Implementation of VAT in the Kingdom of Saudi Arabia - FAQ s

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1 VAT Basics What is Value added Tax? Value Added Tax (or VAT) is an indirect tax which is imposed on all goods and services that are bought and sold by businesses, with a few exceptions. VAT is used in more than 160 countries around the world as a reliable source of revenue for state budgets. Is VAT being introduced in Saudi Arabia? Following the agreement in June 2016 of the GCC countries to impose VAT across the GCC region, Saudi Arabia will be imposing VAT with effect from January 1, 2018, at a standard rate of 5%. The General Authority of Zakat and Tax (GAZT), in close coordination with other relevant entities, including SAMA, is responsible for managing the implementation, administration and enforcement of VAT in Saudi Arabia. When will VAT be introduced? VAT will be introduced in Saudi Arabia on 1 January Will VAT cover all goods and services? Most goods and services will be subject to VAT, however, some goods and services will be exempt and some will be out of scope. At what rate will VAT be introduced? The VAT rate will be set at a standard rate of 5%. Some goods and services will be zero rated (0%) or exempt. PUBLIC - 1

2 How is VAT calculated? VAT is calculated based on the value amount of the fee or charges of the service in scope of VAT. If we look at an example where VAT at 5% is to be chargeable on the product or service, and assume the value amount of the supply is SAR 100: 1. VAT is chargeable at 5% and therefore the VAT on this product/service is SAR 100 x 5% = SAR 5 2. This means that the total amount payable inclusive of VAT is SAR SAR 5 = SAR The price will be advertised as inclusive of VAT and will be SAR 105 Who is subject to VAT Registration? All companies, businesses or entities which make an annual taxable supply of goods and services in excess of SAR 375,000 are legally required to register for VAT with GAZT. What is SABB s VAT Registration Number? In compliance with VAT Implementation Regulations, SABB Bank has registered for VAT. The Saudi British Bank registered in Value Added Tax on: 20/02/1439, the VAT number is: Does VAT apply to transactions prior to the implementation of VAT on 1 January, 2018? Where there is an agreement for the supply of goods or services after 30 May 2017, and the contract expires or is renewed after 31 December 2017, then VAT may be chargeable. There are certain SABB products where this is the case, and VAT will be chargeable: For transactions covered by transition period, VAT will be applicable at the time of delivery of goods and services. Example 1: A customer holds a SABB credit card and on 1 July 2017 is charged an annual card renewal fee of SAR 200. Since the card renewal took place after the VAT Regulation date of 30 May 2017, VAT will be charged on the fee for the period from 1 January 2018 to 30 June SABB will charge to the customer an additional amount of SAR 5 in January 2018, in respect of VAT (calculated on six months fee of SAR 5%). Example 2: On 1 July 2017, a Bank Guarantee was issued with an expiry date of 31 December Commission was charged at the start of the guarantee (1 July 2017) to cover the entire period of the guarantee. VAT will be charged by SABB to the customer as follows: 1. For the period 1 July 31 December 2017, no VAT is applicable 2. From 1 January 2018, standard VAT rate of 5% will apply for the remaining period 1 January 2018 to 31 December 2018, on the commission amount already charged but relates to the period from 1 January How do I contact GAZT to find out more on VAT? For further information on VAT, you can visit the GAZT website at or contact GAZT by on VAT@gazt.gov.sa or through the GAZT call center PUBLIC - 2

3 The impact of VAT for our customers With the introduction of VAT, what will change for SABB customers? SABB General Banking Terms and Conditions will be amended to include a clause on VAT and the Bank s requirement to collect the Value Added Tax(VAT). Our Schedule of Services and Tariffs will be updated to reflect where VAT is applicable, and our fees/charges will be displayed as inclusive of VAT. The revised Schedule of Services and Tariffs will be published by 1st December 2017 on our website, and will take effect from 1 st January We recommend that you take the time to read it. What will be the treatment of Islamic Finance? Islamic Finance products and services are treated the same as their conventional equivalent, in accordance with the laws and regulations as detailed by GAZT. What will be the VAT treatment for General Banking transaction and administration services? Fees including general account charges, cheque issuance charges, and money transfer fees will be treated as standard-rated and VAT will be charged at 5%. As an example, currently the fee for a transfer made by a SABB customer to a bank outside of the Kingdom, would be SAR 75. From January 1, 2018, the fee will increase by 5%, so that inclusive of VAT the fee will be SAR Note that VAT is only payable on the fee, and not the transfer amount. For transactions that are taxable, is there a way for the tax to be waived e.g. upon renewal of the credit card annual fee? The requirement to charge VAT is governed by the KSA VAT law. As a VAT-registered business, SABB Bank is therefore under a mandatory obligation to charge VAT on its supply of taxable services. How will VAT be charged if I make the same type of transaction several times? VAT is a transaction based tax. This will mean that where VAT is applicable on a transaction, you will be charged each and every time that transaction is made. For example, if account bank fees are charged on a monthly basis and are VAT applicable, then VAT will be applied on each monthly fee charged by SABB. What happens if SABB charge me a fee for a product in error, and subsequently I am repaid a refund by the Bank? Will I get the fee plus the VAT repaid to me? Correct. The refund will be repaid, including any applicable VAT that has also been collected. PUBLIC - 3

4 Where can I see the impact of the VAT charges made by SABB to customers? The revised Schedule of Services and Tariffs will be published by 1st December 2017 on our website, and will take effect from 1 st January We recommend that you take the time to read it. You will also see clearly detailed on your bank statements, credit card statements, and other invoices as issued by SABB, the VAT that has been charged transaction by transaction. As a customer of SABB, is there anything I need to do? You should have received a notification from us informing you of these changes which will come in to effect. We will continue to update you with any relevant information so please do ensure you take the time to read the Value Added Tax guide and regularly check our website With regard to any VAT due on SABB product and services, SABB will ensure that this is correctly charged to your account. For any further information on VAT, you can visit the GAZT website at or contact GAZT by on VAT@gazt.gov.sa or through the GAZT call center The impact of VAT on our products and services How do we treat Home Finance and Personal Finance related services? The profit charged on the finance amount will be treated as exempt. Other applicable fees including administration fees and valuation fees, will be treated as standardrated. Late payment penalty charges are out of scope, and VAT is not charged. How do we treat Credit Cards and related services? The profit charged on the finance amount will be treated as exempt. Other fees including annual fees, cash advance and foreign currency exchange fees, will be treated as standard-rated. Late payment penalty charges are out of scope, and VAT is not charged. Currently I pay an annual fee for my credit card. Will this be subject to VAT? Yes. VAT will be charged on the annual fee of credit cards. Will I be charged VAT on my credit card transactions? The transactions on your credit card is between you and the vendor providing the goods or services. SABB will not charge you additional VAT on these transactions. PUBLIC - 4

5 Will VAT be charged on withdrawals made through an ATM? SABB do not charge any fees for a cash withdrawal using a Debit Card from any ATM within the Kingdom, and VAT will not be charged on the withdrawal amount when you use your Debit Card. If you use your SABB debit card at an ATM overseas, then VAT will be charged on the Cash Withdrawal Fee that is incurred. If you use your Credit Card for a cash withdrawal, either within or outside of the Kingdom, then VAT will be charged on the Cash Advance Fee on the withdrawal from the ATM. PUBLIC - 5