Saudi Arabia: Recovery of input VAT by real estate developers
Saudi Arabia: Recovery of input VAT
The General Authority of Tax and Zakat (GAZT) issued Ministerial Decision No. 1754 (30 November 2020) setting forth the rules and conditions for real estate developers to be eligible for recovery of input tax related to exempt real estate supplies.
To recover the input value added tax (VAT), the developer must be engaged in exempt real estate activities (as defined in the VAT regulations) and must only seek to recover the VAT relating to those real estate activities that have been defined as exempt.
In addition, the real estate developer must be organized as one of the following legal entities:
- A sole proprietorship under a commercial registry
- A real estate investment fund
- A cooperative organization or institution
- Any other legal entity under the Saudi companies law
Moreover, the real estate developer must hold a valid license to operate (as approved by the Ministry of Commerce and by the relevant competent licensing and registration authorities), and must be licensed to conduct any of the following activities:
- Sale, lease, purchase, and development of real estate
- Sale, purchase, and partitioning of land and properties as well as off-plan sales and leasing
- Construction of buildings
An additional requirement is that the real estate developer must be approved by the Ministry of Housing as an eligible real estate developer. GAZT will confirm that the real estate developer satisfies the required eligibility conditions.
Taxpayers who do not currently qualify to be treated as real estate developers will be able to recover VAT incurred on expenses made on or after 4 October 2020, but only for the real estate supplies that have been defined as exempt by Royal Decree A84, provided that the taxpayers rectify their eligibility status based on the conditions outlined by GAZT (above) before January 2021.
Accordingly, there are certain action steps for real estate developers to take advantage of the input VAT mechanism, as follows:
- First, real estate developers need to confirm with the Ministry of Commerce that they are licensed to operate in one of the approved categories.
- Next, they need to confirm with the Ministry of Housing that they have approval to conduct activities as a developer.
- Once this is confirmed, the developers are eligible to submit applications for refunds of VAT.
- Non-eligible developers have until 31 January 2021 to become “eligible” and thereby deduct input VAT incurred on or after 4 October 2020 related to their real estate activities.
- All other businesses have until 31 December 2020 to deduct VAT on real estate development expenses incurred before 4 October 2020.
For more information, contact a KPMG tax professional:
Philippe Stephanny | +1 202 533 3082 | firstname.lastname@example.org
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