Indirect Tax Alert | 31 May 2017
Saudi Arabia officially releases Excise Tax Law in Official Gazette
The Saudi Arabia Cabinet has approved the Excise Tax Law, and released the legislation under Royal Decree M/86 dated 23 May 2017 (27-8-1438H). The Excise Tax Law has been published in the Official Gazette, UM AL QURA by way of Circular Number 4672 dated 26 May 2017 (30-8-1438H). The law will become effective 15 days after the date of publication in the Official Gazette.
The decree authorizes the Prime Minister, heads of independent bodies and other related institutions to take all adequate steps to implement the Excise Tax Law in Saudi Arabia. The competent judicial authority to deal with any litigation under the Excise Tax Law shall be the appellate committees as stipulated under the Income Tax Law.
Excise tax rates
The Gulf Cooperation Council (GCC) Member States have agreed to impose Excise Tax rates of 50% on soft drinks and 100% on energy drinks, tobacco and tobacco products. The detailed rates of tax will be provided in the bylaws to the Excise Tax Law which is scheduled to be released within 15 days from the publication of the Excise Tax Law in the Official Gazette.
Excise tax compliance
Manufacturers and importers of excisable goods will be required to register with the General Authority for Zakat and Tax (GAZT) for Excise Tax purposes. Businesses that are under the scope of Excise Tax that fail to register and comply with the guidance issued by the GAZT will be considered as tax evaders and subject to penalties.
The updated Saudi Arabian Excise Tax Law comprises 30 Articles covering:
- Taxation, tax due and tax suspension conditions
- Registration for Excise Tax purposes
- Conditions for licensing a tax warehouse
- Tax return and payment
- Tax refund
- Inspection and seizure
- Tax evasion and penalties
- Sanctions and consideration of disputes
The regulation specifies the fines and penalties that will be imposed for the following violations:
1. Tax avoidance – a penalty of not less than the value of the tax due and not more than three times the value of the excise goods subject to tax avoidance.
2. Late declaration – a fine not less than 5% and not more than 25% of the value of the tax that the person should declare in the tax return.
3. Monthly late payment of taxes – the penalty shall be equal to 5% of the tax due for each month or part of the month.
4. A financial penalty not exceeding SAR50,000 for any person that:
- Prevents or hinders the Authority’s officers from performing their duties.
- Fails to present the information requested by the Authority.
- Violates any other provision in the Excise Tax Law and the executive regulations.
5. In the event of a repeat of similar violations within three years from the initial violation, the Authority may double the fine, or suspend the license of the business for a period of not more than six months.
GAZT initiative to register companies in ERAD under the Excise Tax regime
The GAZT has initiated the registration process for companies on its electronic filing system, ERAD. Only those companies that are involved in the “production” or “importing” of excisable products are required to be registered in the ERAD system.
Accordingly, all excise taxpayers can now login to the ERAD system and initiate the registration online. The ERAD system automatically pre-populates all the information of the taxpayer, if already available with the GAZT, (i.e., the company registration details including commercial registration number and address). Additional details that are required to be provided in the ERAD system are as follows:
- IBAN number
- Contact details of the company representative
- Nature of the company’s business activity requiring registration (manufacturing or importation of excisable goods)
- Types of excisable products that are required to be registered
It is imperative for businesses operating in Saudi Arabia as an importer or manufacturer of excisable goods, to take immediate steps to register with the GAZT and become compliant with the Excise Tax Law.
Businesses should also initiate an Excise Tax impact assessment immediately in order to determine the impact of excise tax on their operations. The impact assessment should be used to develop a clear plan as to the steps that must be taken in order to be Excise Tax compliant.
For additional information with respect to this Alert, please contact the following:
Ernst & Young & Co (Public Accountants), Riyadh
- Asim Sheikh
+966 11 215 9876
- Ahmed Abdullah
+966 11 215 9439
- Ahmed Hassanin
+966 11 273 4740
- Amr Farouk
+966 11 215 9898
- Dino Saavedra
+966 11 215 9898
- Franz-Josef Epping
+966 11 215 9478
- Hosam Abdulkareem
+966 11 215 9805
- Imran Iqbal
+966 11 215 9807
- Mohammad Najjar
+966 11 215 9898
- Nitesh Jain
+966 11 215 9842
- Parvez Maqbool
+966 11 215 9849
- Sohail Nini
+966 11 215 9825
- Vladimir A Gidirim
+966 11 215 9455
- Yousef Eldaw
+966 11 215 9877
Ernst & Young & Co (Public Accountants), Al-Khobar
- Syed Farhan Zubair
+966 13 849 9522
- Ali Sainudheen
+966 13 849 9550
- Hatem Ghobara
+966 13 849 9524
- Javed Aziz Khan
+966 13 849 9521
- Jude deSequeira
+966 13 849 9520
Ernst & Young & Co (Public Accountants), Jeddah
- Craig McAree
+966 12 221 8501
- Ayman Abu El Izz
+966 12 221 8400
- Rolf Winand
+966 12 221 8400
- Diendo M Dupal
+966 12 221 8315
- Imran Ahmed
+966 12 221 8414
- Irfan Alladin
+966 12 221 8510
- Mohammed Desin
+966 50 006 7280
Ernst & Young, Doha, Qatar
- Finbarr Sexton
+974 4457 4200
Ernst & Young Middle East, Dubai Branch, United Arab Emirates
- David Stevens
+971 4 332 4000
Ernst & Young LLP, Middle East Tax Desk, Houston
- Gareth Lewis
+1 713 750 1163
EYG no. 03494-171Gbl