Non Resident VAT Registration in KSA: Key Insights

Value Added Tax (VAT) was introduced in Saudi Arabia on January 1, 2018 at a standard rate of 5%. The rate was later increased to 15% effective July 1, 2020. VAT applies to most goods and services supplied in the Kingdom, with some exceptions. Non-resident businesses that make supplies with a place of supply in Saudi Arabia are generally required to register for VAT if the customer is not VAT registered. However, the mandatory appointment of a tax representative has been removed, making registration easier. The purpose of this post is to guide Non Resident VAT Registration in KSA and highlight key considerations.

Eligibility for VAT Registration

To be eligible for VAT registration, a non-resident business must meet the following criteria:

• It is established in a country that has a similar tax system to VAT
• It is registered for that similar tax system with the relevant tax authority in its home country 
• The country of the non-resident permits a similar refund mechanism for Saudi entities incurring tax in that country
  

Other designated persons like foreign governments, international organizations, and diplomatic bodies are also eligible for VAT registration in Saudi Arabia, even if they are not carrying on an economic activity in the Kingdom.

 VAT Registration Process

The KSA VAT registration for non-residents involves two stages:

• Applying for registration as an eligible person for a VAT refund
• Submitting the actual refund application

The application must be made electronically through the ZATCA online portal, along with supporting documents. Certain key considerations include:

• Ensuring access to a Saudi bank account
• Analyzing permanent establishment risks before submitting the refund request

Documents Required For Non Resident VAT Registration in KSA

• Copy of commercial registration certificate (or equivalent document)
• Copy of valid passport
• Proof of business activity (e.g. contracts, invoices, etc.)
• Proof of non-resident status (e.g. certificate from home country's tax authority)
• Power of attorney (if appointing a tax representative)
• Tax representative's ID and contact information (if applicable)
• Business owner's ID and contact information
• Proof of address (e.g. utility bill, lease agreement)
• Bank account details (for refund purposes)
•  Additional documents may be required based on specific circumstances (e.g. proof of export activities)

 Challenges and Pitfalls for Saudi VAT for foreigners:

• Language barriers and cultural differences Complexity of KSA VAT regulations and procedures
• Difficulty in obtaining necessary documents and information
• Risk of non-compliance due to lack of understanding Penalties and fines for late registration, filing, or payment
• Challenges in recovering input tax and claiming refunds
• Difficulty in navigating the tax authority's online portal and systems
• Potential for double taxation or tax conflicts with home country

Tax Representative Requirements

In KSA, a tax representative is a legal figure responsible for compliance with all the requirements of organizing Value-Added Taxation (VAT) for non-residents companies. A tax representative is a person or firm legally authorized to represent the non-resident business in all Taxation concerns particularly VAT in the KSA. Some of the matters that the representative is supposed to do include; registration of the business with VAT, the filing of tax returns as well as the making of payments on behalf of the business. They also interface the business with the Saudi Arabian tax agency, the General Authority of Zakat and Tax (GAZT).

The following benefits can be accrued by non-resident businesses in case they appoint a tax representative; Also, it helps avoid non-compliance with the VAT law and other related legislations which attract penalties and fines. Secondly, an appointment of a tax representative can ensure legal advice and assistance concerning the KSA’s VAT laws and procedures regarding the tax system. This can be especially useful if the company has no prior knowledge of the contextual taxation system. Also, the use of a tax representative is that this individual can communicate with the GAZT, resolve all possible problems or questions. Thus, non-resident businesses planning to operate in KSA must appoint a tax representative to help them meet the expectations for VAT implementation without interruptions regularly.

Compliance and Reporting Obligation 

compliance and reporting obligations pertain to VAT regulations in Saudi Arabia (KSA). include:

• VAT Return Filing: Returns must be filed electronically within 28 days after the tax period ends, with payments due by the same deadline.
• Record Keeping: Businesses must maintain accurate records for at least five years, including sales invoices and VAT payment records.
• Additional Reporting: Additional submissions, such as VAT refund applications, are required.
• Penalties: Non-compliance can result in fines for late filings or inaccurate records.
• Best Practices: Regular record reviews and seeking professional advice are recommended.

Penalties for Non-Compliance

Penalties for Non-Compliance Heavy penalties and fines may be incurred for failure to adhere to VAT regulations. The Federal Tax Authority (FTA) may impose the following consequences:

Late Registration Penalty:

• AED 10,000 to AED 20,000 for late registration

Failure to Register Penalty:

• AED 10,000 to AED 50,000 for failure to register

Late Filing Penalty:

• AED 1,000 to AED 3,000 for late filing of VAT returns

Late Payment Penalty:

• 1% of unpaid VAT per month, up to a maximum of 24%

Inaccurate or Incomplete Records Penalty:

• AED 5,000 to AED 50,000 for inaccurate or incomplete records

Failure to Maintain Records Penalty:

• AED 5,000 to AED 50,000 for failure to maintain records

VAT Evasion Penalty:

• Up to 5 times the amount of VAT evaded

Legal Action:

• Imprisonment for up to 5 years
• Fines up to AED 500,000

Conclusion

Non-resident businesses making supplies in Saudi Arabia need to carefully evaluate their VAT registration obligations. The recent changes have made the process simpler by removing the mandatory tax representative requirement. However, the eligibility criteria and application process still need to be navigated carefully. Seeking professional advice is recommended to ensure compliance.