Value-added tax according to the tax regulation in the Kingdom of Saudi Arabia for Dr. Abdullah Al-Lehidan

The book's writing the value-added tax from the most famous taxes indirect worldwide, because it targets goods and services as tax containers. Also, the value-added tax is based on the idea of social solidarity where members of society cooperate to provide financial resources that the state uses to spend on all fields, benefiting the current generation and future generations. Based on that, there are many systems and rules related to applying the value-added tax globally, which differ from country to another, according to the economic, financial, and executive conditions of each country. Therefore, it is difficult to apply the same tax system in all countries, due to the differences in internal systems related to each country, whether economic, financial, social, or other fields. Since the value-added tax in the Kingdom of Saudi Arabia was imposed based on the unified agreement for the value-added tax among the Gulf Cooperation Council countries, the agreement set the basic rules for imposing the tax at the level of member states, and made the determination of these rules a matter for each country individually, in accordance with its systems, policies, and future goals. Accordingly, the Kingdom of Saudi Arabia imposed the tax in line with the objectives of Vision 2030, under the leadership of the Custodian of the Two Holy Mosques and the Crown Prince, which aim to develop the Kingdom in all fields according to long-term plans, ensuring a prosperous life for future generations. Among these goals is diversifying sources of national income and not relying on a single income source that may be affected in the future, especially amid economic fluctuations and changing conditions. Since the value-added tax relates to many aspects such as taxpayers, taxable containers, primary and secondary elements, it requires clarification in an easy and smooth manner that facilitates the reader's understanding of the philosophy of the value-added tax and its application mechanism. Therefore, the author has been keen to provide a comprehensive and clear explanation of all aspects of the value-added tax from a legal perspective, highlighting what practitioners in the labor market and those familiar with tax systems need, without neglecting the role of the Zakat, Tax, and Customs Authority in implementing tax systems. The book also discusses the mechanism for resolving tax disputes represented by the General Secretariat of the Zakat, Tax, and Customs Committees. Table of Contents Introduction to the book... 3 Chapter One: Introduction. 8 Section One: Preliminary. 8 Section Two: The competent authority for organizing the value-added tax. 11 First requirement: Preliminary. 11 Second requirement: Administrative organization of the Zakat, Tax, and Customs Authority. 12 Third requirement: Financial resources of the Zakat, Tax, and Customs Authority. 15 Fourth requirement: Technical organization of the Zakat, Tax, and Customs Authority. 15 Fifth requirement: Legal organization of the Zakat, Tax, and Customs Authority. 16 Chapter Two: Taxpayers. 18 Section One: Preliminary. 18 Section Two: Those obligated to the value-added tax. 19 First requirement: Preliminary. 19 Second requirement: Those obligated to register for the tax. 21 Subsection One: Individuals. 22 Subsection Two: Companies... 22 Subsection Three: Charitable associations and institutions. 23 Subsection Four: Government entities. 24 Subsection Five: Agents. 24 Subsection Six: Foreigners... 26 Third requirement: Those not obligated to register for the tax. 26 Fourth requirement: Concept of residence. 27 Section Three: Types of registration in the value-added tax. 29 First requirement: Mandatory registration... 30 Subsection One: Registration when exceeding the minimum mandatory registration threshold... 32 Subsection Two: Mandatory registration when expecting the supplies to exceed the mandatory registration limit... 35 Subsection Three: Mandatory registration for non-residents in Saudi Arabia. 38 Second requirement: Voluntary registration.. 39 Third requirement: Group registration. 42 Fourth requirement: Registration for tax refund purposes. 48 Subsection One: Missions and international organizations. 53 Subsection Two: Real estate developers... 