In accordance with the provisions of the Unified VAT Agreement, the Kingdom of Saudi Arabia issued the VAT Law under Royal Decree No. Ownership and control of capital and voting rights: One of the requirements for the formation of a tax group is that each legal person must be subject to common financial control. 50% or more of the capital of any Legal Entity that is a member of the Tax Group that wishes to be formed.
50% or more of control over the ownership or the voting rights in both or all of the Legal Entities of the Tax Group wanted to be formed.
MANDATORY REGISTRATION
OPTIONAL REGISTRATION
JOINING A TAX GROUP
PERSONS ELIGIBLE TO JOIN A TAX GROUP
- Legal Person carrying on Economic activity in KSA
- Common ownership or control
- At least one member of the Tax Group is a Taxable Person
50% or more of the capital of each member of the group to be formed; or. Ownership or control of the voting rights refers to the ability of the owner of the person to exercise control over the group members' activity by means of voting. The requirement to hold 50% or more in a company means that a proportional company with two 50% shareholders can join a Tax Group with one of its shareholders.
A company may not join two tax groups. The person or persons who own or control the members of the group need not be part of the group or entitled to join the group. Therefore, KSA Head Office Co, (A) KSA Operating Co and (B) KSA Treasury Co are eligible to form a tax group. Provided that each company is a resident of the KSA and performs an economic activity, both companies can form a tax group.
In this situation, Company A and Company B can form a tax group even though the ultimate owner (parent company) is not eligible to join the group. The other companies all carry out an economic activity and can join a Tax Group with Company A, despite the fact that they individually have not reached the annual threshold and despite the fact that the annual taxable turnover of all Companies exceeds the threshold. Although the combined turnover exceeds the voluntary registration threshold, these companies cannot form a tax group without company A, as none of them is a taxable person in itself.
RESPONSIBILITIES OF THE REPRESENTATIVE MEMBER
Company A is entitled to self-registration, as its turnover exceeds the voluntary registration threshold. By submitting statements and correspondence for the group, the Representative Member interacts directly with the Authority on behalf of all group members. All members are bound by these obligations and co-responsible for the relevant VAT.
By submitting an application for registration, the representative undertakes to have the authority to bind other members of the group when dealing with ZATCA in relation to VAT. While the representative member is primarily liable for the VAT liabilities of the group, the joint liability rules make all members of the group jointly liable for those liabilities.
APPLICATION TO FORM A TAX GROUP
- Review of the application
- The Effective Date of the Tax Group registration
The tax grouping takes effect from the 1st day of the month following the approval date 13. If, for example, Zatca approves an application on 20 April, the tax grouping comes into effect from 1 May, and the approval notification will indicate the effective date.
AMENDING A TAX GROUP
COMPULSORY CHANGES
OTHER CHANGES
EFFECT OF REMOVING MEMBERS OR DISBANDING THE TAX GROUP
Example (8): Companies A, B and C are all owned by the same person and are part of the same tax group. The three companies are no longer entitled to form part of a tax group from this date. Company B, as its representative, must notify ZATCA within 20 days of this date of these changes.
Company A and Company B exceed the mandatory registration threshold in their own right, so they must apply immediately to be individually registered. It holds assets (fixed assets and inventory of commodities) worth SAR 20,000 at this date. The final VAT return for the group must include a nominal supply for SAR 1,000; which is 5% of the value of assets held at deregistration.
IMPLICATIONS OF TAX GROUP TREATMENT
THE TAX GROUP AS WHOLE IS REGARDED AS A SINGLE TAXABLE PERSON
DISREGARD OF SUPPLING GOODS AND SERVICES BETWEEN GROUP MEMBERS As the Tax Group is deemed to act as a single person, it cannot supply to itself for VAT purposes
The tax group must allocate individual supplies to taxable and exempt activities according to the procedure described in section 8 of this guide. When deducting VAT on inputs from the group as a whole, which cannot be attributed to a specific supply or a specific company, the Tax Group must disregard intra-group supplies when calculating the proportional deduction.
JOINT LIABILITY OF GROUP MEMBERS
TAX GROUPING IN SPECIAL CASES
POWERS OF ZATCA TO SET ASIDE TAX GROUPING
Company B and Company C are formed to enter into transactions with a third party, where Company B sells goods and Company C buys them at an artificially inflated value. Company B acts as the contracting party for office rent and all overheads for the group and attributes a large part of this to artificial commercial activity to improve the VAT deduction using the default method. Obtaining the advantages of Tax Grouping was the main purpose of creating a Tax Group in this case.
The Authority will send a notice to the group representative to override the effect of Tax Grouping.
