Healthcare

Implementing a Value Added Tax (VAT) system in the Kingdom of Saudi Arabia (KSA)

The Unified VAT Agreement for the Cooperation Council for the Unified Arab States of the Gulf (the 'Agreement') was approved by KSA by a Royal Decree No. M/51 dated 3/5/1438 H. Pursuant to the provisions of the Unified VAT Agreement, the Kingdom of Saudi Arabia issued the VAT Law under Royal Decree no. M/113 on 2/11/1438 H('the VAT Law'). The Implementing Regulations to the VAT Law were subsequently issued under the resolution of the Board of Directors of the General Authority of Zakat and Tax ('ZATCA') by Resolution No.3839 dated 14/12/1438 H (the 'Implementing Regulations').

Zakat, Tax, and Customs Authority

ZATCA, also referred to as 'the Authority' herein, is the authority in charge of the implementation and the administration of VAT (which may also be referred to hereinafter as the 'tax' unless the context otherwise requires) in KSA. In addition to the registration and deregistration of taxable persons for VAT, the administration of VAT return filing and VAT refunds, and undertaking audits / field visits; ZATCA also has the power to levy penalties for non-compliance with legal provisions relating to VAT.

What is Value Added Tax?

Value Added Tax ('VAT') is an indirect tax which is imposed on the importation and supply of goods and services at every stage of production and distribution, with certain exceptions. VAT is implemented in more than 160 countries around the world.

VAT is a tax on consumption that is paid and collected at every stage of the supply chain, starting from when a manufacturer purchases raw materials to when a retailer sells the end-product to a consumer. Unlike other taxes, taxable persons will both:

• Collect VAT from their customers equal to a specified percentage of each eligible sale;

• Pay VAT to their suppliers, if any, from whom they have received the goods or services, equal to a specified percentage of each eligible purchase.

When taxable persons sell a good or service, they must charge an extra 15% of VAT (on the assumption that the standard rate applies to those supplies) on top of the final sales price. The taxable persons will account for that 15% they have collected from all eligible sales separately from its revenue in order to later remit a portion of it to the Authority. The VAT that taxable persons collect on their sales is called Output VAT.

The same will apply to purchase transactions made by taxable persons, in that VAT will be added at the rate of 15% to purchases of goods or services from taxable persons (on the assumption that the basic rate applies to those supplies). The VAT that taxable persons pay to their suppliers is called Input VAT.

Further general information about VAT can be found in the KSA VAT Manual or at Zatca.gov.sa.

This Guideline

This guideline is directed at companies, individuals, and persons who are involved in the provision of healthcare services, suppliers of medicines and medical goods, providers of health insurance and suppliers of services to the healthcare sector.

This guideline represents ZATCA's views on the application and fair treatment of the Unified VAT Agreement, the VAT Law and the Implementing Regulations to the health sector as of the date of this guideline.

However, for guidance on specific transactions you may apply for a ruling, or visit the official VAT website at 'Zatca.gov.sa', which contains a wide range of tools and information that has been provided to assist the taxpayers, as well as visual guidance materials, all relevant information, and FAQs.

Who Carries Out an Economic Activity

An economic activity may be carried out equally by natural persons or legal persons.

It will be presumed that a legal person that has a regular activity making supplies carries on an Economic Activity. It should be stated that natural persons may perform certain transactions as part of their economic activity, or as part of their private activities. There are therefore specific rules to determine whether or not a natural person falls within the scope of VAT.

Natural persons and legal persons who carry on an economic activity must register for the purposes of VAT if so required, and such persons must collect the VAT applicable to their activities, and pay the tax collected to the Authority.

Activities carried out by Government Healthcare Providers

VAT is chargeable on any supplies made by a Taxable Person in the course of carrying on an Economic Activity. However, when a Government Healthcare Provider carries on an activity in its capacity as a public authority, this activity is not an Economic Activity^[7]. ZATCA considers that all provision of healthcare by a Government Healthcare Provider is considered to be provided in the capacity of a public body. These activities will therefore fall outside the scope of VAT.