54 Section Four: Registration procedures.. 55 Section Five: Cancellation of registration in the value-added tax. 56 First requirement: Ceasing activity... 57 Second requirement: Ceasing taxable supplies... 58 Third requirement: Decrease in the value of taxable supplies below the minimum registration threshold... 58 Subsection One: Decrease in total supplies and expenses over the previous twelve months. 59 Subsection Two: Decrease in total supplies and expenses over the previous twenty-four months. 59 Subsection Three: Expectation of decrease in total supplies and expenses over the next eleven months. 60 Fourth requirement: Cancellation of registration for non-residents. 61 Fifth requirement: Cancellation of registration for persons registered unjustly. 62 Section Six: Related persons.. 63 Chapter Three: Tax exemptions. 67 Section One: Preliminary. 67 Section Two: Persons exempt from the tax. 69 First requirement: Diplomatic missions. 71 Second requirement: Government entities. 72 Section Three: Containers exempt from the tax. 73 First requirement: Government services. 74 - Case One: 75 - Case Two: 76 Second requirement: Purchase vouchers. 77 - First image: 77 - Second image: 78 - Third image: 78 Third requirement: Financial services. 80 Fourth requirement: Life insurance. 81 Fifth requirement: Personal belongings, personal necessities, and gifts. 82 Subsection One: Personal belongings and household necessities. 83 Subsection Two: Personal belongings and gifts accompanying travelers. 84 Sixth requirement: Government education sector... 84 Seventh requirement: Islamic finance... 86 Eighth requirement: Government health sector... 87 Ninth requirement: Supplies for people with special needs. 88 Tenth requirement: Export and temporary import... 89 Eleventh requirement: Real estate supplies. 90 Twelfth requirement: Residential property... 92 Thirteenth requirement: Supplies between the group and supplies to the taxpayer himself. 94 Fourteenth requirement: Goods imported from Gulf Cooperation Council countries members in the agreement. 95 Fifteenth requirement: Transfer of taxable activity. 96 Sixteenth requirement: Import/export of reclaimed goods. 98 Seventeenth requirement: Loan contracts. 99 Eighteenth requirement: Gifts, samples, and goods provided to employees... 100 Nineteenth requirement: Free zones - private - and cases of tax suspension. 101 Chapter Four: Taxable base... 105 Section One: Preliminary. 105 Section Two: Taxable containers subject to the value-added tax. 107 First requirement: Preliminary. 107 Second requirement: Goods subject to the value-added tax. 110 Subsection One: Capital assets. 111 Subsection Two: Supply of precious metals. 114 Subsection Three: Military goods. 116 Subsection Four: Foodstuffs. 118 Subsection Five: Used goods. 119 Subsection Six: Medicines and medical equipment. 123 Subsection Seven: Restricted vehicles. 125 Subsection Eight: Gifts and samples... 126 Third requirement: Services subject to the value-added tax. 127 Subsection One: International and domestic transportation... 129 First: Preliminary. 129 Second: Provisions related to some transactions concerning transportation services.. 131 1- Supplies of goods with transportation: 131 2- Services provided as a complete package: 132 3- Subcontracting: 132 Third: International transportation.. 133 Fourth: Domestic transportation... 134 Fifth: Means of transportation.. 134 Subsection Two: Services related to real estate... 136 Subsection Three: Private education... 137 Subsection Four: Public services. 138 First: Services related to public services. 140 Second: Imports and exports... 140 Third: Production against fees. 141 Fourth: Small production stations. 141 Fifth: Derivative contracts... 142 Subsection Five: Insurance activities... 142 First: Reinsurance service... 143 Second: Compensation related to insurance activities... 144 Subsection Six: Private health... 145 Subsection Seven: Contracting and construction services. 149 Subsection Eight: Services related to activities. 151 First: Entertainment activities. 154 Second: Memberships and subscriptions... 155 Third: Sponsorship and advertising... 156 Fourth: Competitions and prizes. 157 Fifth: Services related to activities and associated ones 157 Sixth: Vehicles for entertainment purposes. 