Guideline for

Mandatory Registration Registration is mandatory for all persons whose annual turnover exceeds a certain threshold. If the total value of a person’s Taxable Supplies during any 12 months exceeds SAR 375,000, (“the mandatory VAT registration threshold”), that person must register for VAT9 on the supplies made, subject to the transitional provisions provided for in the Implementing Regulations. Taxable Supplies do not include: • Exempt supplies such as exempt Financial Services, including Shari’ah-Compliant Financial Services, or residential rental which qualifies for VAT exemption; • Supplies taking place outside the scope of VAT in any GCC state; or • Revenues on sales of capital assets: A capital asset is defined as an asset allocated for long- term business use9. In certain circumstances, other tests will apply for mandatory registration: • Persons who are not resident in the Kingdom are required to pay the VAT in respect of supplies made or received by them in the Kingdom of Saudi Arabia and to register for VAT irrespective of the value of the supplies for which they are obliged to collect and pay the VAT 10. 9. Article 1, Unified VAT Agreement 10. Article 5(1), Implementing Regulations 3.3 Optional VAT Registration Any Resident person in the Kingdom who has Taxable Supplies or taxable expenses exceeding the “Optional VAT registration threshold” of SAR 187,500 in a 12- month period may register for VAT voluntarily11. Optional VAT registration may be desirable where a business wishes to claim VAT value charged to it on their costs before invoices are raised or the occurrence of an onward supply. More information on voluntary registration for VAT is contained at zatca.gov.sa. 11. Article 7, Implementing Regulations 4. VAT Treatment of Financial Services 4.1 General Financial Services can include a broad range of financial products, including Islamic Finance Products, supplied to both Taxable Customers (those customers who are registered for VAT and therefore qualify as Taxable Persons), and to other non-Taxable Customers (such as private individuals). As background, this chapter summarizes the main concepts relevant for determining the VAT treatment of all Financial Services in the KSA. In addition to these main concepts, specific VAT rules may apply to Islamic Finance Products, which take precedence over the standard VAT rules for Financial Services and for other Supplies of Goods and Services. 4.1.1 VAT Exemption Applies to Implicit Margins Earned on the Provision of Financial Services Supplies of Financial Services, as described in law, which are made to a resident Customer in the KSA, are by default treated as VAT exempt12. However, the VAT exemption is only available to the Supplier who is providing the Financial Services as principal: charging an implicit margin and/ or bearing the actual risk of providing the Financial Service. Financial Service providers will often not charge an explicit fee to Customers, but will instead be remunerated by way of interest calculated periodically, or through an implicit margin. The implicit margin is often not communicated to the Customer as being the consideration payable for the provision of the financial service, but is the profit or revenue earned by the Supplier, which takes the form of a mark-up, spread, or profit earned on the provision of the services. 12. Article 29(1), Implementing Regulations