Saudi Arabia: VAT and government contracts; amendments are generally effective 1 November 2021

Amendments to the value added tax rules with regard to government contracts

Amendments to the value added tax rules with regard to government contracts

The Zakat, Tax and Customs Authority (ZATCA) on 9 October 2021 announced amendments to the value added tax (VAT) rules with regard to government contracts.

The amendments are designed to support taxpayers providing goods and services through contracts concluded under the procurement procedures of the Saudi government.

The ZATCA also issued a guide to clarify certain provisions under the VAT implementing rules. 

Overview

Under the amendments, when supplies of goods or services are made to a government body through contracts concluded pursuant to the Saudi procurement process, such supplies are deemed to take place and VAT is due at the earlier of:

  • The date when the payment order is issued to the supplier for the supply, or
  • The date when consideration (or a part thereof) is received, to the extent of the amount received

The term “government body” is not defined, and thus may provide some various interpretations. The guide refers to government ministries and authorities, and other bodies governed by public law that must abide by the procurement process. The definition of government body or agency, however, does not extend to government-owned enterprises, even if the percentage of such ownership is 100% of the capital.

The VAT rule amendments do not apply to:

  • Supplies when the government body is not a counterparty (including when a subcontractor is working for a main contractor that is in turn the contracting party with the government body)
  • Supplies to a government body that is not acting in the subject transaction in its public capacity and thus is not covered by the procurement process

When a supply is made to a government body that is acting in its public capacity and the amount is less than SAR 300,000 (approximately U.S. $80,000), the government body is still subject to the procurement rules and also is subject to the new amendments even though the Etimad platform is not used to process the payments.

Effective date and transition rules

The VAT amendments are effective 1 November 2021, but there are some transition rules:

  • When the tax invoice is issued before 1 November 2021, the “old” rules apply to the related VAT liabilities after 1 November 2021.
  • When neither the tax invoice is issued nor payment is made by the government body before 1 November 2021, but the claim made by the supplier is issued before 1 November 2021, the “old” rules apply to the related VAT liabilities after 1 November 2021.
  • In all other situations, the “new” rules apply to determine taxable event date and related VAT liabilities after 1 November 2021.

With regard to continuous supplies under a pre-agreed schedule of payments (that is, due and payable in periodic installments and on prescheduled dates), the measures apply to “services” only, and the service provider is required to issue an invoice at least once, every 12 consecutive months. 


For more information, contact a KPMG tax professional:

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

 

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