158 Seventh: Hotel services and accommodations. 158 Eighth: Services related to restaurants and catering.. 159 Subsection Nine: Car rentals... 160 Subsection Ten: Wireless, wired communications, and electronic services. 161 Subsection Eleven: Professional services. 163 First: Professional events and seminars... 165 Second: Financial consultations. 165 Third: International contracts. 165 Subsection Twelve: Services supplied to non-GCC residents.... 166 Subsection Thirteen: E-marketplace. 168 Section Three: Transactions on taxable containers. 172 First requirement: Preliminary. 172 Second requirement: General rules related to tax transactions. 173 Subsection One: Single and multiple supplies. 173 Subsection Two: Supplies related to the main supply.... 174 Subsection Three: Supplies for which the consideration is non-monetary.. 175 Subsection Four: Periodic maintenance. 175 Subsection Five: Compensation... 176 Subsection Six: Immediate discount.. 176 Subsection Seven: Late payment fees. 176 Subsection Eight: Security deposits.. 177 Subsection Nine: Automatic prepayment.. 177 Subsection Ten: Wrongly paid consideration 177 Subsection Eleven: Role of contracts in supplies... 178 Subsection Twelve: Place of supply based on the degree of connection... 179 Subsection Thirteen: Reverse charge... 180 Subsection Fourteen: Continuous supply. 181 Subsection Fifteen: Diplomatic missions. 182 Third requirement: Types of transactions on taxable containers. 183 Subsection One: Ordinary supply.. 183 Subsection Two: Supply to government entities according to the Public Procurement and Tendering System. 185 Subsection Three: Export. 186 Subsection Four: Import. 187 Subsection Five: Presumed supply.... 190 Subsection Six: Inter-company supply... 192 Fourth requirement: Cancellation of supply. 194 Section Four: Tax invoicing. 195 First requirement: Preliminary. 195 Second requirement: Types of tax invoices. 197 Subsection One: Basic invoice. 197 Subsection Two: Simplified invoice. 199 Subsection Three: Invoice used only with permission from the Zakat, Tax, and Customs Authority.. 200 Subsection Four: Electronic invoice. 201 Third requirement: Rules related to some supplies concerning the tax invoice. 202 Subsection One: Tax invoice issued for medical services supplies. 202 Subsection Two: Invoice related to used goods. 202 Subsection Three: Tax invoices related to telecommunications services... 203 Subsection Four: Estimated invoices. 204 Fourth requirement: Modifying the tax invoice. 205 Subsection One: When issuing a tax invoice with a higher amount... 205 Subsection Two: Issuing a tax invoice with a lower amount.. 206 Subsection Three: Error in data mentioned in the tax invoice. 206 Chapter Five: Price and rate of tax. 209 Section One: Preliminary. 209 Section Two: Tax imposed at 15%. 212 First requirement: Preliminary. 212 Second requirement: Food products. 213 Third requirement: Real estate services. 214 Fourth requirement: Wired, wireless, and electronic services. 216 First: Beneficiary's location. 217 Second: Customer’s location benefiting from the service. 217 Section Three: Tax imposed at 0%. 219 First requirement: Preliminary. 219 Second requirement: Medicines and medical equipment. 219 Third requirement: International transportation.. 221 Fourth requirement: Export. 225 Fifth requirement: Supply of gold, silver, and platinum... 228 Sixth requirement: Supply to diplomatic missions. 230 Seventh requirement: Services supplied to non-residents in member states. 232 Eighth requirement: Military goods supply. 234 Ninth requirement: Inter-company supply... 235 Section Four: Special cases. 236 First requirement: Preliminary. 236 Second requirement: Private education sector... 237 Third requirement: Private health sector... 239 Chapter Six: Deduction of tax. 242 Section One: Preliminary. 242 Section Two: Deduction of tax on supplies before the registration becomes effective.. 245 Section Three: Deduction of tax on supplies after registration becomes effective.. 248 First requirement: Preliminary. 248 Second requirement: Basic rule for deducting input tax... 248 Third requirement: What can be deducted as input tax... 249 Fourth requirement: Timing of deducting input tax... 250 Fifth requirement: Cancellation of supply. 251 Section Four: Proportional deduction... 251 Section Five: Deduction of tax on capital assets. 