Government Healthcare Providers are therefore not obliged to register for VAT purposes unless it carries out activities which involve making supplies of goods or services in a capacity other than its capacity as a public authority. In those cases, that government body or entity shall be regarded as carrying on an Economic Activity for VAT purposes only in connection with those economic activities, and is therefore obliged to register if it meets the conditions for registration (see Section 3.4 below).

In case the Government Healthcare Provider is listed within the list of persons qualified to obtain refunds of VAT paid on purchases made by them, further information on persons qualifying for a refund of VAT is provided under Section 7.3.

VAT on charges by Government Healthcare Providers

In many cases, a Government Healthcare Provider will not apply VAT on healthcare provided to individuals. In these cases, the healthcare services are not regarded as being a supply for VAT purposes. That means that VAT will not be charged on public health care services or the supply of medicines or medical goods provided by Government Healthcare Providers.

Government Healthcare Providers are not required to issue tax invoices for charges made which are not subject to VAT. For example, in some cases, a Government Healthcare Provider may make a full or partial charge to individuals (e.g. for services provided to non-citizens, or for specific medicines or services).

Suppliers of services to Government Healthcare Providers

Government Healthcare Providers are not required to charge VAT in respect of their supplies of goods or services in their capacity as a public authority. However, they are still charged VAT in the normal way by third party suppliers of goods and services provided to them by any supplier who is subject to VAT.

Government Healthcare Providers may be able to obtain a refund of VAT paid to a taxable supplier under a special mechanism for the return of tax to government entities in the event that they are qualified for a refund (discussed further at Section 7.3 of this guideline).

Other activities carried out by Government Healthcare Providers

A Government Healthcare Provider may have additional activities outside of the health activities that it provides as a public authority. If a Government Healthcare Provider makes charges on activities that fall outside the scope of public health care these will be considered to be made as part of an Economic Activity^[8]. Consequently, the Government Healthcare Provider should register for VAT if it exceeds the mandatory registration threshold^[9] and charge VAT on any taxable supplies that do not fall within the definition of the public authority, in accordance with normal rules for those supplies (see Section 3.6 and 3.7 below).

Further information on Economic Activity is provided in the Economic Activity guideline.

Mandatory registration

Registration is mandatory for all persons whose annual turnover exceeds a certain threshold. If the total value of a person's taxable sales during any 12 months period exceeds SAR 375,000, the 'mandatory VAT registration threshold', that person must register for VAT^[10], subject to the transitional provisions provided for in the Implementing Regulations to the Law, relating to the mandatory registration threshold during the transitional period.

Taxable supplies does not include the following^[11]:

• Exempt supplies, such as financial services exempt from VAT or residential letting that qualifies for exemption from VAT^[12];

• Supplies falling outside the scope of VAT in any GCC member state; or

• Revenues on sale of capital assets: capital assets are defined as assets allocated for long-term commercial use.^[13]

In certain circumstances, other tests will be applied to mandatory registration:

• Persons who are not resident in the Kingdom of Saudi Arabia are required to pay the VAT in respect of supplies made or received by them in the Kingdom of Saudi Arabia and to register for VAT irrespective of the value of the supplies for which they are obliged to collect and pay the VAT;

• During a transitional period up to 1 January 2019, registration is only required for persons whose annual turnover exceeds SAR 1,000,000.

You may obtain further information on mandatory registration for VAT on the website: Zatca.gov.sa.

Optional registration

Any Resident person in the Kingdom of Saudi Arabia who has taxable sales or taxable expenses exceeding the 'optional VAT registration threshold' of SAR 187,500 in a twelve-month period may register for VAT on an optional basis.

Optional VAT registration may be desirable where a person wishes to claim a refund of VAT that he has paid on his costs before invoices are raised or the occurrence of an onward supply.

Further information on optional registration for VAT is contained at Zatca.gov.sa.

VAT treatment of healthcare services

VAT is chargeable at 15% on all healthcare services carried out in the KSA by a Private Healthcare Provider who is a Taxable Person. All health care services provided by Private Healthcare Providers are presumed by the Authority to be an Economic Activity for VAT purposes.

