KSA – Amendments to the VAT Implementing Regulations

Further restrictions for joining tax groups: 

• All legal persons in the group must conduct ‘taxable’ economic activities and be eligible to register as taxable persons. 
• Members operating in special, free, or distinguished zones and/or those already part of another tax group are excluded from forming a new tax group.
• Entities eligible for VAT refunds under Art. 70(1), such as international organizations or charitable bodies, are disqualified from joining a tax group. 
  

Mandatory tax group agreement: 

• The application for forming a tax group now requires a copy of the agreement between members, which includes the appointment of the tax representative and proof of acceptance. This agreement acts as a declaration that all relevant conditions for registration are met. 
• The tax group representative is now formally recognized as primarily responsible before ZATCA for all tax group obligations without prejudice to the joint and several liability obligations imposed on the group members.  

Independent tax entity: 

• The amendments clarify that the tax group will be treated as an independent taxable entity, with a new registration certificate issued by ZATCA. All supplies, imports, and tax liabilities within the group are consolidated under the group’s tax identification number. 

Removal of a member from a tax group:

• The amendments empower ZATCA to make more changes to tax groups. Not only can ZATCA remove the group status for certain supplies between members, but the proposed amendments allow ZATCA to cancel the VAT group registration or exclude a member retrospectively or from a future date. This applies if the group status results in conflicting tax advantages.  

Additional notification obligations:

• In the event of a transfer of an economic activity, the transferee must notify ZATCA of the transfer within 30 days, or appropriately notify its cancellation of registration. The cancellation of registration does not exempt the taxable person from settling any outstanding tax dues. 

Record retention:

• Taxable persons whose registration is canceled must retain all relevant tax records for the required period, as stipulated by Article 66 of the VAT Implementing Regulations. 

Broadened definition of services: 

• The proposed text broadens the scope of activities that qualify as supplies of services, such as the granting or transferring of rights, the provision of benefits, and less obviously the cessation or waiving of certain rights, and refraining from particular acts, ensuring a more comprehensive application of VAT to various transactions. 

Adjustment for input VAT recovery: 

• The proposed amendments specify that if VAT on direct costs related to deemed supplies has been partially recovered, the supply value must be adjusted accordingly. This change clarifies how businesses should handle partially recovered input tax. 

Retained goods after cessation of economic activities: 

• Certain goods are now explicitly considered deemed supplies - (i) Goods retained after ceasing economic activity and (ii) Goods retained after the business becomes ineligible for VAT registration. 

Detailed transfer process, including a new ZATCA notification requirement: 

• Both parties involved in the transfer of an economic activity must notify ZATCA by the end of the month following the month in which the transfer occurred, providing detailed information, including the date of transfer and assets, both tangible and intangible, included. 
• The changes clarify that the supplier’s tax identification number does not transfer to the recipient, who must register independently unless already registered. However, the recipient will still be liable for past or future rights and obligations regarding the supplier. 

Introduction of a new article: 

• A new article detailing the VAT treatment of goods under customs duty suspension statuses, particularly in special zones. Supplies and imports within these zones may be zero-rated, provided certain conditions are met, such as licensing and goods being tied to the licensed activity in the zone. 

Zero-rate restriction clarification: 

• Paragraph 2C makes clear that only third parties that are ‘related’ to the customer can trigger the restriction. The new wording indicates that the restriction applies if the customer or any person related to the customer directly benefits from the same supplied services while any of them are present in the KSA, and the related person cannot fully recover input tax on it.
• Paragraph 2D clarifies that the restriction will also be triggered if the services are physically [tangibly] carried out on tangible goods within a member state. This narrows the restriction and allows more services to qualify for the zero-rate.  

Tax refunds for non-resident tourists:

• In preparation for the implementation of the tax refund scheme for tourists, the new paragraph confirms zero-rate status of related services and that the restrictions in Paragraph 2 should not apply. 

Replacement of nominal supplies paragraph: 

• Paragraph 2 originally describing the value of nominal supplies is replaced by detail on when government payments fall outside of the ‘subsidy’ definition.
• The new paragraph confirms that any amount paid by a government body should not be treated as a ‘subsidy’ if it is related to a supply to/on behalf of the government body.   

Ecommerce platforms and marketplaces as principals: 

• A new provision affecting ecommerce platforms and online marketplaces to be treated as principals when facilitating supplies by non-registered resident suppliers: 
• The portal/marketplace intermediary is deemed to have purchased and supplied the goods or services in question, making the intermediary responsible for accounting for the VAT on related supplies. 
• Should the intermediary wish to avoid being treated as a principal in such circumstances, there are onerous conditions listed in the amendment that need to be met, including (amongst others) the intermediary not determining the consideration for the supply and not collecting the consideration for the supply. 

Joint liability for economic activity transfer: 

• A new paragraph 5 imposes joint liability for tax and penalties for the parties involved in the transfer of an economic activity if ZATCA is not notified of the transfer in accordance with Article 13.

Significant updates include: 

• Charitable entities and non-profit individuals now qualify for tax refund eligibility.
• ZATCA is obligated to explain reasons for rejecting refund requests. More flexibility offered to eligible persons in terms of application frequency for refunds, subject to ZATCA's approval.
• Amendments are not allowed once a refund request has been sent, and only one request is permitted per period.
• Tax refunds for previous periods can be claimed up to the start of the current calendar year.
• VAT recoverable through VAT returns cannot be included in refund requests.  Some input tax and simplified tax invoices are non-refundable, except for foreign governments and diplomatic missions with reciprocal agreements.
• The lowest refundable amount has been increased from SAR 1,000 to SAR 5,000 (VAT value).
• Refund request documentation and information requirements have been extended but Eligible persons need to store records for a minimum of six years.
• ZATCA can cancel registrations based on certain cases, including loss of eligibility and unjustified claims.

Precursor to practical implementation:

• Refunds are allowed on goods carried as personal belongings when leaving KSA.
• A definition of tourists excludes permanent residents in KSA or GCC, crew members of means of transport, and other conditions specified by ZATCA. Tourists from GCC are considered as from outside GCC until the Electronic Services System between member states is implemented. 
• Specific goods such as vehicles, boats, aircraft, tobacco products and their derivatives/alternatives, food and beverages, and oil, gas and their derivatives are excluded from the scheme.   
• Authorized service providers may submit refund requests on behalf of tourists, subject to verifications. 
• In the case of approved requests, ZATCA will refund approved tax (in part or in full) to the authorized service provider and may not issue or amend any assessment in relation to the refund requests after five (5) years from the end of the calendar year in which the refund request was received. 
• Authorized service providers are required to keep records in accordance with the recordkeeping requirements of Article 66 and will be jointly liable with tourists for payment of any amounts that have been claimed in error or without any right from ZATCA.