254 Section Six: Deduction of tax on used goods. 259 Section Seven: Deduction for non-resident... 260 Section Eight: Deduction related to bad debts. 261 Section Nine: Deduction related to reverse charge mechanism..... 261 Section Ten: Deduction related to import. 261 Section Eleven: Deduction related to damaged, destroyed, or stolen goods. 262 Section Twelve: Deduction of input tax related to gifts and samples... 262 Section Thirteen: Deduction of input tax in case of transfer of activity... 263 Section Fourteen: Deduction of tax related to inter-company supplies. 263 Section Fifteen: Deduction of tax related to financing contracts.. 264 Section Sixteen: Deduction related to electronic markets. 265 Section Seventeen: Deduction related to restricted activities. 266 Chapter Seven: Tax declarations and disclosures. 269 Section One: Preliminary. 269 Section Two: Tax declarations in the value-added tax. 271 First requirement: Tax periods. 272 Subsection One: Quarterly tax period. 272 Subsection Two: Monthly tax period. 273 Second requirement: Changing the tax period. 274 Subsection One: Transition from quarterly to monthly period. 274 Subsection Two: Transition from monthly to quarterly period. 274 Third requirement: Methods of calculating net tax. 275 Subsection One: Invoice-based accounting method. 276 Subsection Two: Cash accounting method - net cash. 276 Subsection Three: Margin accounting method.. 278 Fourth requirement: Switching between tax accounting methods. 280 Fifth requirement: Conditions for submitting tax declarations. 281 Sixth requirement: Evaluation of the tax declaration submitted by the taxpayer. 283 Seventh requirement: Modifying tax declarations. 285 Section Three: Tax disclosures in the value-added tax. 286 First requirement: Tax disclosure by the taxpayer. 286 Second requirement: Tax disclosure by non-taxpayers. 287 Third requirement: Tax disclosure upon request by the Zakat, Tax, and Customs Authority.. 287 Chapter Eight: Linking and collecting the tax. 290 Section One: Preliminary. 290 Section Two: Linking the tax. 292 Section Three: Collecting the tax. 293 First requirement: Collecting the tax through the tax declaration and disclosure... 293 Second requirement: Collecting the tax at import. 296 Third requirement: Collecting the tax in installments... 297 Fourth requirement: Financial guarantee.. 298 Chapter Nine: Refund of the tax. 302 Section One: Preliminary. 302 Section Two: Refund of the tax to tourists.. 303 Section Three: Refund of the paid excess tax. 306 Section Four: Refund to specific persons as per system. 308 Section Five: Refund of tax paid in another member state.. 311 Section Six: Refund for non-residents in member states. 313 Chapter Ten: Tax violations and penalties. 316 Section One: Preliminary. 316 Section Two: Violations related to tax evasion... 318 Section Three: Violations related to non-registration in the value-added tax. 320 Section Four: Violations related to tax declarations. 321 Section Five: Violations related to non-payment of tax. 322 Section Six: Violations related to issuing tax invoices by non-taxpayers. 323 Section Seven: Other violations.. 324 Chapter Eleven: General provisions. 329 Section One: Preliminary. 329 Section Two: Approved assessment. 329 Section Three: Cooperation and information exchange among member states. 330 Section Four: Interpretative decisions. 332 Section Five: Dispute resolution... 334 Section Six: Amendments and updates to tax rules. 334 Section Seven: Confidentiality of information... 335 Section Eight: Record keeping and documentation... 336 Section Nine: Solidarity.. 337 Section Ten: Authority’s right to obtain information and determine forms.. 338 Section Eleven: Currency used. 339 Section Twelve: Tax representatives.. 339 Section Thirteen: Notifications... 341 Chapter Twelve: Dispute resolution concerning the value-added tax. 343 Section One: Preliminary. 343 Section Two: Jurisdiction.... 344 Section Three: Formation.. 344 Section Four: Procedures for objections before the General Secretariat of the Zakat, Tax, and Customs Committees. 346 Section Five: Implementation of decisions of the Zakat, Tax, and Customs Committees. 347 Section Six: Legal organization of the General Secretariat of the Zakat, Tax, and Customs Committees. 348 References.. 350 Index... 356