Saudi Arabia: Proposed amendments to VAT regulations, including expansion of VAT obligations of marketplaces

The Zakat, Tax and Customs Authority (ZATCA) in August launched a public consultation on proposed amendments to the value added tax (VAT) regulations that include proposals amending the registration/deregistration process and the rules regarding related parties’ transactions and fair value, tax refunds for tourists and international organizations, and an exemption for supplies to the armed forces.

The proposal would also amend Article 47 of the VAT regulations, which currently establishes that an online marketplace is responsible for VAT under a presumed buy/sell regime for digital services sales they facilitate for non-resident digital services providers, unless the following cumulative conditions are met:

• The non-resident seller is expressly indicated as the seller during the online sales process, in the contractual arrangements between the parties, and on the invoice or receipt issued by the operator of the interface or portal. The operator of the interface or portal does not authorize charging the customer for the delivery of the services or the delivery itself or set the general terms and conditions of the transaction

The proposed amendments would change the second condition above to “If the electronic marketplace is not the one that determines the fee for providing services that are made through the marketplace, and does not charge customers that fee through claims issued to customers regarding the transaction, and it does not undertake to collect the consideration, handle customer complaints, or provide any offers or any compensation to customers with regard to the transaction, it does not set the terms and conditions relating to supply.”

Moreover, the proposal would create an additional VAT liability under a deem buy/sell regime for marketplaces facilitating domestic sales of goods and services for Saudi sellers who are not registered for VAT purposes. However, a marketplace would not be liable for VAT if the following three cumulative conditions are met:

• It is explicitly stated that the unregistered resident seller is the one making the sale during the sales process via the electronic market, in the contractual arrangements made between all parties to the transaction and in the invoice or receipt issued to the customer. An independent and direct contractual relationship can be established between the unregistered resident seller and the customer benefiting from the transaction in accordance with the legal provisions in force in the Kingdom, and the unregistered resident seller sets all terms and conditions related to the transaction. The electronic marketplace is not the one that determines the consideration for the sale of the goods or services conducted through the marketplace, and does not charge customers that consideration through claims issued to customers regarding the transaction or undertake to collect the consideration for the transaction or handle customer complaints or provide any offers or any compensation to customers in relation to the supply, and does not set the terms and conditions related to the supply

Philippe Stephanny | philippestephanny@kpmg.com