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.

1000

Related content

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. 


Action steps

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 the head of KPMG’s Global Indirect Tax Services:

Lachlan Wolfers | +852 2685 7791| lachlan.wolfers@kpmg.com

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal