduetothetaxpayer,orifthetaxpayerhasacreditbalanceforanyreasonarequestforarefundofthisVATmaybemadewiththefilingoftheVATreturn,oratanylatertimeduringthenextfiveyears.GAZTwillreviewtheserequestsandwillmakepaymentofapprovedrefundrequestsdirectlytothetaxpayer.38

MoreinformationonfilingofVATreturnsisprovidedinaseparateguideline.

9.4 Keeping records

AlltaxpayersarerequiredbylawtokeepappropriateVATrecordsrelatingtotheircalculationofVATforauditpurposes.ThisincludesanydocumentsusedtodeterminetheVATpayableonatransactionandinaVATreturn.Thiswillgenerallyinclude:

• taxinvoicesissuedandreceived;

• booksandaccountingdocuments;

• contractsoragreementsforlargesalesandpurchases;

• bankstatementsandotherfinancialrecords;

• import,exportandshipmentdocuments;and

• otherrecordsrelatingtothecalculationofVAT

Records may be kept in physical copy, or in some cases electronically – and must be madeavailable to GAZT on request.

All records must be kept for at least the standard retention period of 6 years. A longer minimum retention period of 15 years is required for invoices or records that relate to Real Estate39.

9.5 Your obligationsAsaTaxablePerson,youhaveanobligationtoassessyourownVATliability,andtocomplywithVATobligations.This includesregisteringforVATwhenrequired,correctlycalculatingtheamountofnettaxyouhavetopay,payingtaxontime,keepingallnecessaryrecords,andcooperatingwithofficersofGAZTuponrequest.

36Article62,[TaxReturns],ImplementingRegulations.37Article58(1),[TaxPeriod],ImplementingRegulations38Article69[RefundofOverpaidTax],ImplementingRegulations.39Article66[Records],ImplementingRegulations.


If you are not sure of your obligations, you should contact GAZT or other communicationchannels through vat.gov.sa

Youcouldalsoseekexternaladvicefromaqualifiedprofessional.

9.6 Requesting a ruling

If,havingconsultedtherelevantregulations,youareunsureonhowVATappliestoaparticularactivityortransactionthatyoucarryoutorintendtocarryout,youmayapplytoGAZTforaruling40. Requesting a ruling allows you to present the full facts of a particular activity ortransactiontoGAZTforconsideration.

Rulingsmayberequestedas:

• Public: inwhichcaseGAZTwillpublishdetailsoftheruling,withoutanytaxpayer-specific information; or

• Private:inwhichcaseGAZTwillnotpublishtheruling.

Therulingrequestshouldincludeallinformationontheactivityortransactionthatyourequestarulingfor,andadescriptionofthespecificareaofuncertaintyinthelaworguidancewhichyouhaveconsidered.Youmaychoosetodescribethealternativesandwhatyouconsidertobethecorrecttreatment.

GAZTisnotobligedtorespondtoallrequestsforrulings.Itwillconsiderandprioritizerequestsbasedonfactorssuchas:

• Thelevelofinformationpresentedbythetaxpayerintherequest;

• Thebenefittothewidertaxpayercommunityinissuingapublicrulingonthetransactionoractivity;and

• Whetherthereisexistinglaworguidancewhichaddressestherequest.

ApublicorprivaterulingissuedbyGAZTisnotbindingonGAZToronanytaxpayerinrespectofanytransactioncarriedoutanditcannotberelieduponinanyway.

9.7 Correcting past errors

IfyouareawareofanerrororanincorrectamountinafiledVATReturn,orofanyotherVATobligationwhichyouhavenotcompliedwith,youshouldnotifyGAZTandcorrecttheerrorbyamendingVATthetaxreturn.ErrorsresultinginanetunderstatementofVAT(exceedingSAR5,000)mustbemadeknowntoGAZTwithintwenty(20)daysofdetectingtheerrororincorrectamount.

Forsmallerrors,resultinginanunderstatementofthenetVAToflessthanSAR5,000,youmayinsteadcorrecttheerrorbyadjustingthenettaxinthefollowingVATreturn41.

Furtherinformationoncorrectingerrorscanbefoundthroughvat.gov.sa

40Article75[Rulings],ImplementingRegulations.41Article63[CorrectionofReturns],ImplementingRegulations.

25Version 1

10. PenaltiesPenaltiesorfinesmaybeimposedontaxpayersforviolationsofVATrequirementssetoutbytheLaworImplementingRegulations42.

