Time of supply under VAT in KSA

Time of supply is a concept used to determine the timing of the supply of goods or services. This concept will help in determining the timing of taxation. This article explains all aspects of the time of supply under the Value Added Tax (VAT) Law in the Kingdom of Saudi Arabia (KSA).

What is meant by time of supply?

Time of supply is the point of time when the goods and services are deemed to be supplied. This point of time determines the period in which liability to charge VAT arises. Zakat, Tax and Customs Authority (ZATCA) VAT implementation guidelines in Saudi Arabia to aid in determining the time of supply in Saudi Arabia.

Importance of time of supply

• Remittance of correct VAT payment
• To ascertain the period in which the output VAT for the goods or services supplied need to be paid
• No discrepancies in finding out the actual tax liability
• Right assessment of tax liability without any ambiguity will result in timely payment of taxes, hence avoiding paying the penalty.

Time of Supply Rules: When to charge VAT in KSA?

According to article 23 of the Unified Tax Agreement, the tax will become due at the earliest of the following dates:

1. Date of supply of goods and services
2. Date of issuance of tax invoice
3. Date of receipt of partial or complete consideration (to the extent of received amount)

Example: AL Vadera has received an order from Al Max on 5^th October to supply electronics for his upcoming furnishing showroom in Saudi Arabia. Let us analyse various scenarios for determining the time of supply.

Scenario 1
Date of supply of goods: 10th October 
Date of issuance of tax invoice: 11th October
Date of receipt of consideration: 12th October
Time of supply: 10th October

Scenario 2:
Date on which goods are delivered to the customer: 15th October
Date of invoice: 20th October
Date of payment: Advance 10%- 10th October, remaining on 21st October
Time of supply- 10th October for 10% of revenue and 15th October for rest 90%

Scenario 3
Date on which invoice is issued: 10th October
Date on which goods are delivered to the customer: 15th October
Date of payment: 20th October
Time of supply: 10th October

What is the date of supply?

Generally, we might refer to the delivery date of goods as the date of supply. Still, article 49 of the Unified VAT Agreement and Implementing Regulations have specific rules for determining the date of supply.

As discussed above, the date of supply will be different from the date of delivery of goods in the two cases listed below:

When a tax invoice is issued before the actual delivery of goods: In cases where a tax invoice is issued before the actual delivery, VAT liability must be reported in the tax period in which the invoice was issued.

When payment is made before the actual delivery date of goods: If the payment or part payment is received before the actual delivery takes place, then the date of payment should be deemed the date of supply. In cases of advance payment, the supplier is bound to issue a tax invoice within 15 days from the end of the month in which advance payment is received.

Example: Al Subah gives catering services for corporate functions. He was hired by Al Jane, a luxury fashion house, for a fashion show held on 7th May. However, Al Subah raised the invoice on 29th April and received the part payment (50%) on 2nd May. In such a case, 29th April will be the date of supply.

Time of supply for continuous supplies

Continuous supplies, as the name suggests, involves the supply of goods and the performance of services regularly over some time. E.g., Annual maintenance contract, security services, internet and telecom services.

The time of supply for continuous supplies is the earlier of the invoice issued by the supplier or the date of payment. In other words, if the advance payment is received, then the date of supply will be the date of payment; otherwise, it will be the date of invoice only. Also, the provisions will be different if part payment is done.

In any case, if the invoice is not issued for continuous supplies and even payment is not received, then the time of supply is deemed to be later of date falling twelve months after-

• The date the supply commenced
• The date the last invoice was issued, or payment received

Example: Al Rahiba provides housekeeping services to the Al Fateh hotel. Al Rahiba issued an invoice on 5^th September for August, which requires payment from Al Fateh till 12^th September. The date of supply is 5^th September, and it will be used for tax compliance.