VAT impact on the

telecommunication
sector
 VAT impact on the telecommunication sector
The 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

• B
► ank 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 sector

Nature of business Likely VAT treatment Notes
Revenues/sales
Basic 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/purchases
Procurement 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 Standard rate 5% The input tax incurred on the expenses incurred is attributable
material , general admin expense) to VATable business, hence recoverable.

VAT impact on the telecommunication sector VAT impact on the real estate sector
 VAT impact — Key impact areas
Key areas VAT implications
Prepaid 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 Where Goods or Services are supplied and the Invoice or agreement between the Supplier and
instalments 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 Telcos sometimes sells goods or services of partner vendors via their mobile phones — either
as an agent 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?

Key contacts
EY contacts for VAT inquiries KSA VAT Services Leaders KSA VAT Coordination Desk

Finbarr Sexton Michael Hendroff Mohammed Bilal Akram

MENA Indirect Tax Services Leader +971 4 332 4000 +966 11 215 9898
+ 974 4457 4200 michael.hendroff@ae.ey.com mohammedbilal.akram@sa.ey.com
finbarr.sexton@qa.ey.com
Rolf Winand Ahmed A Hassanin
David Stevens +966 12 221 8501 +966 11 273 4740
MENA VAT Implementation Leader rolf.winand@sa.ey.com ahmed.hassanin@sa.ey.com
+ 971 4 312 9442
david.stevens@ae.ey.com Nazar Hussain Khan
+966 11 215 9898
Asim J. Sheikh nazar.khan@sa.ey.com
KSA Tax Leader
+966 11 2159 876 Sujit Narayanan
asim.sheikh@sa.ey.com + 966 11 215 9898
sujit.narayanan@xe04.ey.com

VAT impact on the telecommunication sector

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