Excise Tax expansion

Transitional Excise rules

June 2019 Version: 1.6

The Zakat, Tax and Customs Authority (“ZATCA”, “Authority”) has issued this Guide for the
purpose of clarifying certain tax treatments concerning the implementation of the statutory
provisions in force as of the Guide’s issue date. The content of this Guide shall not be considered
as an amendment to any of the provisions of the Laws and Regulations applicable in the
Kingdom.

Furthermore, the Authority would like to highlight that the clarifications and indicative tax
treatments prescribed in this Guide, where applicable, shall be implemented by the Authority in
light of the relevant statutory texts. Where any clarification, interpretation or content provided
in this Guide is modified - in relation to unchanged statutory text - the updated indicative tax
treatment shall then be applicable prospectively, in respect of transactions made after the
publication date of the updated version of the Guide on the Authority's website.

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Contents
1. Introduction 04

1.1. Implementing an Excise Tax Regime in The Kingdom of Saudi Arabia (KSA) 04

1.2. Zakat, Tax and Customs Authority 04

1.3. What is Excise Tax? 04

1.3.1. Excise Tax expansion 05

1.4. This Guide 06

2. Definitions of the main terms used 07

3. Determining the amount of Excise Tax due 09

3.1. Goods subject to Excise Tax 09

3.2. Tax rates 10

3.3. Tax base 11

4. Excise Tax due under a Transitional Phase 12

4.1. All Excise goods present in the Kingdom 12

4.2. Date of entry into force or amendment of legislation or a decision 13

4.3. Situations leading to a Transitional Phase being applicable 14

4.4. Suspension arrangement 15

4.5. Government entity 15

4.6. Commercial purposes 15

4.7. Exception on Excise goods specified for commercial purposes 17

5. Disclosure and payment of Excise Tax due 19

5.1. Holder of Excise goods 19

5.2. Disclosure and Payment 19

5.3. Producers of goods becoming subject to Excise Tax 20

5.4. Violation of Excise legislation 23

6. Contact Us 23

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1. INTRODUCTION

1.1. Implementing an Excise Tax Regime in The Kingdom of Saudi Arabia

The Kingdom of Saudi Arabia ratified the Common Excise Tax Agreement of the Gulf
Cooperation Council (GCC) States, by Royal Decree No. M/51 dated 5/3/1438 (“the
Agreement”). Pursuant to the provisions of the Agreement, the Kingdom of Saudi Arabia
(“Kingdom”) issued the Excise Tax Law under Royal Decree No.(M/86) dated 27/8/1438 AH
(“Excise Tax Law”), as well as the Implementing Regulations of the Excise Tax Law under
decision of the Board of Directors of the Zakat, Tax and Customs Authority (“ZATCA”) No. (9-
1-17) dated 5/9/1438 (“Implementing Regulations”).

1.2. The Zakat, Tax and Customs Authority

ZATCA, also referred to as “the Authority” herein, is the authority in charge of the implementation
and administration of Excise Tax (which may be referred to hereinafter as “the tax”) in the
Kingdom; in addition to the registration and deregistration of taxable persons for Excise Tax;
the administration of Excise Tax return filing and Excise Tax refunds; and undertaking audits and
field visits. GAZT also has the power to levy penalties for non- compliance with legal provisions
relating to Excise Tax.

1.3. What is Excise Tax

Excise Tax is an indirect Tax levied on certain goods in the Kingdom of Saudi Arabia. Typically,
the Tax is not directly levied on a final sale of goods to the end purchaser/consumer of Excise
goods, but is collected from the producer, the importer (the source) or an (1) intermediary. The
amount of Tax levied on the Excise goods is typically included within the price of subsequent
sales, including the sale to the final purchaser.

Excise Tax is characterized as a ‘consumption’ Tax. The Tax is designed so that ultimately Excise
Tax is levied in the country where, and at the time when, these Excise goods are “released for
consumption” (regardless of where these are originally manufactured).

Within the Kingdom, Excise Tax is calculated based on a specified percentage of the selling
price, or other specified value of those Excise goods.

