Mandatory VAT registration when expected supplies exceed the threshold
A Resident Person in the Kingdom who is not registered with the Authority must, at the end of each month, estimate the value of annual Supplies to be made in the next twelve months. Where that value is expected to exceed the Mandatory Registration Threshold detailed in the Agreement, the Person must apply to the Authority for registration within thirty days of the end of that month. The Mandatory Registration Threshold stated in the Agreement is SAR 375,000. Registration under this prospective test takes effect from the start of the first month in which annual Supplies made in the Kingdom were expected to exceed the threshold. This is a different rule from the historic twelve-month test in Article 3 of the Regulations.
The prospective obligation
Article 4(1) of the Implementing Regulations provides that a Resident Person in the Kingdom who is not registered with the Authority must at the end of each month estimate the value of his annual Supplies to be made in the next twelve months, in accordance with the requirements provided for in the Agreement. Where the value of these Supplies is expected to exceed the Mandatory Registration Threshold detailed in the Agreement, the Person must apply to the Authority for registration within thirty (30) days of the end of that month pursuant to Article 8 of the Regulations.
The thirty-day period runs from the end of the month at which the estimate is made. Article 4 does not provide that the application must be made within thirty days of a date within the month on which the Person first foresaw that the threshold would be exceeded.
The threshold and how annual supplies are calculated
Article 50(2) of the Common VAT Agreement states that the Mandatory Registration Threshold shall be SAR 375,000, or its equivalent in the GCC State currencies. The same paragraph reserves to the Ministerial Committee a right to amend that threshold after it has been in force for three years. The instruments relied on do not record any such amendment.
Article 52 of the Agreement sets out how the value of annual supplies is calculated. Article 52(1)(b) addresses the expected-supplies basis: the total value of supplies — excluding exempted supplies — expected to be made by the Taxable Person at the end of any month plus the following eleven months, or in accordance with the criteria and specified period determined by each Member State. Article 52(2) states that the total value of supplies consists of the value of Taxable supplies except for the value of a Capital Assets Supply; the value of Goods and Services supplied to the Taxable Person who is obliged to pay Tax pursuant to the Agreement; and the value of Intra-GCC Supplies of the kind described in Article 52(2)(c).
When registration takes effect under Article 4
Article 4(2) of the Regulations provides that the registration of a Person who registers under Article 4(1) takes effect from the start of the first month in which its annual Supplies made in the Kingdom were expected to exceed the Mandatory Registration Threshold. That effective date is tied to the first month of expected exceedance, not to the month in which the application is submitted.
Distinction from the historic twelve-month test
Article 3 of the Regulations is a different mandatory-registration test. It requires a Resident Person who is not registered to calculate, at the end of each month, the value of Supplies already made in the Kingdom in the twelve months then ended. Where that historic value exceeds the Mandatory Registration Threshold, the Person must apply within thirty days of the end of that month, and registration under Article 3 takes effect from the start of the next month following the month in which the application is submitted. Article 4 applies where supplies are expected to exceed the threshold looking forward. The historic test in Article 3 is not rewritten here.
Where a Person has failed to apply as prescribed, Article 6(1) of the Regulations provides that the Authority may register that Person without an application, with effect from the relevant date prescribed under Articles 3 and 4.
What the legislation does not determine
The instruments relied on do not record whether the Ministerial Committee has amended the figure of SAR 375,000. They do not state any monetary penalty or late-registration assessment for a failure to apply within the thirty days. They do not set out the contents of the Authority’s prescribed form beyond the minimum information in Article 8 of the Regulations. Voluntary registration under Article 7 of the Regulations and Article 51 of the Agreement, deregistration, Tax Group registration, and Related Persons aggregation under Article 9(2) of the Regulations and Article 52(3) of the Agreement are outside the rule stated here.
Instruments relied on: Value Added Tax Law, Article 3, English text of the bilingual instrument (identified in the preamble to Resolution No. (01-06-24) as issued by Royal Decree No. (M/113) dated 02/11/1438H corresponding to 20/07/2017G, as amended); Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation (Article 4 was not amended by the text of ZATCA Board Resolution No. (01-06-24) relied on here); Common VAT Agreement, Articles 50 and 52, executed in Arabic on 27/2/1438H corresponding to 27/11/2016. The Arabic text prevails.