Description of offence Associated fineSubmitting false documents with the intent ofevadingthepaymentoftheVATdueortoreducingitsvalueorunlawfullyobtainingrefundsfortax

•AtleasttheamountoftheVATdue

•Uptothreetimesthevalueofthegoodsorservicesubjectoftheevadedtax

MoveorattempttomovegoodsinoroutoftheKingdomwithout paying the VAT due

•AtleasttheamountoftheVATdue

•Uptothreetimesthevalueofthegoodsorservicesubjectoftheevadedtax

Failure to registerfortheVATintheallottedtimeframe

SAR10,000

Filling incorrect tax return, amend a tax return orfileanydocumentresultinginaloweramountdue

Equalto50%ofthevalueofthedifferencebetweenthecalculatedTaxandTaxdue

Failure to file VATreturnintime 5-25%oftheVATdueFailure to pay theVATintime 5%oftheVATdueforeachmonthIssuingaVATinvoicewithout being registered UptoSAR100,000Failureto maintain books and records as stipulatedintheregulations

UptoSAR50,000

Preventing GAZTemployeesfromperformingtheirduties

UptoSAR50,000

ViolatingofanyotherprovisionoftheVAT regulations or the VAT law

UptoSAR50,000

In all cases, if a violation is repeated within three years from the date of issuing the finaldecision of the penalty, the fine for the second offense may be doubled.

ThelevelofthepenaltyorfineimposedissetbyGAZTwithregardtothetaxpayer’sbehaviourandcompliancerecord(includingtaxpayersmeetingtheirrequirementstonotifyGAZTofanyerrorsandprovideco-operationtorectifymistakes).

11. Transitional Rules related to Real Estate VATappliesinprincipleonalltransactionstakingplaceonorafter1January2018,basedonthedateofsupplyrulesdescribedabove.

TransitionalruleswillapplytoensureVATappliesequallyontransactionsmadeclosetothetransitiondate.Threerulesofhighrelevancetotherealestatesectoraresetoutbelow.Furtherinformationonthetransitionalprovisionsisdetailedinaseparateguideline.

42ChapterSixteen:Articles(39),(40),(41),(42),(43),(44),(45),and(47),[TaxEvasionandPenalties],VATLaw.


11.1 Actual date of supply

Anysupplierwhoissuesaninvoiceorreceivesconsiderationbefore1January2018forasupplywheretheactualsupplyofgoodsorservicestakesplaceonorafter1January2018mustchargeVATbasedontheactualdateofthesupply.43Thisovercomestherulestomovethedateofsupplyforwardforataxinvoiceorpre-payment,andpreventsVATbeingavoidedbyearlypaymentorinvoicing.44

ReturningtoourexamplefromtheVATobligationssection:

Example:AlandownersellsOmarapieceofbarelandforSAR2million.OmarpaysadepositofSAR500,000 on 29 November 2017. The landowner issues an invoice for 2 million on 14 December 2017withoutVAT,andthepropertytransferson30January2018.

Asthepaymentandinvoicewereraisedpriorto1January2018,thetransitionalrulesapplyandVATisduebasedontheactualdateofsupplyon30January2018.

Inthiscase,thesuppliermustissueanadditionalinvoiceshowingtheVATchargedofSAR100,000onthetotaltaxableamountofSAR2million(whichincludesthedepositpaidonthe29thofNovember2017)

Supplieswhichactuallytakeplaceinfullbefore1January2018arenotsubjecttoVAT,regardlessofwhetheraninvoiceis issuedortheconsiderationisreceivedin2018.

11.2 Continuous supplies spanning VAT introduction date

AllservicesprovidedonacontinuousbasiswillonlybesubjecttoVATtotheextenttheseservicestakeplaceafter1January2018.45Intherealestatesector,continuousservicesinclude,butarenotlimitedto,thefollowing:

• Commercialandresidentialrentals;

• Constructionservices;

• Salesofpropertywherethepurchaserobtainspossessiontothehouseupfrontbutdoesnotobtainunconditionalownershipuntiltheendofaspecificperiod.

Anyinvoiceissuedforrentalorothercontinuousservicesforaperiodspanning1January2018shouldhaveVATchargedon theportionof considerationwhich relates to theperiod from1 January2018onwards.

29 November2017

14 December2017

30 January2018

No VAT charged ondeposit – early payment

ignored

No VAT charged oninvoicing – earlyinvoice ignored

Real estate supplied, andVAT falls due. Additional

invoice required forVAT amount.

43Article21(1)VATLaw44Article79(1)&(2)[TransitionalProvisions],ImplementingRegulations.45Article21(3)VATLaw.

