Saudi Arabia VAT in Odoo

Saudi Arabia VAT in Odoo

What is VAT?

Value Added Tax (or VAT) is an indirect tax imposed on all goods and services that are bought and sold by businesses, with a few exceptions. VAT is applied in more than 160 countries around the world as a reliable source of revenue for state budgets.

VAT is imposed at each stage of the supply chain from the production and distribution to the final sale of the good or service, as illustrated below:

saudi-vat-technaureus-odoo

The consumer pays the VAT cost on purchased goods and services. Businesses pay the government the VAT collected from their customers’ purchases and refund the VAT they paid to their suppliers.

In June 2016, the GCC countries agreed to impose VAT across the GCC region. In February 2017 (Jumada Al-Awwal 1438), Saudi Arabia ratified the GCC VAT framework and committed to impose VAT with effect from January 1, 2018 (Rabi Al-Thani 14, 1439). VAT will be introduced at a standard rate of 5%.

The General Authority of Zakat and Tax (GAZT) is responsible for managing the implementation, administration and enforcement of VAT in Saudi Arabia. It does so in close coordination with other relevant entities.

The VAT Law, that was published in H1438/11/4, is available in full here. All goods and services will be subject to VAT. However, some goods and services will be exempt. For further information on exempted items please read chapter 5 of the Implementing Regulations. Taxation will be based on the nature of goods and services provided by the taxable person according to the policy stated at GCC Agreement level as well as in the Implementing Regulations.

  • 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 the General Authority for Zakat and Tax
  • The registration period for companies below SAR 1M in revenues will extend until the end of 2018.
  • Those which make an annual taxable supply of goods and services in excess of SAR 187,500 but less than SAR 375,000 are eligible to register voluntarily. Voluntary registration provides significant benefits for the companies since it allows the deduction of input tax.
  • Businesses which are generating less than 187,500 SAR annual revenue are exempt from the need to register
  • Businesses that provide goods and services which are not subject to VAT are not required to register for VAT
  • The registration period for companies below 1M SAR in revenues will extend until the end of 2018. Beyond this there will be no grace periods.
  • The mandatory registration threshold is calculated on the basis of the taxable turnover either based on the past twelve months or in the twelve months to come.
  • A branch and its head office are considered to be one taxable person for VAT purposes, given that they both form part of the same legal entity. This also applies in case of two branches with different Commercial Registrations (CRs).
  • Registration has officially been launched on 28 August 2017. Upon successful registration, the Authority will issue a registration certificate along with a separate VAT identification number.
  • Any registration application must contain the following minimum information:
    1. The official name of the legal person or natural person;
    2. Physical address of regular abode or place of business;
    3. Registered address to receive electronic mail
    4. Existing electronic identification number issued by the Authority, if any;
    5. Commercial Registration identification number;
    6. Value of annual supplies or annual expenses; and
    7. Effective date of registration, or any alternative requested effective date.
  • Companies that fall below the voluntary threshold will not be eligible for VAT registration. Companies that meet the voluntary threshold and are below the mandatory threshold have the option to register for VAT.
  • A taxable supplier is responsible for issuing an invoice with the appropriate VAT applied. Where a supplier is not registered for VAT, they are not entitled to charge any VAT and as such the company should not pay any VAT to the supplier.
  • Two or more Legal Persons may apply to register as a TAX Group in the Kingdom if the following requirements are met:a) Each Legal Person is resident in the Kingdom and carries out an Economic Activity;
    b) Fifty percent (50%) or more of the capital of each legal Person, or ownership or control of fifty percent (50%) or more of the voting rights or value, in both or all of the legal Persons, is held by the same Person or group of Persons, whether, in any of the foregoing cases, directly or indirectly
    c) At least one of the Legal Persons is a Taxable Person eligible to be registered in its own right.
  • The Tax Return of a Taxable Person must be filed electronically with the Authority for each Tax Period by the last day in the month following the end of the Tax Period to which the Tax Return relates.
    • Taxable persons which make an annual taxable supply of goods and services in excess of SAR 40,000,000 will be required to file VAT returns monthly
    • All other taxable persons will be required to file VAT returns quarterly. However, such persons may elect to file monthly returns subject to approval by GAZT

    Payment of Tax due by a Taxable Person in respect of a Tax Period must be made by the last day of the month following the end of that Tax Period.