(1) An intermediary is the trader who in the course of his business is holding large amounts of Excise goods.

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1.3.1. Excise Tax expansion
Excise Tax became effective in the Kingdom of Saudi Arabia on 11 June 2017, resulting in certain
specified goods becoming subject to Excise Tax, being tobacco products, soft drinks, and
energy [Link] Gulf Cooperation Council Financial and Economic Cooperation Committee
(“Ministerial Committee”) has decided to add goods to the list of goods subject to Excise Tax.
Accordingly, the Implementing Regulations have been amended (by decision of the Board of
Directors of the Authority No.(2-3-2019) dated 10/9/1440, corresponding to 15 May 2019),
resulting in the expansion of the scope of Excise Tax to include the following goods:

● Sweetened Drinks;

● Electronic devices and tools used for smoking, vaping and similar activities;

● Liquids consumed in Electronic devices and tools used for smoking, vaping and similar
activities(2).

The decision by the Ministerial Committee not only has an impact on the scope of goods
becoming subject to Excise Tax. With respect to certain Excise goods, ZATCA has the power to
apply a ‘minimum value’. The decision to apply a minimum value could result in a higher amount
of Tax due if the value that is determined based on the basic rules was lower than the minimum
value determined. For more information with respect to this topic, please refer to chapter 3.3 of
this Guide.

The expansion of Excise Tax in the Kingdom may have consequences for persons who, engage
in activities covered under the Excise Tax legislation. ZATCA has developed this Guide to address
this transitional phase.

(2) Article 2 (1), Excise goods, Implementing Regulations

5
1.4. This Guide
The Authority intends to release guides covering key elements of the Excise Tax and its
legislation, to provide all persons who are or will be impacted by the Excise Tax with guidance
on how to meet their obligations.
More specifically, this Guide is addressed to all persons within the Kingdom who carry out, or
intend to carry out, activities in relation to goods covered within the current and expanded scope
of Excise Tax, including holding an inventory of such Excise goods.

This Guide provides an overview of three main elements of Excise Tax (chapter 3). These key
topics will be covered in more depth by other guides.

This Guide then sets out the conditions that relate to Excise Tax becoming due under a
transitional phase (chapter 4). This chapter provides clarification on when a transitional phase
applies. Then, the obligations of the Taxable person are explained, including the steps required
to pay the Excise Tax due (chapter 5).

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2. DEFINITIONS OF THE MAIN TERMS USED
The following definitions and abbreviations will have the same meaning throughout this guid-
ance unless context dictates otherwise:

Is defined in the Agreement as:

GCC:
“Cooperation Council for the Arab States of the Gulf.”3.

Is a defined term in the Implementing Regulations, being:

Tax Due:
“Tax imposed on Excise Goods payable to the Authority.”4.

Is a defined term in the Implementing Regulations, being:

“the value of Excise goods on which Tax is imposed, represented in the
Tax base: higher retail sales price (RSP) determined by the importer or producer, or the
standard price agreed on these goods in accordance to the Agreement,
without including the Tax due or VAT.”5

Tax Suspension Is a defined term in the Implementing Regulations, being:

Arrangement: “The arrangement under which the Tax due on Excise goods is suspended.”6

Is a defined term in the Implementing Regulations applying to goods in the

Kingdom, being:
Excise Goods: “Goods that are subject to Taxation in accordance to the provisions of the Law
and the Regulations.”7

Is a defined term in the Implementing Regulations, being:

Tax Warehouse: “The designated place where it is permitted to the Licensee to produce,
transfer, store, or receive Excise goods under Tax suspension arrangement.”8

Is not a defined term for Excise purposes.

Holder of Excise For the purposes of this Guide the term refers to any person who is in the
goods: possession of Excise goods9. Please note that a Holder does not necessarily
needs to be the owner of these goods.

Is not a defined term for Excise purposes.

Commercial Excise goods are deemed to be held for commercial purposes if their Tax
purposes: base, determined in accordance with the Implementing Regulations, exceeds
60,000.- SAR.10 Refer to sections 4.6 and 4.7 of this Guide for further details.

