VAT: Saudi businesses given transition period to renegotiate long-term contracts

JEDDAH: The first year after the launch of the value-added tax (VAT) will be a transitional period, and goods and services supplied under certain long-term contracts will be zero-rated during that period provided the contracts meet certain requirements, the General Authority of Zakat and Tax (GAZT) has announced.
This will enable suppliers and customers who had entered into long-term contractual commitments to renegotiate the contracts’ details, particularly details that will be affected by VAT implementation.
GAZT clarified this treatment applies only to contracts that did not anticipate VAT. Contracts that contain tax-related provisions or mechanisms to adjust prices of goods and services and include VAT will not be exempted.
The GAZT explained that all requirements should be met to apply the transitional provisions: Contracts must have been signed before May 30, 2017; customers should be able to fully deduct the input tax on the supply made; the customer should submit a written letter to the supplier to confirm his ability to fully deduct and refund input tax on the supply. All orders made after Dec. 31, 2018, are subject to VAT, with the correspondent rate indicated in the VAT law and implementing regulations.
GAZT confirmed its willingness to put in place flexible legislation to facilitate VAT implementation for businesses and maximize their readiness. Offering a one-year transition period for contract negotiations will support businesses in adjusting to the new tax system.
The authority has urged all businesses to be fully ready for VAT before its implementation on Jan. 1, 2018, and advised them to visit the official VAT website, www.vat.gov.sa, which contains a VAT manual with a simplified explanation of the basic steps businesses need to take to implement VAT, as well as a wide range of tools and information to support businesses in achieving readiness.
All businesses whose annual revenues exceed SR1 million ($266,600) must register for VAT by Dec. 20, 2017, to avoid penalties and fines, and suspension of government services.