Friday, January 12, 2018
Saudi Arabia's tax agency has set out the arrangements through which Saudi nationals will not bear the value-added tax that must be charged on education services under the Gulf Cooperation Council's harmonized value-added tax, which was introduced from January 1, 2018.
Saudi Arabia provides Saudi nationals will free private sector education. However, education is taxable under the unified framework of the six-member GCC bloc, which also includes the United Arab Emirates, Kuwait, Bahrain, Qatar, and Oman.
Royal Decree No. A/86, dated April 18, 2017, provided that a mechanism should be establish such that the Government will bear the value-added tax burden, private sector education institutions should charge value-added tax but pass this burden on to the Government and maintain their ability to claim input tax credits, and Saudi nationals should not face tax.
The General Authority of Zakat and Tax said: "According to VAT implementing regulations, private sector education services are subject to the standard tax rate of five percent. The regulations also detailed the procedures and mechanisms of tax collection, including the issuance of tax invoices that include the tax amount due."
In its January 12 statement, GAZT announced: "In light of the Royal Decree, GAZT set up a new mechanism in coordination with the Ministry of Education for tax collection. As per the mechanism, private education institutions registered in the VAT system are required to issue tax invoices to Saudi citizens on the amount due for the education services provided to them, but without VAT. The institutions must also confirm the identity of the recipients of the service and include their national identity information on the issued tax invoices to them."
"As for the educational services provided to non-Saudis, the institutions are required to issue tax invoices including the five percent VAT, as per VAT law and regulations."
"When filing their tax returns through the VAT website, private sector institutions should enter transactions related to non-Saudi recipients of the services which are subject to the standard five percent rate in the 'Local Sales Subject to the Standard Rate' section," GAZT said.
"Transactions related to Saudis, meanwhile, should be entered in 'Sales to citizens (private health services / private education / first residence).'"
"Like other sectors, the private education institutions registered with VAT are entitled to deduct the tax due on inputs, as outlined by VAT law and regulations," it concluded, noting it will soon schedule workshops on the topic.