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Businesses in Saudi Arabia are rushing to meet this month’s deadline to register for value-added tax.
On July 28, Saudi Arabia’s tax agency gave a 30-day deadline for businesses to register for the levy in a move that defied tax practitioners’ expectations and prompted them to urge affected businesses to register for the indirect tax to avoid financial sanctions.
The deadline “came as a surprise,” Shiraz Khan, team leader of the international tax practice at Al Tamimi and Co. law firm in Dubai told Bloomberg BNA Aug. 13. “The expectation was that registration would be required by the end of September.”
In light of the deadline, affected taxpayers should “make appropriate efforts” to register for VAT with Saudi Arabia’s General Authority of Zakat and Tax (GAZT) to avoid potential financial penalties from the government, PwC Middle East said in an Aug. 1 briefing note.
Saudi Arabia’s registration deadline comes as part of the efforts from the six Gulf Cooperation Council (GCC) states to introduce a VAT at 5 percent on goods and services next year. The council’s decision seeks to replace oil revenue as barrel prices remain at around half of their 2014 peak.
Businesses with sales of more than 375,000 riyals (about $100,000) supplying goods or services liable to VAT are obliged to register, but those with sales of less than 1 million riyals can delay registration until Jan. 1, 2019. Those with turnover below the threshold but above 187,500 riyals can register voluntarily, enabling them to recover VAT from expenses. The kingdom’s 250 largest businesses, already registered with GAZT for tax, are being registered automatically for VAT.
“If you’re resident and you meet these tests then you’re required to register,” Khan told Bloomberg BNA. “If you’re non-resident and you make a supply which is liable to VAT in Saudi you’re required to register even if you don’t meet the mandatory threshold.”
The law lists a series of penalties for non-registration or non-payment. Failure to apply for registration before the deadline carries a fine of 10,000 riyals (Art. 41); failure to submit a tax return within the specified period can be fined up to 25 percent of the tax due (Art. 42(1)); failure to pay the tax due by the deadline will be fined at a rate of 5 percent per month (Art. 43); a non-registered person who issues a tax invoice can be fined up to 100,000 riyals (Art. 44); and those failing to keep proper records or hiding them from the authorities can be fined up to 50,000 riyals (Art. 45).
Saudi Arabia already has a tax law with bookkeeping requirements, but VAT will bring new challenges. “Now for each transaction you have to keep invoices. Maybe businesses weren’t doing that properly, but now they are going to have to,” said Khan.
With fewer than five months to implementation, and the draft regulations undergoing public consultation until Aug. 19, practitioners expressed concern that even in Saudi Arabia, which is some way ahead of its GCC partners, there could be considerable confusion on Jan. 1.
“I don’t think there’ll be a smooth transition,” said Khan. “There’s a lot of work to be done and there’s not enough time. January’s not far away. Before the law came in there was a lot of uncertainty and everyone was up in the air.”
“There are different sizes of business in different sectors with different levels of sophistication and different levels of understanding in terms of accounting, VAT, tax and so on. So I think it’s going to be incredibly challenging for these businesses to actually implement VAT,” he said. “Some of them have taken active measures but a lot of them haven’t. They were waiting for the law to come in.”
The government said its aim was to involve the public and provide the necessary material to ensure compliance. “GAZT has made significant efforts to engage taxpayers around VAT and is in the process of developing a wide range of resources and tools to assist business in the process,” the authority said in a statement on its website on July 25.
Once a business has their internal systems are in place, registration, reporting and payment will be performed online through a dedicated GAZT portal. “They are taking advantage of the technology that was there and doing it well,” David Daly, an accountant and lead partner at Argent Gulf Consulting said by phone from Dubai on Aug. 10.
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