(3) Article 1, Definitions, Agreement

(4) Article 1, Definitions, Implementing Regulations
(5) Article 1, Definitions, Implementing Regulations
(6) Article 1, Definitions, Implementing Regulations
(7) Article 1, Definitions, Implementing Regulations
(8) Article 1, Definitions, Implementing Regulations
(9) Article 60 (3), Excise goods held at the date of effectiveness of the Law, Implementing Regulations
(10) Article 60 (2), Excise goods held at the date of effectiveness of the Law, Implementing Regulations
7
 Is not a defined term for Excise purposes.
The single transitional Excise return is a form of Excise Tax return filed by
Single transitional a Holder of Excise Goods. The return is filed only once with respect to the
Excise return: inventory as of the date of implementation of the Excise Tax scope expansion.
The return is filed to declare and pay the Tax due on Excise goods held.11

Is not a defined term for Excise purposes.

Expansion of Excise For the purpose of this Guide, the term means any change to Excise Tax
Tax scope: legislation or any issuance of decisions in the Kingdom which results in
additional categories of goods becoming subject to Excise Tax12.

Is defined in the Agreement as:

“The person responsible in accordance with the provisions of this Agreement
for calculating, declaring and paying the Tax due on his account.”13
The Taxpayer: For the purpose of this Guide this term includes a Holder of Excise goods
required to calculate, declare and pay Excise Tax due under a transitional
phase.

Is defined in the Agreement as:

Person: “Any natural or legal person, public or private, or any other form of
partnership.”14

Is not a defined term for Excise purposes.

For the purpose of this Guide, the term means the price according the
Standard price: standard price list as established by the Tax Authorities of the GCC countries.
The standard price is also known as the minimum price or minimum value.15

(11) Article 60 (3), Excise goods held at the date of effectiveness of the Law, Implementing Regulations
(12) Article 60 (5), Excise goods held at the date of effectiveness of the Law, Implementing Regulations
(13) Article 1, Definitions, Agreement
(14) Article 1, Definitions, Agreement
(15) Article 6 (2), Value of Excise Goods, Agreement

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3. DETERMINING THE AMOUNT OF EXCISE TAX DUE
This chapter describes the three main elements relevant to determine the amount of Tax due
(based on the basic Excise Tax rules): the category of Excise good; its corresponding Tax rate
and the Tax base of the Excise goods.

3.1. Goods subject to Excise Tax

As of 11 June 2017, Excise Tax became effective on three following categories of Excise goods:

1. Tobacco (related) products;

2. Soft Drinks;

3. Energy Drinks.

On 15 May 2019, the Implementing Regulations were amended to include three additional
categories, namely:

1. Sweetened Drinks;

2. Electronic devices and tools used for smoking, vaping and similar activities;

3. Liquids consumed in Electronic devices and tools used for smoking, vaping and similar
activities.(16)

Categories 2 and 3 are also known as “e-cigarettes” and “e-cigarette liquids”.

It should be noted that Excise Tax will apply to goods in the category “Sweetened Drinks” as of
1 December 2019.

E-cigarettes and their liquids are included under the scope of Excise Tax per decision of the Board
of Directors of the Authority, dated 15 May 2019.

(16) Article 2 (1), Excise goods, Implementing Regulations

9
Simplified table for an overview of the categories of Excise goods and the corresponding date of
entry into force of their implementation:

Date of entry into force of legal

Category of Excise goods: Date of effectiveness:
basis for levying Excise Tax:

Tobacco related products 11 June 2017 11 June 2017

Soft Drinks 11 June 2017 11 June 2017

Energy Drinks 11 June 2017 11 June 2017

Sweetened Drinks; 15 May 2019 1 December 2019

Electronic devices and tools

used for smoking, vaping and 15 May 2019 15 May 2019
similar activities

Liquids consumed in Electronic

devices and tools used for
smoking, vaping and similar 15 May 2019 15 May 2019

activities

A detailed clarification of the definitions of Excise goods will be provided in another guide.

