Saudi Arabia raises VAT to 15% 1 July 2020

Saudi Arabia has announced today that it will raise its Value Added Tax rate from 5% to 15%. This is due to the COVID-19 crisis.

Aside from consumers facing a likely sharp rise in prices, non-registered or exempt businesses will face heavy rises in unrecoverable input VAT. Some businesses may now consider a vountary VAT registration if their inputs are high and if their customers are VAT registered themselves so would be unaffected by a VAT charge.

Supplies made over the rate increase date will have to be assessed for the correct 'time of supply' date to select the right VAT rate. Usually this is the earlier of: invoice; cash payment; or supply of goods or services. This may create reinvoicing in the case of advance payments for goods, and instal payments on services prior to the rise.

VAT was introduced into the Gulf State in January 2018. This was part of a 2016 agreement by the six members of the Gulf states to introduce a VAT and customs union – similar to the EU’s regimes. The six states include: Saudi Arabia; UAE; Bahrain; Kuwait; Qatar; and Oman. To date, only Saudi Arabia, UAE and Bahrain have gone ahead with the VAT plan. It is not clear if Bahrain will follow Saudi Arabia. The UAE has already said today that it will not follow Saudi Arabia's increase.

VAT is being implemented in the region to reinforce state revenues which has seen major losses with the collapse in oil prices in the past five years from almost $100 to today’s $30 WTI crude.