VAT applies to health services provided by private health care institutions as they are subject to VAT, notwithstanding that they are the same as those services that could be obtained from a Government Healthcare Provider. A Government Healthcare Provider is subject to special application of VAT on the basis that it is a public authority and not on the basis of the category of services that it provides to individuals.

Combined charges for health services and medicines

Many healthcare services will involve an element of medicines, equipment, or other tangible goods being provided to the patient as part of the course of the treatment or medical package. Qualifying medicines and medical goods are eligible for zero-rating only when separated out by the service provider.

The Private Healthcare Provider must identify the qualifying goods that are eligible for zero rating, which are provided to the patient as part of the therapeutic service, and identify these supplies on the tax invoice issued by it as zero-rated supplies. This does not apply to medicines or medical goods of a trivial value which are consumed or discarded during the provision of services.

Private Healthcare Providers should not seek to artificially value zero-rated medicines and medical goods supplies at a higher value than commercially appropriate, and should be able to provide support of the commercial pricing adopted upon request.

In some cases, the medicines or medical equipment used by a Private Healthcare Provider may not be an identifiable good used in the provision of healthcare services by the private health care provider, if it is of a trivial value compared to the overall value of the services (such as a bandage used and then discarded during surgery). In such a case, the entire value will be subject to VAT.

A hospital or health center will often provide a range of goods and services to a patient while he is receiving treatment. For tax invoicing purposes, it is acceptable for the tax invoice to show only the total value and total VAT charged amounts for each of the taxable and zero-rated rates^[14]. A more detailed breakdown can be provided of the constituent services and goods provided.

Invoicing

Supplies of healthcare are generally made to an individual patient, and in this case invoices should be issued by the Private Healthcare Provider to the individual patient.

Section 5.1 discusses situations where a third party, such as an employer or insurer, may be the party that contracts with the healthcare provider for the provision of therapeutic services to individuals working for it or in the contract with it. If the contract has been made between the healthcare provider and the third party directly (that is, if the contract or agreement is made with a client as opposed to the patient who benefits by the health services), it should issue its invoice to contractual customer rather than the patient.

In cases where the contracting third party (insurance company or employer), is a non-GCC resident, and the health services are provided within the territory of the GCC States, the Private Healthcare Provider cannot apply the zero-rate to the healthcare services on the invoice, on the grounds that the client with whom it contracted is resident outside GCC territory.^[15] The zero-rate applies as normal to the provision of Qualifying Medical Goods.

Every taxable person must issue a tax invoice where taxable supplies (including zero-rated qualifying goods) are made to a VAT-registered person or a non-taxable legal person (such as a Government Healthcare Provider)^[16], or must issue a simplified invoice for the taxable supplies made to the end consumer.

Further details on invoicing are provided in the VAT Manual and at Zatca.gov.sa

Other charges

In cases where a Private Healthcare Provider that is registered for VAT makes other charges (i.e. for non-healthcare services) as part of its Economic Activities, it should apply VAT to these charges under normal rules.

Contractual status - who is the recipient of healthcare services

The customer for VAT purposes is the person who is the recipient of a supply of goods and services. Under general VAT principles, the customer is normally determined by the contractual arrangements - including:

• Which person instructs the supplier in connection with the supplies subject matter of the contract;

• Which person enters into a contract with the supplier.

• Which person has the power to compel the supplier to perform and comply with his contractual obligations in connection with the supplies which are the subject matter of the contract, by delivering the goods or performing the service.

In this way, an individual can receive benefit from goods or services delivered under a contract, whilst not being directly a party to it, despite the fact that he is not a 'customer' as defined for the purposes of the application of VAT.

In a healthcare context, the patient receives direct benefit of healthcare services. Therefore, it will be presumed that the individual is the recipient of healthcare services and associated goods, unless this is expressly evidenced otherwise. This is the case even where the provider of the healthcare issues the invoice to a third party, or it is the third party who is responsible for paying for the healthcare services.

Under the above infographic, the patient is the customer for VAT purposes.