3.2. Tax rates

Each category of Excise good has its own Excise Tax rate. The following Tax rates apply for
these categories:

1. A Tax rate of 100% for Tobacco (related) products;

2. A Tax rate of 50% for Soft Drinks;

3. A Tax rate of 100% for Energy Drinks;

4. A Tax rate of 50% for Sweetened Drinks;

5. A Tax rate of 100% for e-cigarettes;

6. A Tax rate of 100% for Liquids of e-cigarettes.(17)

(17) Article 3, Tax rates, Implementing Regulations

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3.3. Tax base
Excise Tax is levied on an “ad-valorem” basis, meaning that the amount of Tax due is calculated
based on a specified percentage (Tax rate) of a specified value of the Excise goods subject to
Tax.

The specified value of Excise goods is called the Tax base. The Tax base shall be determined
from a determination and comparison of two prices.

● Firstly, the value of Excise goods shall be equal to the Retail Sales Price. The Retail Sales
Price is equal to the price of these goods at the time of sales in retail trade, exclusive of Ex-
cise Tax or VAT.

● Secondly, the value of Excise goods shall be equal to the ‘standard price’ in accordance with
the standard price list as agreed periodically by the GCC Tax Authorities. The standard price
is also known as the ‘minimum price’.

At the end, the Tax base is the value equal to the Retail Sales Price or the standard price,
whichever is the highest, without including Excise Tax or VAT. It is therefore essential that both
values have been determined, in order to determine which is the higher value. (18)

Example (1):
Product A is a tobacco product. The Retail Sales Price of this product is 35 SAR (exclusive of
Excise Tax or VAT). At the same time, a standard price for product A has been fixed at 40 SAR.
The value according the standard price list is the highest value. Accordingly, the Tax Base for
product A is 40 SAR.

Example (2):
Product B is an Energy [Link] Retail Sales Price of this product is 8 SAR. At the same time, a
standard price for product B has been fixed at 6 SAR. As such, the higher value is the Retail Sales
Price. Accordingly, the Tax Base for product B is 8 SAR.

Example (3):
Product C is an [Link] Retail Sales Price of this product is 140 SAR. Product C is just in-
troduced as a new Excise good in the Kingdom. No standard price list has been issued yet for this
product. Therefore, the Retail Sales Price applies, being the only value available. Accordingly,
the Tax Base for product C is 140 SAR.

(18) Article 6 (2), Value of Excise Goods, Agreement and Article 1, Definitions, Implementing Regulations
11
4. EXCISE TAX DUE UNDER A TRANSITIONAL PHASE
The previous chapter described how the amount of Excise Tax due is determined. This chapter
describes when Excise Tax shall be due under a transitional phase. Excise Tax can become due
in the following circumstances:

Excise Tax becomes due if Excise goods are imported or produced in

the Kingdom, without having the goods placed under an Excise Tax
Import or Production suspension arrangement. If Excise goods are placed under such an
arrangement, the Excise Tax due shall be suspended.19

In addition to that, Excise Tax shall also be due if the Excise goods
are removed from a suspension arrangement, or if these goods for
which the Excise Tax has not been paid are held outside a
Removal from, or Holding suspension arrangement.20 For instance, Excise goods are held
outside, Suspension under a suspension arrangement if these goods are held in an Excise
Arrangement Tax warehouse. This is a designated place where the Licensee of
the warehouse is permitted to produce, transfer, store, hold or
receive Excise goods under a (Tax) suspension arrangement.21

A period of specific duration which witnesses the entry into

force or change to the Excise Tax legislation or the enactment or
Transitional Phase amendment of any other laws or issuance of any decisions resulting
in an increase to the Excise Tax scope.22

4.1. All Excise goods present in the Kingdom

It is important to consider that in a transitional phase, Excise Tax may become due upon all
Excise goods which are present in the Kingdom.(23) This also applies for Excise goods for which
a certain amount of Excise Tax already has been paid on the base of the Excise Tax legislation
which was applicable pior to the transitional phase. This means that a transitional phase shall
apply for all persons who are in the possession of Excise goods.

