RIYADH — The General Authority of Zakat and Tax (GAZT) announced that the first year after VAT launch will be a transitional period. Goods and services supplied under certain long-term contracts will be zero-rated during that period provided the existing contracts meet certain requirements. This will enable suppliers and customers who had entered into long-term contractual commitments to re-negotiate the contracts’ details, particularly details that will be affected by VAT implementation.

GAZT clarified that this treatment only applies to contracts that did not anticipate VAT. Contracts that contain tax-related provisions or mechanisms to adjust prices of goods and services and include VAT will not be included.

GAZT explained that all requirements should be met in order to apply the transitional provisions on contracts: contracts must have been signed before May 30th, 2017, customer should be able to fully deduct the input tax on the supply made, customer should submit a written letter to the supplier to confirm his ability to fully deduct and refund input tax on the supply. All supplies made after 31st December 2018 are chargeable with VAT, with the correspondent rate indicated in the VAT law and Implementing Regulations.

GAZT confirmed its willingness to put in place flexible legislations to facilitate VAT implementation for businesses and maximize their VAT readiness. Offering a one-year transitional period for contracts negotiations would support businesses in adjusting to the new tax system.

GAZT urges all businesses to be fully ready for VAT ahead of its implementation on January 1st, 2018, and advises them to visit the official VAT website, VAT.GOV.SA, which contains a VAT manual with a simplified explanation of the basic steps businesses need to undertake to implement VAT, as well as a wide range of tools and information to support businesses in achieving readiness.

All businesses whose annual revenues exceed SAR 1 million must register for VAT by December 20th, 2017, to avoid penalties and fines and suspension of government services.