The Saudi Arabian Ministry of Finance has issued Circular No. 71664 dated 22 March 2018 (05/07/1439H) to all government entities detailing their obligation to pay Value Added Tax (VAT) properly chargeable after 1 January 2018 on supplies made to them by VAT-registered suppliers, in certain circumstances.

Agreements entered into after 1 January 2018 (but before the date of the Circular)

Where an agreement is silent on VAT, or where the supplier explicitly states that VAT is chargeable in addition to the price shown (i.e., the VAT exclusive price), government entities are obliged to pay the VAT properly chargeable.

However, if the agreement states that the total price is inclusive of VAT, a government entity is not obliged to pay an amount in addition to the price.

Agreements entered into before 1 January 2018

Similarly, government entities are obliged to pay VAT (in addition to the cost of supply) on supplies made under an agreement entered into on or before 1 January 2018 which is silent on VAT, or which is priced on a VAT exclusive basis.

Government entities are not obliged to pay any additional amount on a contract which stipulates that VAT is included in the price.

The Circular goes on to provide additional guidance:

• Government entities should ensure that suppliers and contractors include a separate VAT clause in proposals [and agreements]¹
• VAT payable by government entities should be settled from allocated funds and a separate payment order in respect of these amounts will be made
• Those suppliers charging VAT to government entities must declare the VAT so chargeable in their VAT returns in accordance with the VAT Law and Implementing Regulations
• VAT chargeable to (and payable by) government entities must be settled by suppliers in accordance with the statutory time limits, and the General Authority of Zakat and Tax will take responsibility for ensuring that this requirement is adhered to

Next Steps

A range of VAT-registered businesses supply to government entities in Saudi Arabia. With the release of this Circular, all such taxpayers should review their contractual arrangements with government entities and ensure that VAT is being charged, and collected, in the appropriate manner. Importantly, businesses should take the opportunity to ensure that they include an appropriate VAT clause in all proposals made to, or agreements entered into with, Saudi Arabian government entities. Moreover, it would appear reasonable to seek to have government entity proposals and agreements clearly written on a VAT exclusive basis wherever possible.

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ENDNOTE

¹ It is presumed that this means going forward from the date of the Circular.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young & Co (Public Accountants), KSA VAT Leader, Saudi Arabia

• Stuart Halstead
  stuart.halstead@sa.ey.com

Ernst & Young & Co (Public Accountants), KSA Tax Leader, Saudi Arabia

• Asim J. Sheikh
  asim.sheikh@sa.ey.com

Ernst & Young & Co (Public Accountants), Riyadh

• Ahmed Abdullah
  ahmed.abdullah@sa.ey.com
• Amr Farouk
  amr.farouk@sa.ey.com
• Altaf Sarangi
  altaf.sarangi@sa.ey.com
• Craig McAree
  craig.mcaree@sa.ey.com
• Hosam Abdulkareem
  hosam.abdulkareem@sa.ey.com
• Imran Iqbal
  imran.iqbal@sa.ey.com
• Michael Hendroff
  michael.hendroff@ae.ey.com
• Nitesh Jain
  nitesh.jain@sa.ey.com
• Parvez Maqbool
  parvez.maqbool@sa.ey.com
• Sohail Nini
  sohail.nini@sa.ey.com
• Vladimir A. Gidirim
  vladimir.gidirim@sa.ey.com
• Yousef Eldaw
  yousef.eldaw@sa.ey.com

Ernst & Young & Co (Public Accountants), Al-Khobar

• Syed Farhan Zubair
  farhan.zubair@sa.ey.com
• Ali Sainudheen
  ali.sainudheen@sa.ey.com
• Bilal Mian
  bilal.mian@sa.ey.com
• Hatem Ghobara
  hatem.ghobara@sa.ey.com
• Javed Aziz Khan
  javed.aziz@sa.ey.com
• Jude deSequeira
  jude.desequeira@sa.ey.com

Ernst & Young & Co (Public Accountants), Jeddah

• Franz-Josef Epping
  franz-josef.epping@sa.ey.com
• Ayman Abu El Izz
  ayman.abueIzz@sa.ey.com
• Hanif Khatri
  hanif.khatri@sa.ey.com
• Hussain Asiri
  hussain.asiri@sa.ey.com
• Imran Ahmed
  imran.ahmed@sa.ey.com
• Irfan Alladin
  irfan.alladin@sa.ey.com
• Mohammed Desin
  mohammed.desin@sa.ey.com

Ernst & Young LLP, Middle East Desk, Houston

• Gareth Lewis
  gareth.lewis1@ey.com

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ATTACHMENT

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