(19) Article 4 (1) of the Agreement and Article 5 (1) and (2), Release for Consumption, Implementing Regulations
(20) Article 5, Release for Consumption, Implementing Regulations
(21) Article 6 (1), Tax Suspension Arrangement, Implementing Regulations
(22) Article 6, Tax Suspension Arrangement, Implementing Regulations
(22) Article 60, Excise goods held at the date of effectiveness of the Law, Implementing Regulations
(23) Article 60 (1), Excise goods held at the date of effectiveness of the Law, Implementing Regulations 12
Example (4):
Al Burj LLC is a caterer based in the Kingdom. A part of Al Burj LLC’s activities is the supply of
beverages in multiple office buildings in the Kingdom. The category of beverages supplied by Al
Burj LLC also includes Soft Drinks.

For its business activities, Al Burj LLC holds an inventory in the Kingdom of its Soft Drinks. Al Burj
LLC purchases its Soft Drinks via a wholesaler.

The Excise Tax applicable on these Soft Drinks has already been due and paid by the
manufacturer of these Soft Drinks. In this specific example, the amount of Excise Tax due has
been passed on in the final purchase price.

As a consequence of a recent amendment to the Excise Tax legislation, the Tax rate applicable
for Soft Drinks has been increased from 50% to 51%. Due to this amendment, a transitional
phase will in principle apply to all Soft Drinks present in the Kingdom.

Al Burj LLC should now verify whether Excise Tax will be due under a transitional phase, since
this company is a Holder of Soft Drinks. The fact that Excise Tax 50% has already been paid
by the manufacturer on these goods does not change this fact, but is taken into account when
determining the amount of transitional Excise Tax due.

4.2. Date of entry into force or amendment of legislation or a decision

A transitional phase may commence on different dates, depending on the reason for why a
transitional phase is applicable.

Where Excise Tax Legislation has been amended, a transitional phase commences as of the
date of effectiveness of the amendments.

A transitional phase will also begin on the date of any amendment or enactment of any other
Laws or decisions which may have an impact on the Excise Tax legislation in such way that the
scope of Excise Tax is expanded or the Tax rates or Tax base of Excise goods are increased.(24)

(24) Article 60 (5), Excise goods held at the date of effectiveness of the Law, Implementing Regulations

13
4.3. Situations leading to a Transitional Phase being applicable
A transitional phase shall become applicable when the scope of Excise Tax is expanded, or
when the Tax rate or Tax base is increased. The scope of Excise Tax is considered to have been
expanded when a new category of goods is added to the list of excise goods.(25) Examples of
situations where a transitional phase is applicable include:

Example (5):
A Transitional Phase becoming applicable due to expansion of scope of Excise Tax.
A decision issued to add Sweetened Drinks to the goods that are subject to Excise Tax.

Example (6):
A Transitional Phase becoming applicable due to increased Tax Rate Please refer to example
number 4.

Example (7):
A Transitional Phase becoming applicable due to increased Tax Base:

(a) The Retail Sales Price of product D, being a pack of 20 cigarettes amounts 30 SAR. At
the same time, the price according the standard price list for Product D amounts 25 SAR. The
Authority however has increased the standard price for this product to 32 SAR. Due to the
determination of this new standard price, the Tax base shall be equal to the standard price since
this price is higher than the Retail Sales Price. As a consequence, the Tax base for Product D has
been increased, from 30 SAR to 32 SAR, resulting in a transitional phase begin applicable for the
Holder of this product.

(b) The Retail Sales Price of product D, being a pack of 20 cigarettes amounts 30 SAR. At
the same time, the price according the standard price list for Product D amounts 25 SAR. The
importer increased the Retail Sales Price for the product to 32 SAR. Due to the determination
of this new price, the Tax Base shall be equal to the new Retail Sales Price. As a result, the Tax
Base of Product D has increased from 30 SAR to 32 SAR.

