Guideline for

Evidence for Not Charging VAT on Temporary Transfers of Goods As an exception, VAT is not charged on temporary transfers of ownership of tangible commodities or other Goods as part of a Shari’ah-compliant financing product. Subject to meeting evidential requirements, such temporary transfers are not considered supplies of Goods and are therefore outside the scope of VAT. To consider the temporary transfer of the Goods as outside the scope of VAT, the supplier should be able to evidence that29: • the Supply of Goods to the financier is part of a Shari’ah-compliant financing product; • the Goods are transferred temporarily; • the possession of the Goods is not intended to pass permanently to the customer; and • the supplies taking place do not result in end consumption. The following documents should primarily be used to evidence the temporary transfer of Goods as being outside the scope of VAT: • Contractual arrangements between parties which evidence a contractual requirement for the transfer of goods to be temporary, under the normal course of events; • Official product specification documents specifying the underlying goods and confirming the temporary nature of the transfer. In cases where contractual agreements or product specification documents do not exist, another official undertaking signed by all parties may be considered. 29. Article 29(4), Implementing Regulations 14. Penalties The Authority may impose penalties or sanctions on taxpayers in relation to violations of the provisions and conditions of the VAT Law and its Implementing Regulations30. Non-Field Violations Description of the Violation Associated Penalty Submission of incorrect documents with the intent to evade payment of the due tax or to pay an amount less than the due tax. Not less than the amount of the due tax. Not exceeding 3 times the value of the goods or services. Transporting goods from or to the Kingdom without payment of the due tax. Not less than the amount of the due tax. Not exceeding 3 times the value of the goods or services. Failure to register for VAT purposes within the specified registration period. SAR 10,000 Submission of an incorrect tax return, amendment of a tax return after submission, or submission of any document to the Authority relating to the due tax, resulting in an error in calculating the tax amount at less than the amount due. 25% of the difference between the calculated tax and the due tax. The Authority may increase the penalty rate up to a maximum of 50% or reduce it to 0%. Failure to submit the tax return within the specified time. 5 - 25% of the tax for which the return should have been submitted. Failure to pay VAT within the specified time. 5% of the due tax for each month or part thereof. Collection of VAT without registration for tax purposes. A penalty of up to SAR 100,000. 30. Chapter 16, Articles 41, 42, 43, 44, and 47: Tax Evasion and Penalties - VAT Law. In the above cases, if the violation is repeated within 3 years from the date of issuance of the final decision regarding the penalty, the Authority may double the penalty in the event of recurrence of the violation. The Authority determines the level of the penalty or sanction imposed on the taxable person, taking into consideration the conduct of the taxable person and their VAT compliance record, including the taxable person’s fulfillment of the obligation to notify the Authority of any errors and cooperation with the Authority to correct such errors. The penalty associated with the violation of “submission of an incorrect tax return, amendment of a tax return after submission, or submission of any document to the Authority relating to the due tax resulting in an error in calculating the tax amount at less than the amount due” shall be calculated as shown in the table above, in accordance with the following rules. First: Increase of the Penalty The Authority has the right to increase the penalty rate associated with the violation of “submission of an incorrect tax return, amendment of a tax return after submission, or submission of any document to the Authority relating to the due tax resulting in an error in calculating the tax amount at less than the amount due” by up to a maximum of 50% of the difference between the calculated tax and the due tax, if one or more aggravating factors apply, as follows: The penalty shall be increased by 10% where the error in the return is associated with a case of tax evasion for which a decision has been issued by the Authority, in accordance with