Guideline for

This Guideline The importance of this Guideline lies in providing further clarification to legal and natural persons who carry out economic activities and who are required to register for VAT purposes, with regard to the obligations and tax implications related to Islamic financial products and Sharia-compliant financing, including commercial banks, insurers, asset financing companies or any other business that provides Shari’ah-Compliant Financing Services as part of its overall activities. 2. Definitions of Key Terms A Taxable Person is any natural or legal person who carries on an economic activity. • who is registered for VAT in the KSA, or • who is required to be registered for VAT in the KSA1 . Supplier is defined in the Unified VAT Agreement as “A Person who supplies Goods or Services.” 2 Customer is defined in the Unified VAT Agreement as “A Person who receives Goods or Services.”3 Supply is defined in the Unified VAT Agreement as “Any form of supply of Goods or Services for consideration in accordance with the cases provided for in Chapter Two of this Agreement.” 4 Supply of Goods means “the transfer of ownership of such Goods or the right to dispose of the same as an owner.” 5 Supply of Services is “any Supply that does not constitute a Supply of Goods under this Agreement shall be considered a Supply of Services.”6 Place of Supply is the country, or other place, where a Supply is considered to take place for VAT purposes according to the rules set out in the Unified VAT Agreement, VAT Law, and Implementing Regulations. 1. Article 2, Unified VAT Agreement 2. Article 1, Unified VAT Agreement 3. Article 1, Unified VAT Agreement 4. Article 1, Unified VAT Agreement 5. Article 5, Unified VAT Agreement 6. Article 7, Unified VAT Agreement Economic Activity is defined in the Unified VAT Agreement as “An activity that is conducted in an ongoing and regular manner, including commercial, industrial, agricultural or professional activities or Services or any use of material or immaterial property, and any other similar activity.” 7 Islamic Finance Products are financial products offered under contracts or arrangements that are Shari’ah-compliant and that simulate the intention and achieve effectively the same result as a non-Shari’ah-Compliant Financial Product8. Also referred to as “Shari’ah-Compliant Financial Products”. Financing recipient is not a defined term for VAT purposes. In this guideline, it refers to a Person wishing to obtain financing under a Shari’ah compliant financial product. Constructive possession is not a defined term for VAT purposes. In this guideline, it refers to a circumstance where a person holds legal ownership to an asset, without holding the physical possession or right to use the assets. Actual possession is not a defined term for VAT purposes. In this guideline, it refers to a circumstance where a person holds physical possession and right to use an asset (whether or not that person holds legal ownership). 7. Article 1, Unified VAT Agreement 8. Article 29, Unified VAT Agreement 3. Economic Activity and VAT Registration 3.1 Who Carries Out an Economic Activity? An Economic Activity may be carried out by both natural or legal persons. It will be presumed that a legal person that has a regular activity making supplies carries on an Economic Activity. Natural persons may perform certain transactions as part of their Economic Activity, or as part of their private activities. There are, therefore, specific rules to determine whether or not a natural person falls within the scope of VAT. Natural persons and legal persons who carry on an Economic Activity must register for the purposes of VAT if so required, and such persons must collect the VAT applicable to their activities and pay the tax to the Authority.