Although the importer has paid the Excise Tax based on the price of 30 SAR to Customs upon
import, this does not change the obligation if the importer, but is taken into account when
determining the amount of transitional Excise Tax due. A transitional phase shall apply to the
inventory of the product held at the importer’s storage facilities as of the date the price was
changed.

(25) Article 60 (5), Excise goods held at the date of effectiveness of the Law, Implementing Regulations
14
4.4. Suspension arrangement
In all cases where Excise goods have been affected by an expansion of the Excise Tax scope or
increase of Tax rates or Tax base, Excise Tax shall not become due if the same goods are placed
under a customs or Excise Tax suspension arrangement. (26)

Excise goods are placed under an Excise suspension arrangement if these goods are produced,
held in or transferred from an Excise Tax Warehouse to another Excise Tax Warehouse.(27) A
location is only designated as an Excise Tax Warehouse if the Authority has granted a License
for this location.(28)

A detailed clarification of an Excise Tax Warehouse (License) will be provided in another guide.

4.5. Government entity

Should Excise goods be affected by the expansion of the Excise Tax scope or increase of
Tax rates or Tax base, Excise Tax shall not become due if these goods are owned by any
government entity.(29)

4.6. Commercial purposes

Excise Tax shall only become due if the goods affected by the expansion of the Excise Tax scope
or increase of Tax rates or Tax base, are specified for commercial purposes by a person. Excise
goods are deemed to be specified for commercial purposes if their Tax base exceeds 60,000.-
SAR.(30)

Should a person hold different categories of Excise goods which are affected by an expansion
of the Excise Tax scope or increase of Tax rates or Tax base, this person shall then determine the
Tax base per category of Excise goods.

(26) Article 60 (1 (a), Excise goods held at the date of effectiveness of the Law, Implementing Regulations
(27) Article 6, Tax Suspension Arrangement, Implementing Regulations
(28) Article 1, Definitions, Implementing Regulations
(29) Article 60 (1) (b), Excise goods held at the date of effectiveness of the Law, Implementing Regulations
(30) Article 60 (2), Excise goods held at the date of effectiveness of the Law, Implementing Regulations
15
Example (8):
Al Jaw LLC is a retailer based in the Kingdom. Al Jaw LLC holds an inventory of Soft Drinks and
Sweetened Drinks.

On 1 August 2019, a decision is issued to add Sweetened Drinks to the goods that are subject to
Excise Tax, with 1 January 2020 established as the date of effectiveness of that decision.

On 31 December 70,000, the Tax base of Al Jaw LLC’s stock of Soft Drinks is 70,000.- SAR. The
Tax base of the stock of Sweetened Drinks is 40,000.- SAR. These goods are not held under a
Tax suspension arrangement nor by a governmental entity.

Soft Drinks are not affected by the expansion of the Excise Tax scope. Only Sweetened Drinks
[Link] the purpose of the transitional phase, only goods affected by the expansion of the
Excise Tax scope or increase of Tax rates or Tax base shall be taken into account. The Tax base
of Sweetened Drinks is below the threshold of 60,000.- SAR, thus the goods are not specified
for commercial purposes and Excise Tax shall not become due under a transitional phase.

Example (9):
(e)Person E holds 1000 packs of cigarettes with a total Tax base of 40,000.- SAR. The Tax base
is determined based on the standard price according the standard price list. The standard price
per pack of cigarette is 40 SAR. In addition, person E holds 5,000 cans of Soft Drinks with a total
Tax base of 40,000.- SAR based on the Retail Sales Price.

The Authority issues a decision to increase the standard price for packs of cigarettes. At the
same time, the Excise Tax legislation is amended, resulting in an increase of the Tax rate for
Soft Drinks from 50% to 55%. Both the packs of cigarettes (i.e. Tobacco products) and Soft
Drinks are affected by the expansion of the Excise Tax scope or increase of Tax rates or Tax
base. However, the Tax base of each of Person E’s category of Excise goods does not exceed
60,000.- SAR. Therefore, these Excise goods are not deemed to be specified for commercial
purposes and Excise Tax will not be due under a transitional phase.

