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We are excited to share the latest edition of the Law Update, beautifully and appropriately titled “Sustainable Horizons: The Saudi Arabian Vision.” Giving special honor to the Kingdom’s 2030 vision, this update focuses on a collection of both informative and inspiring articles.
For those in construction, you can learn about how the tendering environment impacts risk-pricing for contractors, the updates on the legal framework of the construction industry and how contractors can protect themselves against financial difficulties.
There is good news too from the kingdom’s banking sector, from which the practice of “Open Banking” is being pushed for! But what is open banking? We’re answering that too.
Also . . . Are there any women trail blazers in Saudi Arabia you can name? We’ll help you with that. We cover how the Middle East has been making strides in empowering women in the entrepreneurial space,most notably in STEM fields.Read the full edition
The Federal Tax Authority (“FTA”) has recently issued a new public clarification to explain the recoverability of input VAT on entertainment expenses. They have also published a guide to provide guidance to businesses operating in designated zones (“DZs”) on the VAT treatment of their activities within and outside the DZs.
1. The Clarification
In the Public Clarification VAT P005 (“Clarification”), the FTA confirms that where the costs are incurred for a genuine business purpose or are incidental to such a purpose, VAT will be recoverable. However, where the hospitality becomes an end in itself and becomes the main purpose for attending an event, this would be regarded as entertainment and consequently any VAT incurred on such costs would not be recoverable.
The Clarification also provides detailed criteria to enable businesses to ascertain the circumstances in which costs would be incurred for a genuine business purpose or incidental to such a purpose, or considered to be an end in themselves.
Examples of costs which are considered to be incurred for a genuine business purpose or are incidental to such a purpose include:
Examples of costs incurred for entertainment services which constitute an end in itself include:
2. VAT Guide on DZs
Under the VAT Guide on DZs, the FTA confirmed the VAT treatment applicable to businesses operating in DZs as provided for in the VAT law and related executive regulations and clarified the VAT treatment of supplies in specific cases where there was previously some uncertainty. The key takeaways are as follows:
What should you do next?
Businesses should consider the implications of this Clarification on their transactions to ensure that the correct amount of input VAT is being recovered. Further, businesses should understand the impact of the VAT Guide on DZs on their business operations within and outside DZs and continuously ensure that the correct VAT treatment is being applied to its transactions.
How can we help?
Al Tamimi can assist you to assess the impact of this Clarification and the VAT Guide on DZs, and advise you on the recoverability of input VAT and VAT treatment of transactions involving entities operating in DZs.
Please do not hesitate to contact Al Tamimi’s Tax Team if you require any assistance.
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