KSA Guide: What is Impact of VAT on Telecommunications Sector in Saudi Arabia?

What Is The VAT Impact On The Telecommunications Sector In Saudi Arabia

The most current implementation of VAT in Saudi Arabia has left its implications around various sectors in its economy. Although a few hubs are less affected owing to exemptions in the law, other domains have witnessed massive impacts. Telecommunication, being a dynamic sector, has been the support for infrastructure, innovation, and country’s development.

As this domain gets segregated into two categories, they are B2B and B2C (Consumer and Business respectively). Revenue streams from end-users include post-paid and prepaid services, fixed-line, internet services, sale of different devices, and broadcasting. So, telecommunication is one such industry where value-added tax will get applied.

VAT for Telecommunications Sector in Saudi Arab: How It’s Gets Applied?

With that said, the implementation of VAT in the KSA has made a majority of goods and services seek a limited number of transactions. It might be exempt or zero-rated). These transactions will be supplied by the companies at a taxable and Standard Rate of 5%.

Concerning the procurement, businesses that are VAT-registered will be capable of claiming the VAT paid on the business expenses to definite conditions. If someone is unable to claim the credit of VAT, those credits will get considered as the Company’s cost.

Important Things to Note about VAT for Telecommunications sector in Saudi Arabia

Telecommunication services are the services that include broadcasting, delivering, receiving, and converting the services as specified by using the communication equipment and devices. These devices or equipment broadcast, transmit, convert, and receive services by magnetic, electrical, electrochemical, electromagnetic, or electromechanical modes or some other communication mode. These include:

  • Wired or wireless communications
  • Music, voice, or other audio material
  • Signals used for the transmission with exceptions of the public broadcasts
  • Viewable images
  • Signals for transmission with exceptions of the public broadcasts
  • Services of the equivalent type having a similar function or purpose

The aforementioned are the supplies affected by the telecom company. Nonetheless, there might be possibilities of additional services which might or might not get covered under the aforementioned supplies.

The VAT for Telecommunications sector in Saudi Arabia has made it compulsory for the telecom service providers to gather 5% of the VAT from consumers. Therefore, packs ranging from internet plans, post-paid plans to prepaid plans include the VAT amount.

However, it depends on the companies how they add the amount. They can add 5% on previous prices so that profit margins don’t get compromised. For this reason, the end-consumers have to pay an additional 5% extra.

In addition, there is the specified scheme for Capital Assets, where the input VAT credit that is recovered on the capital assets gets used for the long term. It is subject to continuous monitoring (until the prescribed timeframe) that depends on the use and nature of assets for respective activities.

Considering the nature of the business activities, it is imperative for the companies to factor in multiple commercial (including an increase in cost, pricing, compliance with commercial laws) and non-commercial (consumer handholding and consumer experience) considerations. It entails comprehensive guidance and planning to the telecom companies.
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