Following the publication of Circular on VAT refunds to taxable persons who are not residents in the GCC by the KSA Tax Authority (“ZATCA”) on February 2023 where they have clarified the two-step approach for business visitors refund mechanism in KSA (i.e., Step 1: Register as an Eligible Person for refund, and Step 2: Submit the refund application per calendar year), we are pleased to update you with the following recent developments on the claims submitted in previous years and on the practice currently being applied by ZATCA:
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Significant increase in numbers of claims approved/reviewed by ZATCA: There has been an increase in the number of VAT refund claims that were processed and refunded to non-residents, demonstrating an improvement in the efficiency of the refund system for business visitors in Saudi.
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Approach towards prior year claims: Previous period claims submitted that were resubmitted using the first period available in the e-services window of the ZATCA portal, after a non-resident is approved as an Eligible Person, (e.g., 2022 refunds submitted together with 2020, 2021, etc.) were being reviewed/approved by ZATCA with inconsistent approach. There were some claims submitted (2020, 2021, 2022) that were refunded in full. However, in the recent decisions issued by ZATCA on other submissions, the claims from previous periods (e.g., 2020 & 2021) were being rejected, and only 2022 are being processed and refunded. Unfortunately, the reason for rejection is not clear at this moment.
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Appeal process: Eligible persons who have received a rejection of the refund claims submitted have the opportunity to submit a Review Request with ZATCA to contest the rejection of the refund claim. The review request is required to be submitted within 60 days from issuance of the notice of rejection from ZATCA, and is submitted electronically in the e-services portal of ZATCA. We are yet to receive feedback from ZATCA on Review Requests already submitted. Although, there is no specific guideline from ZATCA for the standard days to respond/review such applications.
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Future refund applications: Informal communications with ZATCA indicates a change in the refund process being applied for business visitors in Saudi. It seems that ZATCA now only accepts refund claims from the year when a non-resident is registered as an Eligible Person with ZATCA. This suggests that a non-resident person whose registration as an Eligible Person is approved in 2024 can only apply for VAT refund incurred in 2024. This would mean that while the refund application for the calendar year 2023 is still due on 30 June 2024, the chance of recovering the VAT incurred in 2023 is now slimmer if the non-resident has not yet registered as an Eligible Person for refund in KSA. Note that this practice is not a proper application of Article 70, 72 of the KSA VAT Implementing Regulations allowing non-residents to recover VAT on expenses incurred in KSA, and can be contested. Nevertheless, considering the changing practice being applied by ZATCA, it is a conservative approach to already submit a registration as an Eligible Person, as a first step, even when still planning to engage for business activities in KSA in order to not lose the right to recover VAT.
Aurifer is constantly in touch with ZATCA to discuss improvements to the process. It is imperative for companies that are currently not yet registered as an Eligible Person to do so as soon as possible.
The above information was kindly provided by Aurifer Middle East Tax Consultancy DMCC (United Arab Emirates). If you need further information, please contact Thomas Vanhee at: [email protected].
