ZATCA issues Guideline on VAT refunds Non-Resident Businesses in Saudi Arabia

Background

The Value Added Tax (VAT) legislation in the Kingdom of Saudi Arabia (KSA) is based on the GCC¹ VAT Agreement and allows non-resident businesses to request a VAT refund from ZATCA for VAT paid within the Kingdom². During the initial years after the implementation of VAT in KSA (2018 - 2021), there was no specific procedure in place for non-residents to claim VAT refunds. During this period, many non-resident businesses resorted to filing manual claims, to preserve their rights to a refund.

In 2022, the Zakat, Tax and Customs Authority (ZATCA) introduced a registration process on its website for non-resident businesses, enabling them to gain ‘eligible person status.’ Once registered, these non-resident businesses could submit applications to recover input VAT incurred in KSA. Although initially there were some technical issues with the online application process, it is now fully functional and operational.

On 16 February 2023, ZATCA published a detailed guideline outlining the requirements of the two-stage process for non-resident businesses to submit refund applications for VAT incurred in KSA. The Guideline is currently only available in Arabic. It is expected that ZATCA will issue an English translation in due course.

 

Eligibility for VAT Refund

According to the new guidelines, non-resident businesses that carry out economic activities outside KSA, but incur VAT on services or goods in KSA, can apply for a VAT refund. The eligibility criteria stipulate that these businesses must not have a fixed establishment or a place of business within KSA.

The primary conditions for a refund application include:

• Condition 1: The business must be established in a country that either applies a similar VAT system or allows for reciprocal VAT refunds to Saudi residents who incur VAT in that foreign country.
• Condition 2: The business must provide evidence of VAT registration or an equivalent tax regime from their country of operation. This includes a valid registration certificate and may require additional documentation to verify the ongoing validity of the registration during the refund application process.
• Condition 3: The country of the non-resident business must permit VAT refunds under similar circumstances to KSA residents (principle of reciprocity).

 

Process of VAT Refund Application

The VAT refund application process consists of two main stages:

• First stage: registration as an Eligible Person for VAT Refund

Businesses need to log into ZATCA’s electronic portal and register as an ‘eligible person’ for VAT refunds.

This involves selecting the appropriate category, defining the refund period based solely on the calendar year, and providing detailed business and contact information, including the business's banking details and tax representative information, if applicable.

• Second stage: submission of the VAT Refund Request

Once registered, eligible businesses can submit their VAT refund requests through the portal.

The application must include detailed tax invoices and proof of tax payment. The total VAT amount claimed must be no less than SAR1,000, and the submission must meet all regulatory and electronic invoicing requirements.

 

Documentation and Compliance

Applicants must ensure that all tax invoices related to the refund request contain detailed information about the supplier, the date of the invoice, and a comprehensive description of the goods or services. ZATCA may request physical or electronic copies of these invoices and additional information to process the refund.

 

Timeframes and Restrictions

Refund requests must be submitted within six (6) months from the end of the calendar year in which the VAT was incurred. Input tax refunds are restricted to those goods and services used for economic activities outside recreational, personal, or certain restricted categories.

 

Conclusion

ZATCA’s recent guideline provides clarity to non-resident businesses seeking to recover VAT paid in KSA. It is crucial for companies seeking VAT refunds to adhere closely to the specified requirements and deadlines to ensure compliance and successful recovery of their VAT payments.

For further details on the VAT refund process or to discuss how this might impact your business operations in Saudi Arabia, please contact our Middle East tax team who can provide support with the preparation and submission of your VAT refund claim.

 

Reference

• ZATCA Guideline - VAT Refunds for Non-Residents

---

¹ Gulf Cooperation Council.
² Article 70 and 72 of the VAT Implementing Regulations.