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Saudi Arabia Clarifies VAT Rates, Including On Financial Services

by Lorys Charalambous, Tax-News.com, Cyprus

09 November 2017


Ahead of the introduction of value-added tax on January 1, 2018, Saudi Arabia's tax authority has provided guidance on the financial services value-added tax exemption and the general rules on value-added tax rates.

The guidance explains that most financial services transactions will be exempt from VAT, including interest on loans; lending fees charged with an implicit margin, such as loans and credit cards; mortgages; financial leasing; transactions involving money and securities; and current, deposit, and savings accounts.

Other exempt services include the provision or transfer of a contract of life insurance or the re-insurance of a life insurance contract, which is defined according to the Implementing Regulations as any contract of conventional insurance or Takaful or other form of Islamic insurance provided by a licensed provider in Saudi Arabia that results in the payment of a conditional amount of money in the case of death or the occurrence of an accident that impacts a person's life, or any similar contract provided by a non-resident supplier.

However, the financial services exemption doesn't cover situations where consideration is payable for a service, either by way of an explicit fee, commission, or commercial discount, as per Article 29 of the VAT Implementing Regulations. With regards to money transfers, the five percent VAT will apply to the explicit transfer fee only, not the total transfer amount, and that it should be paid by the person making the transfer.

The second set of guidance, released five days earlier, explains that most goods and services will be subject to VAT when it is introduced from January 1, 2018. The remainder will either be outside the scope of VAT, or they will be subject to a VAT zero rate (not subject to value-added tax but the supplier retains access to input tax credits), or exempt.

Zero-rated treatment is to be extended to supplies of certain medications and medical equipment, to be specified by the Ministry of Health and the Saudi Food and Drug Authority. In addition, precious metals – specifically supplies of gold, silver, and platinum for investment purposes that are at least 99 percent pure and tradable in the international bar market – will similarly be zero-rated.

Other zero-rated goods and services include any exports destined outside the GCC region, services supplied to non-GCC residents, international transport services of goods and people, and supplies of qualified international transport vehicles and related services such as the supply of spare parts, and the supply of maintenance, repair, and modification services in respect of transport vehicles.

As well as exempting most financial services, the rental of residential real estate will be exempt.

Activities exercised by a public authority will be outside the scope of the VAT regime.

TAGS: tax | investment | value added tax (VAT) | Saudi Arabia | interest | financial services | insurance | fees | tax credits | tax authority | services | Other | Regulations

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