The Saudi Arabian tax authority (ZATCA) issued a Circular on the VAT treatment of real estate loan portfolio insurance.

In detail

In the case of the real estate loan portfolios insurance, ZATCA opines that the financial institutions, not the borrower, should be considered the Customer for KSA VAT purposes provided all the following facts apply:

  • The financial institutions enter into insurance contracts directly with the insurers;
  • The financial institutions pay the insurance premium themselves and on their own account;
  • The insurance contracts cover the entire real estate loan portfolio.
  • The financial institutions are entitled to make a claim against the insurer upon the occurrence of the insured event and accordingly benefit from the insurance.

The Circular also mentions that where the financial institutions incur a portfolio insurance expense and do not recharge this expense to the borrowers this insurance should not be seen as supplied by the financial institutions to the borrowers and similarly it will not be treated as a nominal supply. 

Way forward

While titled “Circular”, it represents the public opinion of ZATCA which is not legally binding. However, considering the tendencies of the current court practice on tax matters, analysing the public opinions of ZATCA is of great importance to reduce the risk of tax exposure.

KPMG KSA would be happy to assist the companies interested in the analysis of the impact of this new clarification, as well as in clearance with ZATCA of the new VAT treatment of their respective business models.

Get in touch

Riyadh Office

Tariq Al Sunaid

Head of Tax

E: talsunaid@kpmg.com

 

Ali Sainudheen

Senior Director, Domestic Tax

E: asainudheen@kpmg.com

Salam Eido

Senior Director, Domestic Tax

E: seido@kpmg.com

 

Oleg Shmal

Director, Head of Indirect Taxes

E: oshmal@kpmg.com

Stefan El Khouri

Senior Director, Head of Transfer Pricing

E: selkhouri@kpmg.com

 

Amr Alsaleh

Director, Domestic Tax

E: amralsaleh@kpmg.com

Jeddah Office

Faisal Tanvir

Senior Director, Domestic Tax

E: ftanvir@kpmg.com

Muhammad Masood                                

Director, Domestic Tax                                  

E: muhammadmasood@kpmg.com             

Fouad Yaman

Director, Domestic Tax

E: fyaman@kpmg.com

Anan Sijini

Tax Director

E: asijini@kpmg.com

Khobar Office

Mohammad Kamran Sial

Senior Director, Domestic Tax

E: ksial@kpmg.com 

Mohamed Gouda

Director, Domestic Tax

E: mohamedgouda@kpmg.com

 

Anil Bahl

Director, Indirect Tax

E: anilbahl@kpmg.com