In some cases, a third party (such as insurer or employer) may be able to instruct the Private Healthcare Provider (the provider of the services) to carry out the healthcare services to individuals (the assured/employees) to satisfy their own obligationto provide healthcare services. In these cases, it may be possible for that third party to be the primary recipient of healthcare services, even though the individuals also receive benefit from the services.

In the above infographic, the third party (insurance companies/the employer) is the customer for VAT purposes.

In an insurance context, the contractual position - who is the customer - will depend on who instructs the service provider.

Invoicing

Private Healthcare Providers should issue invoices in the name of the recipient of the healthcare services. A tax invoice cannot be issued showing the name of insurer as recipient, if it is not the customer (recipient) based on the test described above.

If a Private Healthcare Provider supplies services directly to the customer (the patient) but needs to provide an invoice to the insurer to claim payment for their services, it should clearly show the recipient of the services (the customer). It may separately state that the amount is 'for the account of' or 'due for payment by' the insurer.

Under Example 10 - the physiotherapy clinic should raise an invoice showing Abdullah's name as the recipient (the customer) and including the amount of VAT charged. The clinic issues a tax invoice and sends this invoice directly to the insurer with a statement noting it is for the account of the insurer.

If a Private Healthcare Provider contracts directly with an insurer who is the recipient for VAT purposes, it should raise a tax invoice showing the name of that insurer as recipient. In these cases, the insurer should be eligible to deduct VAT charged as Input VAT. Conversely, the insurer is not eligible to deduct VAT charged as Input VAT where the contract is directly with the patient (and the insurer simply makes payment against that invoice).

Special cases

Supplies of qualifying medicines and medical equipment

A zero-rate applies to all supplies of Qualifying Medicines and Qualifying Medical Goods which are specified by the Ministry of Health or another competent authority from time to time^[19]. The current updated lists of Qualifying Medicines and Medical Goods, as of the date of the issuance of this guideline, are set out on the SDFA website at the following links:

• Human medicines subject to zero rate: https://www.sfda.gov.sa/en/drug/search/pages/default.aspx

• Vitamins subject to the zero rate:

  https://www.sfda.gov.sa/en/drug/search/pages/default.aspx?Pagelndex=1&sm=vitamin

• Medical appliances and equipment qualifying for zero rate: https://mdma.sfda.gov.sa/ListedProducts.aspx

It is each supplier's responsibility to determine which of their products are treated as qualifying for zero rate, and then applying the correct VAT treatment appropriate for them. Suppliers should hold evidence to support the VAT treatment applied on such goods, to be provided if requested as part of a tax audit by the by the supplier. Tax invoices must also be issued for all zero-rated supplies of medicines and medical equipment.

The zero-rate is applied based on qualifying medicines and medical equipment according to the classification issued by the Ministry of Health, and approved by the Authority. Therefore, zero rate will apply to such supplies at every stage of the supply chain by the taxable person, to include supplies made by each of:

• Manufacturers

• Importers

• Distributors

• Private Healthcare Providers

• Pharmacies

• Retailers

• Supplier of used Qualifying Medical Goods

Supplies of Qualifying Medicines and Qualifying Medical Goods by a Government Healthcare Provider who is not registered for VAT, or by another person not registered for VAT, are not subject to VAT.

The zero-rate applies to supplies of Qualifying Medicines or Qualifying Medical Goods irrespective of how they are used. It is not required that the ultimate recipient or user have a prescription or verified medical use for such commodities.

Imports of qualifying medicines and medical equipment

Imports of any zero-rated goods are exempt from import VAT^[20] upon importation into the Kingdom. Therefore, any imports of Qualifying Medicines and/or Qualifying Medical Goods will not be subject to VAT upon import. This exemption does not affect customs duties, which will apply as usual.

The effect of the exemption is that no import VAT is payable to the Customs Department. There will be no effect on the deduction of Input VAT by the importer.

The importer of Qualifying Medicines and Qualifying Medical Goods should ensure the correct VAT treatment upon importation.

Non-qualifying medicines and medical equipment

Imports and supplies of non-qualifying medicines or medical equipment are subject to VAT at the basic rate under the normal rules for taxable supplies of goods made in the KSA.

