w.e.f 1 November,2021
Saudi Arabia: The Zakat, Tax and Customs Authority has announced a legislative amendment to the provisions of Article No. 20 of the Value-Added Tax (VAT) Executive Regulations on setting the date of supply and tax entitlement in certain cases.
This amendment includes changing the date of supply and VAT entitlement for all supplies of goods or services by the establishments which are:
- Subject to VAT (Taxpayer)
- Contracting with government agencies in accordance with the new government tenders and procurement law.
Under this change, the tax entitlement date will be the date which is the earlier of the following two dates:
- Issuing the payment order for the claim related to taxable supplies, in accordance with the procedures of the tender law
- The date of receiving the consideration for the supply or part of it.
A table of this change would help bring more clarity on this topic:
| BEFORE CHANGE | AFTER CHANGE | |||
| Earlier Of | Earlier Of | |||
| The invoicing date | The supply of good or services | Receipt of consideration or part of it | Issuance of Purchase Order | Receipt of consideration or part of it |
This aims to support taxpayers who contract with government agencies to properly fulfill their tax obligations without it being a burden on them by ensuring that the taxpayers receive the tax amount from the contract before filling it in its periodic return and paying it to the authority.
This amendment will come into effect from the 1st of November 2021.
This is not an ordinary dealing between two persons independent of one another, rather it is a contract between the taxpayer and the government agency which must comply with the new government tender and procurement law and therefore it is governed by specific rules and procedures in light of the statutory provisions which must be adhered to.
The amendment made by the authority stipulated that “in cases where supplies of goods or services are made to a government agency for which the contract is concluded in accordance with the new government tender and procurement law, the date of supply is deemed to occur on the date of issuing the payment order or on the date of receipt of the consideration or part of it, whichever comes first. This means that the due date for tax on supply of goods or services to the government agencies is no longer linked to the date on which the activity took place or the invoicing date.
It must be emphasized that the working capital of the government contractors would be drastically enhanced by this change as it improves the liquidity of the contractors.
Moreover, this amendment is in line with the VISION 2030 of the Kingdom as it aims to actively promote the Private Sector which in turn would result in economic diversity and development in the country and boost their competitiveness to face regional and international competition.
Simple illustration to understand the change.
The scope and impact of the amendment can be explained with a simplified example illustrating the difference between the current treatment and the treatment after the amendment.
Illustration:
XYZ Company has contracted with one of the ministries to supply computers with a value of one million riyals including the value added tax and stipulates that the contract is concluded with the company in accordance with the new government tender and procurement law.
As per the contract, the devices are to be supplied in batches, and the company would raise an invoice to the authority for each batch.
The company supplied a batch of 20 devices with a value of 120,000 riyals, excluding tax, during the months of November and December 2021 and issued an invoice to the Ministry through the Etimad (The Electronic Government Procurement System) platform on January 25, 2021.
After supplying the devices and receiving the invoice from the company, the Ministry checks the specifications of the devices and makes sure that it conforms to the contracted specifications and details, and then follows the approved exchange procedures under the government tender and procurement law.On February 20, 2022, a payment order was issued to the company through the approved platform for the full value of the invoice, which was issued to the Ministry, including VAT.
Solution:
CURRENT TREATMENT
| Taxable Amount | Tax Rate | VAT | Filling Frequency | Filling Period | Due date for filling and payment | Explanation |
| 120,000 SAR | 15% | 18,000 SAR | Quarterly Filling | 4rth Quarter – 2021 | January 31, 2022 | Since the activity took place in the 4rth Quarter of 2021. |
TREATMENT AFTER AMENDMENT:
| Taxable Amount | Tax Rate | VAT | Filling Frequency | Filling Period | Due date for filling and payment | Explanation |
| 120,000 SAR | 15% | 18,000 SAR | Quarterly Filling | 1st Quarter – 2022 | April 30, 2022 | Since the purchase order was issued in the 1st Quarter of 2022 |
How T&H can help you?
T&H can help you to provide a better understanding of the exact impact of this change relating to VAT entitlement on your business and support you in the transitional provisions and more over professionally handle all your VAT related requirements from registration, computation, filing and departmental compliance.