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VAT impact on the telecommunication sector
VAT impact on the telecommunication sectorThe Telecommunication sector is dynamic and ever more competitive; as competition increases, operational efficiency takes on an added importance for operators.
“Telecom” providers deliver services to individual and business customers alike. Individual customers may or may not reside within the GCC, but people are inherently mobile and may move outside of the GCC bringing along their wireless devices (phones, tablets, laptops, etc) from time to time.
Wired and wireless telecom services and electronic services includes services relating to transmission, emission or reception of signals, radio, optical systems, writing, images and sounds, live streaming, supply of music, film, games, programs on demand, online magazines, software, software updates and advertising space.
VAT treatments can change depending on whether your customer is a business or individual and where your customer is located at the time your service is provided. This can pose significant complexities when determining VAT.
Ascertain the place of actual use or benefit of services is determined based on the circumstances existing at the time of supply.
Determining the usual place of residence of the customer requires examination of the following:
• Billing address of the customer
• ►Bank details of the customer
• Internet protocol address used by the customer
• Country code of the SIM card used by the customer
Communicating with vendors and customers on the supplies of goods and services are taxable at the standard rate of 5% unless the VAT regime/law specifically provides such supplies as zero-rated, exempt or outside the scope of VAT.
The intra GCC supplies of goods and services will be subject to zero rate. Providing the relevant criteria are met, the customer located in KSA will be responsible to self-account for VAT under the reverse charge mechanism.
VAT impact summary for telecom sectorNature of business Likely VAT treatment NotesRevenues/salesBasic Telecommunication services Standard rate 5% Telecom services such as fixed network voice telephone,
Digital cellular/Mobile telephone, Internet & Other digital data transmission shall be subject to VAT at standard rate.
Valued added services Standard rate 5% Supply of value added services such as online data processing, Online storage, and Electronic data interchange and voice mail shall be subject to VAT at standard rate.
Intra GCC Sales Zero rate Supply of devises, roaming services to subscribers/businesses from other GCC member state.
Export Zero rate Supply of devises, roaming services to subscribers/businesses Outside GCC.
Costs/purchasesProcurement within KSA Standard rate 5% In the normal course of the application of VAT attributable to
the business is recoverable on the purchase of Wireless Module, Components, Software's and other equipment’s.
Import of telecom services Zero rate Import of services from other GCC member state (roaming charges).
Standard rate 5% Import of services by GCC subscribers (B2C) shall be subject to VAT in GCC state where the Customer resides. E.g. Software downloads
Out of scope Non GCC Businesses supplying services to Non GCC Customers this will be outside the scope of VAT.
Local supplies (e.g., printing cost, IT material , general admin expense)
Standard rate 5% The input tax incurred on the expenses incurred is attributable to VATable business, hence recoverable.
VAT impact on the real estate sectorVAT impact on the telecommunication sector
EY contacts for VAT inquiries
Finbarr SextonMENA Indirect Tax Services Leader + 974 4457 4200 [email protected]
David StevensMENA VAT Implementation Leader + 971 4 312 9442 [email protected]
Asim J. SheikhKSA Tax Leader +966 11 2159 876 [email protected]
KSA VAT Services Leaders
Michael Hendroff +971 4 332 4000 [email protected]
Rolf Winand+966 12 221 8501 [email protected]
KSA VAT Coordination Desk
Mohammed Bilal Akram+966 11 215 9898 [email protected]
Ahmed A Hassanin+966 11 273 4740 [email protected]
Nazar Hussain Khan+966 11 215 9898 [email protected]
Sujit Narayanan+ 966 11 215 9898 [email protected]
Key contacts
VAT impact on the telecommunication sector
VAT impact — Key impact areasKey areas VAT implicationsPrepaid cards The VAT treatment on the existing prepaid balances which are in existence post
31 December 2017 is unclear.
Should Telcos charge VAT on such transactions — even though VAT was not charged during the initial sale?
Goods and services sold on instalments
Where Goods or Services are supplied and the Invoice or agreement between the Supplier and Customer states that Consideration is due and payable in periodical instalments, a separate supply in respect of each instalment takes place on the earlier of the due date for that instalment or the date of actual payment
Discounts offered The discount value should be reduced from the tax invoice and VAT should be charged on the net invoice value of supplies
Simplified tax invoice Simplified Tax Invoices can be issued for a supply of Goods or Services valued at less than SAR1,000. (Invoices to be in Arabic and contain prescribed particulars).
Long term contracts Long term contracts which will still be in after effect 1 January 2018 do not specifically address VAT. To avoid future disputes with the suppliers, it is important to have discussions regarding the VAT implications of acquisitions and requirements from them suppliers from 1 January 2018.
Capital assets The taxable person is entitled to deduct input taxes in full in cases where the assets purchased are Capital in nature.
Penalty charges The penalty to be treated as additional consideration or compensation for non-compliance? What VAT treatment is available?
Security deposit If the security deposit received from customers is refundable in nature, this shall remain out of scope from a VAT perspective.
Goods or services sold online as an agent
Telcos sometimes sells goods or services of partner vendors via their mobile phones — either using existing prepaid balances or via the customer’s post paid bill.
Revenues may be shared and just the phone line is used as a mode of delivery.
Should Telcos charge VAT on a “sale” of goods/services which do not belong to them? How will they invoice their vendor partner?
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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.
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