In recent years, the Kingdom of Saudi Arabia (KSA) has gone through tremendous reforms, and tax and the Customs authorities were part of this. Going from Department of Zakat and Income Tax (DZIT) to the General Authority of Zakat and Tax (GAZT) to the Zakat, Tax and Customs Authority (ZATCA). The tax administration went from a Department to an Authority (important semantic difference), and merged with the Customs authority.

Consultants are worth their money and are selected on previous experience, trust or value for money. Consultants are mostly appointed to have a second pair of eyes. The respondents mostly expect salary differences to level out in the long run. They like to handle VAT filing in the tax department, and consider that the role of that tax department is to support the business in the most efficient way. The bigger the company, the more tax people, and they want to be accountable mainly to the CFO. Tax directors feel undervalued in terms of their remuneration and underestimated.

The four GCC countries which have introduced VAT so far, UAE, KSA and Bahrain, have based themselves on the GCC VAT Treaty to draft their laws. There is a special group of VAT payers, which have a special capacity as stakeholders in the VAT system. They sit on the fringes of the VAT system, not being a full on taxable person, and neither simply a payer, like private persons would be. In the EU, this special group is sometimes called the “group of four”, or the “persons benefiting from an exception regime”. Together with the capital assets scheme, it is one of the more technical matters in VAT, and its status under GCC VAT is at a minimum lacking in clarification. In a previous article, we explored the status of the non taxable legal persons (https://aurifer.tax/news/non-taxable-legal-persons-in-the-gcc-may-need-to-register/?lid=482). In this article, we cover the exempt table persons. In the upcoming articles, we will be covering also the other special categories of taxable persons. Going forward we will refer to them as “special tax payers”.

The same thing is happening with Pillar One and Pillar Two as with BEPS. Initially, it seemed to be a topic for insiders, tax administration officials and a handful of academics, but eventually it became a topic for everyone. Discussions around Pillar One and Pillar Two have picked up very considerable speed since the endorsement by the G7 on 5 June 2021, and the endorsement by most of the Inclusive Framework members on 1 July 2021. With laws being drawn up in 2022, and an implementation in 2023, Pillar Two is right around the corner. In this article we analyse Pillar Two. We will leave an analysis of Pillar One for next month’s article.

Background  In May 2020, the KSA announced an increase in the standard VAT rate from 5% to 15% effective from 1 July 2020. Transitional rules for supplies spanning the date of the VAT rate change (1 July 2020) were introduced. In brief, these transitional rules state that if you entered into a contract prior to 11 May 2020 for supplies to be made after 1 July 2020, the 5% rate would still apply until the end of the contract, the contract renewal date or 30 June 2021 (whichever occurs first), if the customer is entitled to recover the VAT charged by the supplier in full, or if the customer was a government entity. These transitional rules were optional, and even if the conditions were met, you could choose to apply VAT at 15% from 1 July 2020. B2C supplies were simply immediately subject to 15% VAT, as were imports of goods. Meanwhile, the other GCC countries which implemented VAT, i.e. the UAE, Bahrain and Oman continue to apply 5% and have no plans currently to increase the VAT rate. The average VAT rate applied in the EU is approximately 21%. KSA therefore still has a relatively reasonable rate.

Do not miss our webinar covering the first two quarters of 2021 from a GCC tax perspective. Attend our webinar on 24 May and make sure you are up to date with every single tax development in the GCC. Are you afraid you missed KSA's First Free Zone? Not sure what to do with round 2 of ESR? That you missed the Clarifications in the UAE? Did you miss the Qatari TP updates? We will cover all important 2021 updates across the GCC and across all taxes. The webinar is a must attend for any in-house tax person. Registration via lovely@aurifer.tax. Seats are limited!

Since the inception of VAT in the UAE in January 2018, the Federal Tax Authority (FTA) had put in place a strict penalty regime. It was much stricter than its neighbour Saudi Arabia, which implemented VAT at the same time. In terms of the types of penalties, it was not the harshest, since both Bahrain and Oman later imposed prison sentences for what are often considered administrative oversights.

The United Arab Emirates (UAE) introduced the Economic Substance Regulations (ESR) in April 2019 to be excluded from the EU’s COCG grey list (European Union's Code of Conduct Group) and not to be classified as a harmful tax jurisdiction by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

On 18 October 2020, the Sultanate of Oman published its VAT law. The entry into force of VAT in Oman will be 180 days as of the publication of the Law. It is expected that the Executive Regulations will be published in December 2020 and that registrations will open in January 2021, around three months before the introduction of VAT in the Sultanate. Oman will be the fourth GCC State to introduce VAT, after UAE and KSA on 1 January 2018, and Bahrain on 1 January 2019. Qatar is expected to be next, and Kuwait the last (if ever).

Learn all about KSA's First Free Zone and the applicable tax regime