Power of ZATCA to request for two persons to join Tax Grouping
Uses equipment - without output VAT Deducts input VAT - January (cash . billing basis) Deducts input VAT - January. With the separate registration of these entities and the adjustment of payment conditions corresponding to the regime of cash accounting and accounting on accounts, there is an excessive cash flow advantage for the group of companies, which is contrary to the purpose of the cash accounting regime in the law. If both Al Iman Procurement Company and Al Iman Sales Company are mutually qualified to form a tax group, ZATCA may issue notice to both that they are to be treated as a tax group on any date specified by the Authority in the event that it will or would registration of any company as a separate entity may result in tax benefits contrary to the intent of the VAT Act.
INPUT VAT DEDUCTION
GENERAL PROVISIONS
PROPORTIONAL DEDUCTION: ATTRIBUTION OF INPUT VAT
Value of Taxable Supplies made by the Taxable Person (all group members) in the last calendar (Gregorian) year. The total value of taxable supplies and exempt supplies made by the Taxable Person (all members of the group) during the last calendar (Gregorian) year. The above method does not include supplies of capital assets made by the taxpayer, as these distort the use of input VAT.
In the case of tax groups, expenses that cannot be directly related to taxable supplies or exempt supplies are usually allocated on the basis of all general expenses incurred by each member of the group individually and the equivalent of supplies made by the member company of the group . group. In this case, the method of calculation "according to the amount made by each sector" will allow the deduction of income tax in accordance with the activities of each company individually (individual business) and will be treated as a sector separated from Taxation. Group, and will therefore constitute best practice for the use of overheads. Company A has the highest amount of taxable supplies and the lowest amount of non-distributable overhead; in case the default mode is used, the group will be allowed to deduct its share of 77% of the group's overheads (SAR 462,000), and this will result in a distortion in the cost deduction for both Company B and also for Company C.
For this reason, the calculation method "per sector" should be used, and the general expenses should be calculated for each company individually. Alternative attribution methods, using calculation methods other than the value of supplies, may be approved by ZATCA in cases where these better reflect the actual use of the VAT incurred. More information will be provided in relation to the VAT deduction and the proportional VAT refund in a separate guide 24. 24) Article 51(8) Proportional deduction of income tax, Implementing Regulations.
OBLIGATIONS OF THE TAXABLE PERSON
- TAX IDENTIFICATION NUMBER
- ISSUING INVOICES
- FILING VAT RETURNS
- KEEPING RECORDS
- VAT REGISTRATION CERTIFICATE
- REQUESTING AN EXPLANATORY RULING
- CORRECTING PAST ERRORS
The VAT return must be submitted and the corresponding payment of the net tax due no later than the last day of the month following the end of the tax period to which the VAT return relates. Further details on how to file your tax return can be found in a separate guidance document. If the VAT return shows that the taxpayer is liable for VAT, or if the taxpayer has a credit for any reason, a request for a refund of this VAT can be submitted when submitting the VAT return, or at a later date time during the next period. five years or by submitting a request for reimbursement to the Authority.
The members of the Tax Group will consolidate the values of their VAT returns to reflect their input and output tax for that period, and will then submit them to the representative member of the group for inclusion in the Tax Group's consolidated return, as a practical measure for collecting information from the Tax Group Representative for filling in the consolidated VAT return for the group. The request must contain the full facts of the specific activity or the specific transaction that you want the Authority to consider. Public: in which case ZATCA will publish details of the decision, without any taxpayer-specific information.
The explanatory ruling request may include all information about the activity or transaction for which you are requesting a ruling and a description of the specific area of uncertainty in the law or guidance that you have considered. Errors resulting in a net understatement of VAT exceeding SAR 5,000 must be notified to ZATCA within twenty days of becoming aware of the error or incorrect amount. For small errors, resulting in an underestimation of the net VAT of less than SAR 5,000, the taxpayer can instead correct the error by adjusting the net tax in the next VAT return.
PENALTIES
In all cases, if an offense is repeated within three years from the date of issuance of the final decision of the penalty, the fine for the second offense may be doubled. The level of the fine or penalty imposed is determined by ZATCA in relation to the taxpayer's conduct and compliance record (including taxpayers complying with their requirements to notify ZATCA of any errors and provide cooperation in correcting errors ).
CONTACTING US
APPENDIX: FREQUENTLY ASKED QUESTIONS
Each member of the group is jointly liable for all debts of the group while he is a member. Actual payments are a matter for agreement between the parties, but this is often calculated from output VAT on sales by each group member minus input VAT on purchases by that group member. The standard rules for abatement determined by assigning input VAT to taxable supplies or exempt supplies made by the group will apply.