Special cases

General conditions

A person who is VAT registered may deduct Input VAT charged on goods it purchases or receives and in course of carrying out an Economic Activity. Input VAT may be deducted on:

• VAT charged by a VAT-registered supplier in the KSA;

• VAT self-accounted by the VAT-registered person under the reverse charge mechanism; or

• Import VAT paid to the customs department on importation of goods.

As a general rule, input VAT which is related to the taxpayer's VAT exempted activities is not deductible as input VAT.

In addition, input VAT may not be deducted on any costs incurred that do not relate to the Economic Activity of the taxable person (including some blocked expenditure types such as entertainment and motor vehicles)^[25], or on any costs which relate to making exempt supplies.

This Input VAT is a credit entered on the VAT return which is offset against the VAT charged on supplies (output VAT) made during that period.

Input VAT may only be deducted where the VAT-registered recipient holds a tax invoice or Customs documents showing the VAT due (or any alternatives document showing the amount of Input VAT paid or due for payment, subject to the approval of the Authority).

In connection with the supply of qualifying medicines and medical equipment, the supplier may deduct the Input tax incurred on costs and expenses borne by him in the course of making those supplies, on the basis that they are taxable at zero rate.

Capital assets

Capital assets are held for a long-term for the purpose of commercial investment is such as medical equipment bought by supplies of health care services. VAT deduction is available upfront based on the intended use at the time of purchase.

Taxable Persons are required to monitor the usage of any tangible, movable capital assets and intangible capital assets for a period of 6 years, and make annual adjustments to the upfront VAT deduction where the actual use changes from deductible to non-deductible and vice versa.^[26]

Equipment purchased by Private Healthcare Providers in the healthcare sector would generally be used for VAT standard rated purposes, such as X-ray service, Magnetic resonance imaging, etc. Therefore, in most cases, unless capital goods are later used for private purposes during their useful life, there may be no adjustments to make each year in practice.

The usage of all capital assets must in all cases be monitored and appropriate records kept for provision upon request in an audit.

Refund claims for Government Healthcare Providers

Designated Persons not carrying on an Economic Activity, or those engaged in designated Economic Activity, may be permitted by the Authority to apply for a refund of VAT paid by them on Supplies of Goods or services received in the Kingdom. The Minister of Finance may issue an order setting out a list of Persons considered an Eligible Person for refund.^[27]

Government Healthcare Providers, set out in the above mentioned list, who are not carrying on an Economic Activity for VAT purposes will not reclaim Input VAT through VAT returns, but they will be able to reclaim a refund of VAT in the event that they qualify for a refund.

A special refund application will allow designated persons, including government agencies, to request a refund of VAT charged to them in carrying out their public activities. A refund under that mechanism will not be permitted in respect of input VAT paid on supplies received by the person in the course of a carrying on his activities in a commercial capacity.^[28] Government Healthcare Providers may therefore be eligible to submit claims for refund of VAT under this mechanism.

Date of supply

VAT becomes due on the supply of healthcare services on the date on which the services are completed.^[29] However, if a payment is made, or invoice is issued by the supplier before that date, VAT becomes due on the date of payment or of invoicing, whichever is earlier.

Some Healthcare services may be provided as a continuous supply - such as rehabilitation at a private facility. In these cases, VAT becomes due at the earlier of the invoice date or actual payment; each separate amount charged is viewed as a separate and successive supply.^[30]

Charging VAT

Where a supply is made by a resident supplier, that supplier is responsible for being registered for VAT (if required) and charging VAT at the appropriate rate. The supplier must issue a tax invoice for every supply on which VAT is charged.

If a supply of services is made by a non-resident supplier to a recipient who is resident in the KSA and registered for VAT, the supplier should not charge VAT. The supplier will not charge VAT, and the recipient is responsible for reporting VAT (at the appropriate rate) on their VAT return through the reverse charge mechanism.