  • A Taxable Person is only allowed to apply for cash-based accounting provided that the annual value of taxable supplies in the past calendar year and the anticipated value of taxable supplies in the current calendar year does not exceed five million Saudi riyals. This is intended to support small businesses with the implementation of VAT. Taxable persons with taxable supplies above that threshold will be required to report to GAZT on accrual accounting basis.
  • VAT filing will be conducted via the existing GAZT e-portal. This will not require a direct linking to company systems.
  • Where any amount is expressed in a currency other than riyals, the amount must be converted to riyals using the daily rate prescribed by the Saudi Arabian Monetary Authority on the date Tax becomes due.
  • Where any amount is expressed in a currency other than riyals, the amount must be converted to riyals using the daily rate prescribed by the Saudi Arabian Monetary Authority on the date Tax becomes due.
  • The VAT Invoice must include the following details in Arabic, in addition to any other language also shown on the Tax Invoice as a translation:
    1. The date of issue;
    2. A sequential number which uniquely identifies the invoice;
    3. The Tax Identification Number of the Supplier;
    4. In cases where the Customer is required to self-account for Tax on the Supply, the customer’s Tax Identification Number and a statement that the Customer must account for the Tax;
    5. The legal name and the address of the Supplier and of the Customer;
    6. The quantity and nature of the Goods supplied or the extent and nature of the Services rendered;
    7. The date on which the supply took place, where this differs from the date of issue of the invoice;
    8. The taxable amount per rate or exemption, the unit price exclusive of VAT and any discounts or rebates if they are not included in the unit prices;
    9. The rate of Tax applied;
    10. The Tax amount payable, shown in riyals;
    11. In the case where Tax is not charged at the basic rate, a narration explaining the Tax treatment applied to the Supply;
    12. In cases where the margin scheme for used Goods is applied, reference to the fact that VAT is charged on the margin on those Goods.
  • Self-billed Tax Invoices may be issued by the Customer on behalf of a Supplier in respect of a Taxable Supply made to the Customer, provided that a prior agreement between the Supplier and the Customer has been made to this effect. Such agreement must confirm a procedure for the acceptance of each Invoice by the Supplier of the Goods or Services, and include an undertaking by the Supplier not to issue Tax Invoices in respect of those Supplies.
  • GAZT will not require submission of any invoices or supporting documents for VAT returns. The documents need to be retained in electronic or paper form in Arabic for 6 years for auditing purposes.
  • The invoices, books, records and accounting documents required to be maintained by a Person in accordance with the Agreement must be kept for a minimum period of six (6) years from the end of the Tax Period to which they relate.Records with respect to Capital Assets must be kept for a minimum of the Adjustment Period for these Capital Assets prescribed in article 50 of these Regulations, plus five (5) years, from the date those Capital Assets are acquired by the Person.Records must be kept in the Kingdom either physically or through an access to the relevant server where these records are stored. In cases where the Taxable Person opts to store the records electronically, the following conditions must be met:
    1. The computer system or server must be physically located in the Kingdom. A Taxable Person who has a fixed establishment in the Kingdom may have its central computer outside of the Kingdom, provided it has with a terminal at the subsidiary in the Kingdom through which all data and entries regarding the account of the fixed establishment in the Kingdom can be accessed.
    2. Data entered into the computer system must be in Arabic and must be an identical copy of said books.
    3. Original supporting documents for all entries in accounting books must be kept locally
    4. Final accounts and balance sheet may be generated directly by computer. In the case of using a conventional accounting method with computer assistance for some account items, all settlement entries must be provided in Arabic.
    5. The Taxable Person must document computer data entry and processing system of accounting entries for reference, when needed.
    6. The Taxable Person must have necessary security measures and adequate controls, which can be reviewed and examined, to prevent tampering
    7. The Authority may review electronically the systems and programs applied by the Taxable Person to prepare its computerized accounts.
  • There are provisions in place to qualify receivables as “bad debt” in case the payment is not received for a period exceeding the threshold and any further conditions according to Art. 40 (7) of the VAT Implementing Regulations are met. Amounts that qualify as bad debt can be adjusted by the taxpayer.
  • GAZT will be in charge of paying back refunds.
  • In case a customer returns a product, The company will have the option to make an adjustment to previous VAT filings.
  • For further information about penalties, please refer to the Law Chapter 16 on the following link
  • GAZT will not require additional audit requirements but an auditor’s opinion may be required in cases where a bad debt needs to be qualified.

In order to access the VAT Law, please follow the link

The following eight-step guide details the requirements for VAT readiness. It is recommended that every large business follows the below steps to ensure a smooth implementation of VAT by 1st January 2018 (H1439/4/14).

VAT--How-to-get-ready-8-steps_v2

How should businesses register?

In order to register for VAT, businesses must first be registered at GAZT for Zakat and Income Tax.

Some large companies, particularly those already registered for other forms of tax in Saudi Arabia, will be auto-registered for VAT by GAZT:

  • If this applies to your business, you will receive a notification from GAZT notifying you of this
  • In that case, we advise you to log-in to check the validity of the information and to upload any supporting documents you may have on the following link: https://gazt.gov.sa  then click on user login

If your company is not auto-registered, registration is open since August 2017 to all eligible companies and businesses. You can register online on the following link: https://gazt.gov.sa  then click on user login.

Courtesy: GAZT – SA

VAT in Odoo

Example of VAT with purchase and sale of particular product.

Vat_Uae_saudi_arabia_In_Odoo_Technaureus

When we do purchase including VAT:

Vat_Uae_saudi_In_Odoo_Technaureus

Journal entries:

Vat_Uae_saudi_In_Odoo_Technaureus

When we sell the same product with our margin including VAT to customer:

Vat_Uae_saudi_In_Odoo_Technaureus

Journal entries:

Vat_Uae_saudi_In_Odoo_Technaureus

Leave a Reply

Your email address will not be published. Required fields are marked *