GCC Indirect Tax Weekly Digest

KSA developments

ZATCA announces criteria for selecting taxpayers in fourth wave of e-invoicing

On 28 April 2023, the Kingdom of Saudi Arabia (KSA) Zakat, Tax and Customs Authority (ZATCA) announced the criteria for selecting resident taxpayers for the fourth wave of the e-invoicing integration phase.

Key considerations for taxpayers as per the announcement

• Resident taxpayers who reported taxable revenue of more than SAR 150 million in VAT returns filed for the calendar year 2021 or 2022 will be required to integrate their e-invoicing systems with ZATCA for clearance or reporting of e-invoices.
• For the fourth wave of resident taxpayers, the integration will go live with the ZATCA Fatoora Portal starting from 1 November 2023, giving them at least six months to comply with the integration phase requirements.

Based on our experience, ZATCA will officially notify selected taxpayers about the timeline for the fourth wave. Given that this wave was announced around a month after the third wave, it is likely that subsequent waves will be announced soon. 

Therefore, taxpayers who have not been included in the previous waves should plan ahead as they may be included in the upcoming ones, and timely ZATCA integration requires significant IT and human resources.

Background on e-invoicing in KSA 

In 2020, ZATCA introduced e-invoicing in KSA to be implemented across two phases:

1. The generation phase (phase 1)
2. The integration phase (phase 2)

The generation phase of e-invoicing, effective on 4 December 2021, requires resident taxpayers to generate and store electronic invoices in a structured format.  The integration phase of e-invoicing requires resident taxpayers to integrate their IT system with ZATCA for tax invoice/note clearance or reporting.  

The roll-out has so far covered the following taxpayers:

1. First wave: Taxpayers exceeding SAR 3 billion in 2021 VAT returns, live since 1 January 20232.
2. Second wave: Taxpayers exceeding SAR 500 million in 2021 VAT returns, effective from 1 July 20233.
3. Third wave: Taxpayers exceeding SAR 250 million in 2021 or 2022 VAT returns, effective from 1 October 2023.

Furthermore, taxpayers who are not currently being selected for the integration phase will be notified in the upcoming waves. However, they can request to be enrolled for early adoption by contacting their ZATCA relationship manager.

ECZA launches Special Economic Zones in KSA

On 14 April 2023, the Economic Cities and Special Zones Authority (ECZA) announced the launch of Special Economic Zones (SEZ) in KSA to create a more competitive investment landscape in the country. The purpose of the SEZs is to provide investors with opportunities for regional and international growth by easing access to the rapidly growing KSA market.

To provide more information about these zones, ECZA published a document titled “Investing in Saudi Arabia’s Special Economic Zones” which highlights the importance and advantages of these zones. The “Taxes and Customs in Special Economic Zones Draft Regulations” was also published by ECZA for public comments, with a deadline of 21 May 2023 for submitting feedback.

The first wave of SEZs includes five different zones, each designed to accelerate the growth of specified key sectors depending on their strategic location. The zones and their focus sectors are listed in the table below:

These SEZs offer a promising opportunity for businesses looking to invest in Saudi Arabia and expand their operations in the Middle East. By providing investors with a more favorable business environment and access to a rapidly growing market, the SEZs are expected to help drive economic growth in the Kingdom.

Key considerations for investors in KSA's SEZs

Investors should take into account the following key factors when
considering investment opportunities in KSA’s SEZs:

1. Regional and global growth opportunities: The SEZs offer access to a robust and stable domestic market as well as strategic global markets due to KSA's prime location.
2. Integrated support and services platform: The SEZs provide a comprehensive One Stop Shop (OSS) platform that offers businesses ease of establishment and access to non-government and government services.
3. Competitive tax and regulatory incentives: Depending on the sector and zone, businesses can benefit from several incentives, including exemptions from value-added tax (VAT), reduced corporate income tax (CIT), and withholding tax (WHT), waivers from customs duties, flexible and supportive regulations around foreign talent, and operational fee exemptions for employees and their families within the SEZs.
4. Recruitment of Foreign Nationals: Investors can take advantage of the flexible hiring policies for expats during the first five years of registration.

However, investors should note that the draft regulations do not yet apply CIT exemptions and incentives to multinational groups subject to the global minimum tax under the OECD BEPS Pillar 2 rules. Furthermore, the relocation of eligible activities from the mainland to the SEZ may not qualify for exemptions or incentives, as specified in the draft regulations.

Additionally, related persons as defined by the Transfer Pricing Bylaws must transact at arm's length.

Overall, the launch of SEZs and the OSS platform is a step towards improving the ease of doing business and providing access to strategic locations in KSA, making it an attractive option for businesses seeking long-term investment opportunities.

UAE developments

FTA begins accepting requests for input tax refunds related to the operation of
mosques

The United Arab Emirates (UAE) Federal Tax Authority (FTA) announced that it has begun accepting Value Added Tax (VAT) refund requests for input tax incurred on operating mosques, as per the Cabinet Decision and Ministerial Decision relating to such refunds.

The FTA indicated that between April - September 2023, it will receive refund requests on the operation of mosques that began operating prior to 1 January 2022, for the years 2018-2022. 

In addition, between October - December 2023, the FTA will receive refund requests on the operation of mosques that began operating on or after 1 January 2022, for the year 2022.

This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.