Further information on the reverse charge mechanism is provided the VAT manual at: Zatca.gov.sa

Filing VAT Returns

Each VAT registered person, or the person authorised to act on his behalf, must file a VAT return with ZATCA for each monthly or quarterly tax period. The VAT return is considered the taxable person's self-assessment of tax due for that period. Monthly VAT periods are mandatory for businesses with an annual turnover exceeding SAR 40 million. For all other VAT registered persons, the standard tax period is three months.

The VAT return must be filed, and the corresponding payment of net tax due made, no later than the last day of the month following the end of the tax period to which the VAT return relates.

Further information on the filling in of the VAT returns will be provided in a separate guideline.

Keeping of records

All taxpayers are required by law to keep appropriate VAT records relating to their calculation of VAT for audit purposes. This includes any documents used to determine the VAT payable on a transaction and in a VAT return. This will generally include:

• Tax invoices issued and received;

• Books and accounting documents;

• Contracts or agreements for large sales and purchases;

• Bank statements and other financial records;

• Import, export and shipment documents; and

• Other records relating to the calculation of VAT.

Records may be kept in physical copy, or electronically provided that the conditions in the Implementing Regulations to the Law are satisfied^[31], but must be made available to ZATCA on request.

All records must be kept for at least the standard retention period of 6 years. The minimum period of retention of records may be extended to 15 years in connection with records relating to capital assets.^[32] Records relating to capital assets must be kept for the useful life of the asset plus an additional five years (i.e. 11 years in total for capital assets with the standard VAT useful life of six years).

Tax Obligations

Every Taxable Person has an obligation to assess his own VAT liability, and to comply with VAT obligations. This includes registering for VAT when required, correctly calculating the amount of net tax payable, paying tax on time, keeping all necessary records, and cooperating with officers of ZATCA upon request.

If you are not sure of your tax obligations, you should contact ZATCA through its website at Zatca.gov.sa or other communication channels. You may also seek external advice from a qualified consultant.

Requesting a Ruling

If, having consulted the relevant law and guidance, you are unsure on how VAT applies to a particular activity or transaction that you carry out or intend to carry out, you may apply to GAZT for a ruling. The application must include the full facts relating to the particular activity or the particular transaction on which you are seeking the Authority's view.^[33]

Rulings may be in one of the two following forms:

• Public: in which case ZATCA will publish details of the ruling, without any taxpayer-specific information; or

• Private: in which case ZATCA will not publish the ruling.

A public or private ruling issued by the Authority will not be binding on it or any taxpayer in connection with any transaction that he carries out. Nor may it be relied on in any manner, nor will the Authority be obliged to respond to all applications for rulings. It will consider all applications and specify those applications to which priority will be given, on the basis of certain factors including:

• The level of information presented by the taxpayer in the request;

• The benefit to the wider taxpayer community in issuing a public ruling on the transaction or activity.

• Whether there is existing law or guidance which addresses the request.

Correcting Past Errors

If a taxable person becomes aware of an error or an incorrect amount in a filed VAT Return, or of any other non-compliance with the VAT obligation, he should notify ZATCA and correct the error by amending VAT the tax return. Errors resulting in a net understatement of VAT (exceeding SAR 5,000) must be notified to ZATCA within twenty days of becoming aware of the error or incorrect amount.^[34]

For small errors, resulting in an understatement of a net VAT of less than SAR 5,000, you may instead correct the error by adjusting the net tax in the following VAT return.

Further information on correcting errors can be found through Zatca.gov.sa

Disregard early invoice or payment

Any supplier who issues an invoice or receives consideration before 1 January 2018 where the actual supply of goods or services takes place on or after 1 January 2018, shall be considered to make a Taxable Supply on the actual date of the supply, irrespective of the date of payment or issue of the invoice.^[36]

In this case, the supplier is obligated to issue an additional invoice showing the tax charged on the taxable amount, if the actual date of the supply of the goods or services occurs on or after 1 January 2018.

Conversely, if the actual supply takes place before 1 January 2018 and the invoice was issued or the consideration was received after this date, the supply will not be subject to VAT.