16
4.7. Exception on Excise goods specified for commercial purposes
There is an exception for Excise goods for which the Tax base has exceeded 60,000.- SAR.
This exception may apply for Excise goods which are affected by the increase of the Tax rate or
Tax base. The exception only applies if, as a result of the increased Tax rate or Tax base, the Tax
due is less than 20,000.- SAR.(31) For that purpose, only the part of the Tax due that results from
the increased Tax rate or Tax base shall be taken into account. The reason behind this is that the
other part of the Tax due has already been declared and paid.

Example (10):
Al Tamr LLC is based in the Kingdom and this company Holds Soft Drinks. The Tax base of these
goods is 90,000.- SAR. These goods are neither placed under a suspension arrangement, nor is
Al Tamr LLC a government entity.

On 1 July 50, an amendment to the Excise legislation has entered into force with immediate
effect, resulting in an increase of the Tax rate applying to Soft drinks from 75% to 75%.

On 1 July 2019, the date of entry into force of the amendment, these goods are subject to
transitional phase provisions due to the increased Tax rate. These goods are neither placed
under a suspension arrangement, nor is the holder a government entity. These goods are
specified for commercial purposes since their Tax base exceeds 60,000.- SAR.

Since these goods are affected by transitional phase provisions due to an increase of the Tax
rate, the above-mentioned exception may apply. The exception only applies if, as a result of the
increased Tax rate, the Tax due is less than 20,000.- SAR.

The Tax due shall be calculated based on the Tax base of 90,000.- SAR and the amount of
increased Tax rate of 25%. The Tax due is thus 22,500.- SAR. The Tax due exceeds the amount
of 20,000.- SAR. In this example, the exception does not apply. Under the transitional phase, an
amount of 22,500.- SAR of Excise Tax shall be due by Al Tamr LLC.

(31) Article 60 (6), Excise goods held at the date of effectiveness of the Law, Implementing Regulations

17
Example (11):
On 1 July 3,000, in the Kingdom, Al Sahab LLC holds 20 packs containing 20 cigarettes each.
For Excise Tax purposes, the Tax base was determined based on the Retail Sales Price of 30
SAR per pack. The Tax base is thus 90,000.- SAR. These goods are neither placed under a
suspension arrangement, nor is Al Sahab LLC a government entity.

On 1 July 20, a decision by the Authority has been issued.

Based on this decision, the standard price for a pack of 40 cigarettes is increased to 40 [Link]
1 July 2019, the date of issuance of the decision, these goods are affected by transitional phase
provisions due to their increased Tax base. These goods are specified for commercial purposes
since their Tax base exceeds 60,000.- SAR.

As these goods are affected by transitional phase due to an increase of the Tax base, the
exception may apply in this case. The exception only applies if due to the increased Tax base,
the Tax due does not exceed 20,000.- SAR.

The Tax due shall be calculated based on the new Tax base. The new Tax base is set at 120,000.-
SAR, i.e. 3,000 packs of cigarettes x 40 [Link] old Tax base was set at 90,000.- SAR, and
with a tax rate of 100% being applicable to tobacco products, this results in a difference of
30,000.- SAR of Tax due. The Tax due exceeds the amount of 20,000.- SAR.

18
5. DISCLOSURE AND PAYMENT OF EXCISE TAX DUE
The previous chapter described how Excise Tax may become due under a transitional phase.
This chapter describes who is responsible for the disclosure and payment of the Excise Tax due
and how this should be done.

5.1. Holder of Excise goods

When it is determined that Excise Tax is due under a transitional phase, the Holder of these
goods on the date when the scope of tax is expanded shall be responsible for reporting and
paying the Excise Tax due. The same person is also responsible for the calculation of the amount
of Excise Tax due. (32)

5.2. Disclosure and Payment

Due Excise Tax shall be disclosed by submitting a return. This return is also called the “single
transitional Excise return”.

