Saudi Arabia: Guidance regarding VAT and e-commerce transactions

Guidance mostly addressing ride-sourcing or ride-sharing applications

Guidance mostly addressing ride-sourcing or ride-sharing applications

Guidance from the Saudi tax authorities with regard to e-commerce transactions reflects how the Zakat, Tax and Customs Authority (ZATCA) is rethinking the value added tax (VAT) treatment with regard to e-commerce in Saudi Arabia, with the guidance mostly addressing ride-sourcing or ride-sharing applications.

While, generally, the recent guidance (September 2021) aggregates previous guidance from the tax authorities, it also clarifies certain aspects of the VAT treatment of some specific e-commerce situations.

Issuing a tax invoice by the online platform

The ZATCA guidance states that when a VAT-registered agent (i.e., online platform) makes a supply on behalf of a principal, the agent may issue a tax invoice in relation to that supply as if that agent had made the supply itself. A tax invoice issued by the agent must contain all the usual required information, but it may include the agent’s, rather than the supplier’s, details—in which case, the invoice would need to contain a reference to the principal supplier (including the supplier’s name and tax number) somewhere on the invoice.

The guidance also mentions that when an agent is an undisclosed agent, the undisclosed agent has a responsibility to issue a tax invoice in its own name. With this clarification, it appears that the previous rule was intended to address a situation when an online platform acts as a disclosed agent.

Certain examples provided by the ZATCA guidance include:

  • The e-commerce application must issue an invoice to the buyer. It is further clarified when the invoice is to be issued in the name of the platform as the seller (the example may be interpreted as applicable for supplies on behalf of VAT-registered and not VAT-registered sellers).
  • If the seller is registered for VAT, the e-commerce application must indicate the seller’s tax identification number in the invoice, and then tax is to be collected on its behalf and remitted to the government if the seller is responsible for reporting and paying the tax to ZATCA. It is unclear whether ZATCA wants the platform to invoice, collect, and pay the VAT on behalf of those not registered for VAT. The uncertainty stems from a reading of the previous guidance on invoices and records, in which the ZATCA opined that third-party invoicing is subject to a pre-approval under a special procedure to be developed in future.
  • The e-commerce application is responsible for declaring/reporting the value of the commission from the sale and of the fees collected from users as entry fees. The platform’s obligation to disclose its portion of the charge to the customers in the tax invoice is not addressed; hence, this could be a concern for such online platforms.

Returned goods

Previously, in its digital economy guide, the ZATCA reported: “The Customs Authority or GAZT will not refund import VAT paid on goods which are subsequently returned. The cost of bearing import VAT for returned goods falls on the importer of the goods.”

In the new guide, this language is amended, thus shifting the burden by default from the importer to the end-customer: “ZATCA will not refund import VAT paid on goods which are subsequently returned. The cost of bearing import VAT for returned goods falls on the importer of the goods – end customer.”

Ride-sourcing applications

In ZATCA’s view, the business (online platform) acts as principal in performing the transportation service, and individual drivers provide their services to the business (not to the end-customer) provided all of the following conditions are met:

  • An individual traveler or company holds an account with a business offering taxi or similar land transportation services (including a business operating a mobile ride sourcing application)
  • The requests for transport are made through the business
  • The payment is collected by the business

The ZATCA’s guidance aligns its approach to ride-sourcing applications compared to other businesses. Previously, the tax authorities used the following criteria: “In many cases, the platform has the ability to set the parameters of the supply (such as arranging the delivery of goods and services, determining the selling price and setting terms and conditions of sale) and may also take on commercial risks for the supply (e.g. offering refund to a customer where the goods and services are not satisfactory).”

Food delivery applications

The recent guidance from ZATCA differentiates the following business models and their VAT regime interpretations:

  • Connection services with restaurants—the application is not considered to be the principal in this process due to the fact that the name of the restaurant is visible to the end-consumer. The restaurant is free to change menus and prices; accordingly, the application does not have to disclose the transferred products from the restaurant to the end-consumer as its own purchases.
  • Connection services with drivers—the application will be considered to be the principal in this transaction, and it must disclose the entire delivery value as revenue in its VAT return. The ZATCA guidance does not provide any further detail for this model. Still, it could be assumed to be aligned with the ride-sourcing applications approach as outlined above.
  • Resale model—the full amount is considered subject to VAT in hands of the online platform.


For more information, contact a KPMG tax professional:

Philippe Stephanny | +1 202 533 3082 | philippestephanny@kpmg.com

 

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