Continuous supplies spanning VAT introduction date

The VAT Law provides that continuous supplies of goods or services spanning 1 January 2018 or thereafter shall be subject to VAT only on that part of the supply carried out on or after 1 January 2018, and VAT will not apply to any part of the continuous supply carried out before 1 January 2018.

The supplier must apportion the value of the supplies between the period before 1 January 2018 and the period following that date in the most appropriate manner reflecting the actual supply of goods or services to the customer.^[37] In the healthcare sector, these include any services provided to the customer across a defined period or in a continuous consecutive manner, such as a 12 month stay in a rehabilitation facility.

Application of the transitional provisions for the zero rating of existing contracts ('grandfathering')

In connection with existing contracts, the transitional provisions permit supplies made under existing long-term contracts to be subject to zero rating during the transitional period until the date of expiration or renewal of the contract, or until 31 December 2018, whichever is the earliest.^[38]

This allows suppliers and customers who had entered into longstanding contractual commitments without VAT, an additional period to review the contracts and agree on the new price after VAT. These transitional provisions apply only to those supplies that would otherwise have been subject to VAT.

Eligible contracts

The transitional provisions may be applied for the zero rate on contracts binding on both parties to the contract in which the introduction of VAT had not been anticipated, but provided that the terms and provisions of the contract cannot contain the following:

• A reference to the contractual price being inclusive or exclusive of VAT (or taxes); and

• Any provisions relating to the adjustment of the price in the event of the introduction of VAT or taxes on the goods and services provided under the contract;

The transitional provisions will apply so as to impose the zero rate on contracts that did not anticipate the introduction of VAT. Consequently, it will be open to the supplier to subject supplies made in accordance with contracts for services in which the introduction of VAT was not anticipated to the zero rate until the time of the expiration or renewal of the contract, or until 31 December 2018, provided that the following conditions are satisfied:

1. The contract was entered into before 30th May 2017: The date of the making of the contract is the date on which it was signed or will become binding on both parties. Contracts made before that date but renewed or updated after 30 May 2017 will be treated as having been made on the date of renewal or updating;

2. The customer is entitled to deduct Input VAT in relation to that supply in full, or the customer must be a government Department or 'qualifying person' having the right to claim a refund of VAT. It is not necessary for the customer to be fully subject to VAT or capable of deducting input VAT in full on all of his activities in order for him to be able to benefit by the provisions for the imposition of the transitional zero rate to such a supply. The provisions governing the transitional zero rate do not apply to supplies made to a consumer who is not registered for VAT with the Authority (or not registered as a qualified person);

3. The customer provides a written certification to the supplier that he is able to deduct/refund the Input VAT in relation to that supply in full.^[39]

The exception set out in this section does not apply to the supplies made by a private healthcare supplier to individuals who do not have the right to deduct or claim a refund of input tax.

Example 18:

A private specialist works three days each week at a private hospital in Riyadh, for which he charges SAR 6,500 per day. The specialist will be registered for VAT and his supplies will become chargeable to VAT. His contract with the clinic was signed in 2016 for a period of three years and has no provisions relating to VAT or other taxes.

The private hospital is also registered for VAT able to recover Input VAT in full on the specialist consultant's services. It provides written confirmation of this to the consultant. The specialist can apply the zero-rate to his services until the contract is expired, renewed, or until 31 December 2018, whichever is earliest.

Certification

Further rules on the transitional provisions applying zero rating and written certification for the application of VAT at zero rate can be found in a separate guideline. Key points relevant for the health sector are:

• The customer may respond to the supplier's request to supply the certification within a reasonable time, pursuant to the agreement. The reply should be based on all of the facts known to the customer at the time that he makes his reply. The reply should deal with the ability of the customer to deduct VAT on that particular supply or those particular supplies. The customer may either:

  1. Confirm his entitlement to deduct input VAT in full on the supplies the subject matter of the request;

  2. It should state that he is not able to deduct input tax in full in respect of the relevant supplies, or that he is not able to provide such confirmation.

It is open to the customer to provide such certification by any means (including electronic communication), and both the customer and the supplier should keep that certificate in their records, if the customer certifies that he is entitled to deduct input VAT in respect of that supply or those supplies.