KSA - VAT Rate to Increase from 5% to 15%
The Ministry of Finance announced an increase to the value added tax (VAT) rate—measures to counter the economic implications of the coronavirus (COVID-19) pandemic. (https://www.mof.gov.sa/en/MediaCenter/news/Pages/News_11052020.aspx#)
Due to increase of VAT Rate from 1st of July 2020, there can be a lot of implications for business dealing under B2B & B2C models. Some of the points that will require further consideration are:
- Return of Goods after the rate change
- Amendment of VAT Clauses in existing contracts to account for rate increase
- Updation of Sales and Accounting Software to incorporate the change
- Goods / Services which are covered under Continuous Supply Contract (AMC Contracts, Commercial Rental Agreements, Insurance Agreements, Construction Contracts, etc)
- Advance Payment Received before July 2020 and goods / services supplied post July 2020
- Price List Revision post July 2020
- Amendment in Tax Invoices, credit notes, purchase orders, etc to include change in tax rate
Impact on Registered Entities conducting VAT Exempted Activities
Entities may face a significant increase in costs as they will not be able to claim input VAT for exempted supplies. The increase in cost can lead to increase in end user prices, reduction in profits, etc
Impact on Businesses under Constant Refund Position
Entities having constant VAT refund position needs to plan the refund claim filing and documentation process thoroughly in order to manage cash flow liquidity on account of rate increase.
Transitional Procurement Phase
There might be increase in Sales of Supermarkets, Vehicle Dealers, FMCG products, etc before 1st July 2020 as the Taxpayers might plan their purchases accordingly in order to avoid increased rate of VAT.
Companies needs to start evaluating their business models so as to incorporate the required changes before the new rate comes into force in order to avoid any tax litigation. In case if you need any further discussion on VAT Registration, please get in touch with our team.
Note: UAE currently does not have any plans to increase rate of VAT and it is being clarified by UAE Ministry as well.
Disclaimer – The post is a brief general description for the news released by Ministry. Before acting on such information, please consult our advisers in order to get detailed idea about its applicability on various business models and scenarios.
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