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A term you might have heard if you’ve ever worked with VAT (Value Added Tax) in Saudi Arabia is ‘time of supply’. This might sound like tax jargon, but it’s important for businesses operating in KSA to understand this concept. In other words, the time of supply is when a transaction is deemed to be taxable, and thus affects VAT compliance. One such concept that businesses want to grasp to help keep them on top of their tax reporting obligations is this one it makes it so that reporting is accurate and there are no nasty surprises when it comes to audits.
Time of supply in Saudi Arabia is a key principle of supply and is the time at which a taxable supply is deemed to have taken place to provide businesses with the time to tax. The time of supply affects invoice issuance, VAT payment and filing deadlines, regardless of whether the goods or services are being dealt with. E-invoicing in Saudi Arabia with tools like it allow businesses to gain better control of compliance and VAT. Implementing solutions for e-invoicing in Riyadh will make sure your VAT processes are smooth. In this article, we will disentangle everything you need to know about the time of supply under Saudi Arabia’s VAT laws.
Goods or services are deemed to have been supplied for VAT purposes when they are supplied or made available for consumption, use or sale at some time or identified point within the supply period. This is a critical moment, because the time period in which the liability to charge VAT arises is being decided. In effect, it allows businesses to know when they should account for VAT on a transaction. For the VAT laws in Saudi Arabia, this timing is important to keep in compliance, to ensure accurate reporting, and pay correctly all of the VAT to not draw penalties in case of late VAT declaration or payment.
Guidelines of the Zakat, Tax & Customs Authority (ZATCA) in Saudi Arabia that refers to VAT implementation explains time of supply as per the definition in accordance with specific events. These are the date goods are delivered or made available, the date services are completed, the date an invoice is issued, or the date payment is received, whichever is first. To facilitate timely submission of VAT returns, businesses in KSA are able to transparently definie the time of supply by clearly listing the period of supply. In this region, this is the bedrock of VAT compliance.
1. Ensures Accurate VAT Payments
The time of supply is when VAT is chargeable and therefore remits VAT to the authorities. If you are able to identify at which time of supply you should deliver right, you can then know to avoid overpayment and instead under payment of VAT that will put you in a different financial string or a penalty. It is essential to maintain compliance with the Saudi Arabia VAT laws because of this precision.
2. Helps Identify the Correct VAT Period
The time of supply helps businesses know the exact period within which VAT on goods or services needs to be reported. This avoids delays in the submission of VAT, and output VAT is paid in the appropriate tax period in accordance with the regulations of the General Authority of Zakat and Tax (ZATCA). Compliance risks are minimized and your business is kept on track by timely reporting.
3. Avoids Discrepancies in Tax Liability
This helps businesses to understand when the time of supply is so that they can calculate their VAT liability without any discrepancy. Timing is accurate, which is important for tax reporting, as tax reporting errors and confusion can be prevented by records not being aligned. By helping businesses stay transparent over their VAT submissions, this helps businesses break even.
4. Makes sure Tax is Paid in Time and Avoids Penalty.
The time of supply is properly assessed to avoid ambiguity in calculation of tax liabilities. The clarity comes in being able to file VAT returns as business owners, at the end of the month, without the penalties for late submission and incorrect reporting. Compliance not only saves costs but also reinforces the company’s reputation with regulatory authorities.
According to Article 23 of the Unified Tax Agreement, VAT in KSA becomes chargeable at the earliest of the following events:
1. Date of Supply of Goods or Services
The supply period or time period is when the goods or services are delivered to the customer. This is the main trigger of VAT liability unless some other earlier event shall have taken place (issuance of invoice or receipt of payment).
2. Date of Issuance of the Tax Invoice
VAT becomes due on the date of the invoice if a tax invoice is issued before the goods or services are supplied. It means that VAT is accounted for as soon as the transaction is documented.
3. Date of Receipt of Partial or Full Payment
The supply or invoice may not have yet occurred, but VAT becomes due when a partial or full payment is received for the goods or services. The tax is computed based on the amount received up to that date.
Scenario 1
It was the earliest event, as the goods were delivered on 10th October. VAT is charged on this date.
Scenario 2
VAT is triggered on 10th October for 10% of the revenue, the remaining 90% is taxable on delivery on 15th October.
Scenario 3
This is the earliest event the invoice was issued on 10th October so VAT applicable on this date.