27Version 1

Example:Acommercial landlordissuesaninvoiceon29November2017forrentalofofficepremisesfromtheone-yearperiodfromNovember2017toOctober2018.TheagreedpriceisSAR120,000.

Rentalisacontinuousservice,andregardlessofthedateoftheinvoice,VATshouldonlybeapplicabletotheportionperformedafter1January2018.Forarentalcontract,thiswouldbesplitevenlybasedontimethepropertyisavailable.AssumingthelandlordhasagreedthatthepriceisVAT-exclusive,theinvoicewillthereforeshow:

GoodsandServicesprovided

Value(SAR) VATcharged

Rentalfor1November2017–31December2017

20,000 - (Portionperformedbefore1January2018)

Rentalfor1January2018–31October2018

100,000 5,000 (Portionperformedon/after1January2018)

Totalamountdue 120,000 5,000 SAR125,000

11.3 Relief for contracts not anticipating the application of VAT (‘grandfathering’)

ManycontractsclearlystatethatthepriceisinclusiveorexclusiveofVAT,orhavetermsandconditionssettingouthowchangeintaxeswillaffectthepricepayable.ThesecontractsarepresumedtoanticipatetheapplicationofVATtothesuppliesofgoodsandservices.

Agreementswherethecontractanditsassociatedtermsandconditionswillgenerallybeconsideredascontractswhich do not anticipate the application of VATtoasupplyofgoodsandservicesandthereforethegrandfatheringrulesmayapply.Theseconditionsinclude:

• StateapricewhichdoesnotindicateifitisinclusiveorexclusiveofVAT(ortaxes);and

• HavenomechanismtoadjustthepriceforachangetoVAT(ortaxes)applyingtothegoodsandservicesprovidedunderthecontract,alsoknownas‘Taxstabilityclause’;

Arelief(oftenreferredtoas ‘grandfathering’)allowsforsuppliesmadeundercertainexistinglong-termcontractstobezero-ratedforatransitionalperiodupto31December2018.46

This allows suppliers and customers who had entered into longstanding contractual commitmentswithout VAT, an additional year to review the contracts and agree the correct price.

Inthesecases,suppliesmadeinrespectofcontractsfortaxableRealEstateactivitiesandwhichdonotanticipatetheapplicationofVATmaybetreatedaszeroratedbythesupplieruntiltheearlierofthetimethecontractexpires,isrenewed,or31December2018,providedthatallthefollowingconditionsaremet:

46Article79(3)[TransitionalProvisions],ImplementingRegulations.


1.thecontractwasenteredintobefore30May2017.

2.thecustomerisentitledtodeductInputVATinrelationtothatsupplyinfull;and

3.thecustomerprovidesawrittencertificationtothesupplierthatheisabletodeduct/refundtheInputVATinrelationtothatsupplyinfull.

Grandfathering mechanism

Contracts not anticipating VAT are treated as zero-rated until the earlier of expiry/ renewal or 31st Dec 2018

Business A Business B0% VAT charge VAT charge Consumer

All other conditions fulfilled

No VAT deduction

Without Grandfathering

Business A Business BVAT charge VAT charge Consumer

Not all conditions fulfilled

GAZT Cash flow impact: Positive

VAT deduction

Neutral Negative

29Version 1

11.3.1 Certification

Further rulesongrandfatheringandcertificationareprovided ina separateguideline.Keypoints relevantfortherealestate industryare:

• Thecustomershouldprovidearesponsetoasupplieronrequest,withoutunreasonabledelay.

• Certificationshouldrelatetothecustomer’sabilitytorecoverVATonthatparticularsupply(orthoseparticularsupplies),andisnotaconfirmationthatthecustomercandeductVATinfullonallsuppliesreceived.

• Awrittencertificationcanbemadeoveranymeans(includingelectroniccommunication)from the customer, provided it confirms on behalf of the customer of his right todeductinputVATinrelationtothatsupplyorthosesupplies.

11.3.2 Residential rental

Grandfathering relief only applies to supplies that would have otherwise been taxable. Asupplier cannot apply grandfathering relief to zero-rated or exempt supplies of residentialrental.

12. Contacting usFormoreinformationaboutVATtreatment,kindlyvisitourwebsite:VAT.GOV.SA;orcontactusonthefollowingnumber:19993


Appendix: Frequently Asked Questions1.Istheleaseofservicedapartmentseligibletobeconsideredasanexemptedsupply?

No,onlytheleaseofunitsthatarequalifiedasresidentialunitsandusedasaregularresidenceareexemptedfromVAT.

