|Update:||Compliance Alert - New Circular from ZATCA explaining the Reverse Charge Mechanism Application|
On 17 June 2021, The Saudi Zakat, Tax and Customs Authority, ZATCA, issued Circular Nº 2106001.
It provides an explanation of the Reverse Charge Mechanism Application, as per GCC Unified VAT Agreement, KSA VAT Law and Implementing Regulations.
The Reverse Charge Mechanism applies in the following scenarios:
- Taxable supplies received by a taxable buyer from a supplier not residing in GCC;
- Taxable supplies received by a taxable buyer from a person resident in another Member State (until Electronic Services System for intra-GCC supplies is implemented).
Furthermore, the Circular lists examples (non-exhaustive list) for the application of the Reverse Charge Mechanism as follows:
- Legal and professional services;
- Membership/subscription services;
- Advertising services.
The Reverse Charge Mechanism does not apply in cases of:
- Non-taxable supplies (exempt supply), e.g., financial services received from a non-resident person;
- Supplies made by a non-resident supplier to a non-taxable buyer in KSA;
- Services that fall under special cases as outlined in the GCC Unified VAT Agreement (articles 17-21).
The Circular also touches upon the tax due date, calculation, reporting and failing to report under the Reverse Charge Mechanism.
Please note that transactions for the supplies falling under the Reverse Charge Mechanism are excluded from the e-invoicing mandate in KSA.
The Circular Nº 2106001 is available via the following links in Arabic and English.