Delivery date of goods or completion of services is the date of supply commonly associated. Under Article 49 of the Unified VAT Agreement and its Implementing Regulations, however, the date of supply is determined by certain rules that may reflect in the nature of transaction. These rules guarantee that VAT is chargeable at the same time, no matter when the delivery takes place.
For example, date of supply can be affected by the issuance of an invoice, or receipt of payment. For some, the date of supply will be the time when the goods are delivered, but for others the supply charge may be based on events that occurred before the goods were delivered, such as partial payment or the issue of an invoice. These precise guidelines assist businesses in Saudi Arabia to fulfill VAT rules and to record taxable supplies accurately.
Date of Supply vs. Date of Delivery of Goods
1. If a Tax Invoice is Issued Before Delivery
In case of the issuance of a tax invoice before the delivery of goods, the date of supply is considered as the date of the issuance of the invoice. In other words, if the goods are not delivered in the tax period in which the invoice is issued, VAT liability must be reported in that tax period. This rule helps the earliest point of electronic VAT to consider, which would mean timely VAT to report and compliance with VAT rules in Saudi Arabia based the Article 49 of the Unified VAT Agreement.
2. Payment Made Before Delivery
If the payment is made before the actual delivery of goods, the date of supply is considered as the date of payment. The supplier must issue a tax invoice within 15 days from the end of the month in which the payment was received, for advance payments. This is done for the VAT on the advance to also be reported at the correct time, as is required in line with Saudi Arabia’s VAT rules, to avoid any delays or misreporting in the tax reporting process.
Example: The date of supply for services such as catering is based on the first of these events, invoice issuance, payment receipt or service completion. In this case, Al Subah was hired for catering for a fashion show on 7th May. But since the invoice was rendered on the 29th of April and part payment (50%) has been completed on the 2nd of May the date of the supply is taken to be the 29th of April being the earlier of the occurrences.
Continuous supplies are provision of goods or services on a regular basis over a period such as annual maintenance contract, security service or telecom service. In order to ensure proper VAT compliance, getting the time of supply for these supplies is very important. The time of supply is generally the earlier of two events: the date of payment or the date when the supplier issues an invoice. If payment is made on or before the date of supply, then the date of payment is treated as time of supply, and if no payment is made, the invoice date is used. This approach means that VAT is charged and reported as soon as a taxable event takes place.
If part payments are made, VAT is calculated proportionately and the date of supply is the date of each payment or invoice. However, if neither an invoice is issued nor a payment is received for continuous supplies, the time of supply is deemed to be the later of two events: Or 12 months from the date the supply began or last invoice issued or payment received. Let’s say Al Rahiba offers monthly housekeeping services and issues an invoice on 5th September for services rendered in August; the time of supply is 5th September and the VAT is paid accordingly.
Continuous Supplies (Points) Time of Supply
1.Earlier of Invoice Issuance or Payment Date
Continuous services are supplied on the earlier of the invoice issued or payment received. The time of supply becomes the payment date if advance payment is made. As an example, VAT is charged on the advance payment or invoice date, whichever is earlier, for example, for an annual maintenance contract. This ensures timely VAT compliance.
2. However, if No Invoice or Payment is Made
The time of supply is deemed to be the later of 12 months after the supply commenced or the last invoice/payment date when no invoice is issued and no payment is received. For example, if no payment is made for continuous internet services, the VAT liability arises 12 months after the service starts, so that delayed transactions are taken into account.
Example: In the case of continuous supplies such as housekeeping services, the time of supply is earlier of invoice date or payment date. Al Rahiba, for example, bills the Al Fateh hotel on 5th September for housekeeping services in August, with payment due on 12th September. As the letter of invoice has been issued on 5th September, this is the date of supply and does not need to be changed for VAT purposes.
Knowing the time of supply is important to ensure VAT compliance in Saudi Arabia. If you’re dealing with a single transaction or continuous supplies like services or contracts, understanding when the liability arises can save your business from making costly mistakes. Businesses can determine the right time to report and pay VAT according to the Zakat, Tax and Customs Authority (ZATCA) rules, if they follow the specific rules. Staying on top of the time of supply is whether it’s through invoice issuance, payment receipt, or the delivery of goods and services, it helps reduce the tax process.
For businesses in Saudi Arabia, it is important to know when VAT supply time comes. E-invoicing in Saudi Arabia and VAT compliance in Saudi Arabia will make the whole process simple and compliant. Using such tools to manage these dates help businesses to track them and keep the VAT obligations in check without feeling a bit sad. Implementing solutions for e-invoicing in Riyadh will make sure your VAT processes are smooth.
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