2.IsVATdeductibleonexpensesincurredduringaconstructionprojectupfront,beforetheprojectiscompletedorpaymentreceived?

Inprinciple,yes.ThereisnorestrictiontodeductInputVATincurredwhichisrelatedtotheintendedtaxablesuppliestobemadeinfutureandbeingpartoftheeconomicactivityofthebusiness.VATmaybedeductedbyaregisteredtaxablepersonprovidedhe meets the relevant criteria to deduct VAT in respect to the goods and servicesreceived.

3.ArethereanytypesofexpensesonwhichIcannotdeductVATincurredasinputVAT?

AnyVATincurredonpurchasesthatarenotrelatedtotheeconomicactivitiesofthebusinesscannotbededucted.Additionally,taxablepersonswillnotbeabletodeducttheinputtaxincurredrelatedtotheblockeddeductionitemswhicharespecifiedinArticle50oftheimplementingregulations–suchasentertainmentexpenditureandcertainmotorvehicles.

4.HowdoesVATapplyinthecaseofleasecontractssignedbefore1January2018?

Onlytheportionoftheleaserelatedtothesupplythatwilltakeeffectonorafter1JanuarywillbeapplicableforVATpurposes(i.e.subjecttotaxat5%foracommercialleaseandexemptedincaseofaresidentiallease).

5. Iusedtograntmytenantsaonemonthfreeofleasecharge?HowdoesVATapply?

In most cases, the free month will be provided as a discount from the payableconsideration. Therefore, the taxable lease will be calculated on the net amountreceived (actual received consideration).

If a free lease is provided without any connection to another taxable supply, theprovisionofserviceswithoutchargeisadeemedasasupply.Inthiscase,VATshouldbeapplied(fornon-residential leases)ontheopenmarketvalueofthe lease.

FreeofchargesupplyforresidentialleaseswhichqualifyforVATexemptionwillnotbesubjecttoVAT.

6. Ihaveanannualleasecontractwithmytenants,however,Iamissuinganinvoiceattheendofeachquarter.WhenIhavetodeclaremytaxliability?

Lease contracts are considered as a continuous supply of services. Therefore, thetaxableeventwillbeoneitherthedateofissuingtheinvoiceorthedateofreceivingthe payment, whichever comes first.

Iftheleasecontractprovidesforpaymentofconsiderationinsetinstalments,thenthetaxableeventforeachinstalmentisontheearlierofthepaymentduedateorthedateofreceivingthepayment.

31Version 1

7. IhaveacontracttosupplyapropertytoacustomerandIwilltransfertheownershipinDecember2017followingpaymentofadeposit.IwillreceivethebalanceinFebruary2018.DoIhavetochargeVATonreceiptofthebalance?

No,asthesupplyhastakenplacebyvirtueoftransferofownershipbeforetheeffectivedateofVAT(1January2018).VATwillnotapplyonthesupplyeventhepaymentisreceivedafter1January2018.

8. Ifpartofmyactivities isexempted (bywayofa residential lease),am Ientitled todeduct all the VAT incurred on my expenses?

No,youareonlyentitledtodeducttheportionoftheVATincurredrelatedtoyourtaxable supplies.

9. Iamaconstructioncompanywhichissellingapartmentstofinancialinstitutions(banks)withownershiptransferringtothebank(andnottotheendcustomer).Ireceivetheconsiderationininstallments.Then,thebankissellingthesameapartmenttoanendcustomeronahire/purchasecontract.Ismysupplyqualifiedtobesubjecttotax?Andwhatisthetaxablevalue?

As long as the supply involves a transfer of ownership from your company to therecipient(bank)foraconsideration,thistransactionisqualifiedtobesubjecttoVATatthestandardrateof5%.

Theconsiderationreceivedwithrespecttothesupplyfromthebankwillbeconsideredasthetaxableamount.

Whilstthistransactioniscarriedoutaspartofafinancingarrangement,itisintendedin this case that the construction companypermanently transfersownership to thebank(sothesalecannotbedisregardedunderthespecialprovisions).

10.Iamabuilder.Ipurchaseahousefromafamily,makeimprovementstoit,andsellthehousetoanotherpurchaser.DoIhavetochargeVATonthesaleifVATwasnotchargedtomeonthepurchase?

Yes,youmustapplyVATonallsuppliesmadeinthecourseofyourbusiness.Thestatusofthepersonwhosoldthehouseisnotrelevanttoyoursale.

kingdom of saudi arabia - vat.gov.sa real... · 4 1version kog rdmfrf vkr seve 1. introduction 1.1....

Documents