10/3/2017 12:14:14 PM cpa club 4 years ago
Tax incurred by a taxable person on goods and services received which are exclusively and directly attributed to taxable supplies made by him, or other supplies described in the first paragraph of article forty-nine of the regulations, may be deducted in full subject to the other provisions of these Regulations.
Tax incurred by a taxable person on goods and services which are exclusively and directly attributed to an exempt supply is not deductible.
In cases where a taxable person incurs input tax on goods or services which are used both for making taxable supplies and for making exempt supplies, or which cannot be attributed exclusively to use in making a specific supply, the default method of proportional deduction of Input tax shall be determined in accordance with this regulation. (Explained below)
Deductible Input Tax= A / (A+B) * C
A: Taxable supplies made in the last calendar year
B: Total value of exempted supply made in last calendar year
C: Total Input tax paid during the period.
Note: the value of taxable supplies or exempt supplies made by that person in the fraction include those supplies that do not take place in the Kingdom, but that would have been either taxable supplies or exempt supplies if they had taken place in the Kingdom. In other words, while calculating ratio export also to be considered if transaction is subject to KSA VAT or exempt if they had taken place inside the Kingdom.
However, above calculation excluded supply of capital assets and supplies taken place outside the Kingdom which is supplied from an establishment of taxable person outside the Kingdom.
Alternative Method of allocation
A taxable person may submit an application to use an alternative proportional deduction method to the default method, in cases where that alternative method more accurately reflects
the use of Goods and services supplied to that taxable person.
Notwithstanding any prior approval, in cases where the authority believes the default method or the approved alternative method does not accurately reflect the taxable person’s use of goods and services supplied to it, the Authority may issue a notification directing the use of another method, and the time period for which this method must be used.
End of the calendar year adjustments
At the end of the calendar year, the taxable person using the default method set out in the above paragraph must compare the values used in the fraction during that year with the actual values of supplies, and make an adjustment to Input tax in the final tax return for that calendar year to reflect the correct proportional deduction based on the actual supplies for the entire year.
Input Tax on Goods and services which are not used to make a Taxable Supply
In cases where the taxable person incurs input tax on goods and services which are not used to make a taxable supply but are used:
a) in respect of raising capital for an ongoing economic activity to the extent this constitutes the making of taxable Supplies by way of the issue of share capital or debt,
b) for a business activity which is treated as outside the scope of VAT, such as a transfer of an economic activity or part of an economic activity as a going concern within article seventeen of these regulations,
c) for another one-off event which is incidental to the economic activity to the extent this constitutes the making of taxable supplies,
such Input tax shall be deductible in accordance with the proportion of the overall economic activity of the taxable person which constitutes the making of taxable supplies, determined using the applicable proportional deduction method determined in accordance with this article.
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