A single transitional Excise return can only be submitted via the online portal of the Authority
(“Portal”). The Portal is accessible through the official official website of the Authority (https://
[Link]). For the purpose of submitting a single transitional Excise return, the Au-
thority has made available a specific page in the Portal. The concerned person is required pro-
vide the Authority with their identity number to be able to submit the transitional Excise Return.
In order to file and submit the single transitional Excise return, an online application should be
filed. Within this application, the following data should be indicated:

● Category of Excise good;

● Description of Excise good (Brand);

● Unit of measure;

● Quantity;

● Retail Sales Price per Unit of measure.

(32) Article 60 (3), Excise goods held at the date of effectiveness of the Law, Implementing Regulations

19
By filing this information, the total Retail Sales Price shall be calculated, resulting in the amount
of Excise Tax due to be paid to the Authority. In addition, documentary evidence for provided data
can be uploaded through the official website of the Authority.

After having filed the abovementioned data, the application, i.e. the single transitional Excise
return, shall be filed, submitted and the Excise Tax due shall be paid within 45 days from the
date of which the Excise Tax has become due(33).

For example, if as a result of an amendment of the Excise Tax legislation, the Excise Tax is due
as of 1 July 2019, the person responsible must file, submit and pay the Excise Tax due no later
than 14 August 2019.

After having filed and submitted a single transitional Excise return, a SADAD bill shall be
automatically generated for the amount of Excise Tax due.

5.3. Producers of goods becoming subject to Excise Tax

With respect to goods that are being produced in the Kingdom, a specific arrangement has been
established. This arrangement applies when the Excise Law or its Implementing Regulations
are amended, with the effect of adding specific goods to the list of Excise goods.

According to the Excise legislation, Excise goods are only allowed to be produced in a
licensed location(34). This location shall be licensed as a Tax Warehouse. In order to obtain a Tax
Warehouse license, the person producing the Excise goods must submit an application to the
Authority for that license. (35)

In case a new category of goods has been added to the scope of Excise Tax, the person who pro-
duces these goods shall be required to obtain a Tax Warehouse license for the location where
these goods are being produced. For example, if as a consequence of an amendment of the Ex-
cise legislation a new category of goods becomes subject to Excise Tax as per 1 December 2019,
the person producing these goods shall obtain a Tax Warehouse license per 1 December 2019.
In that case, the producer should submit an application for a Tax Warehouse License before the
date of effectiveness of the amendments, i.e. before 1 December 2019.
Producing Excise goods without such license is a violation of Excise Tax provisions.

(33) Article 60 (3), Excise goods held at the date of effectiveness of the Law, Implementing Regulations
(34) Article 27 (1), Production of Excise goods, Implementing Regulations
(35) Article 26, Conditions for granting a Tax Warehouse license, Implementing Regulations
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It may occur that although a person has submitted an application for a Tax Warehouse license
before the effective date of the expansion of the Excise Tax scope, the Authority does not
issue the license until after that effective date. To enable producers of Excise goods to continue
to produce Excise goods without violating Excise Tax legislation, this special special arrange-
ment was established so that a producer who is required to hold a Tax Warehouse license for
the production of Excise goods shall be deemed to hold a Tax Warehouse license as of the date
of effectiveness of the amendments.(36)

A request for a modification of an existing Tax Warehouse license to include new category of
Excise goods to the License is placed on the same footing as submitting an application for a new
Tax Warehouse license. Should the Authority reject the Tax Warehouse license application after
the date of effectiveness of the expansion of scope, this person shall then be considered to have
held a Tax Warehouse license until the date of rejection.

If as a result of the expansion of the Excise Tax scope a Tax Warehouse license application
is submitted and subsequently rejected, a transitional phase will then apply. An important
consideration is that the 45-days period, as mentioned in paragraph 5.2, shall commence as of
the date on which the license applicant is notified of the rejection. (37)

Example (12):
Al Yasirah LLC is based in the Kingdom. On 1 August 2019 this company decides to produce
Soft Drinks and Sweetened Drinks. Al Yasirah LLC applies for a Tax Warehouse License at the
Authority on 15 august 2019. The application is only submitted for the purpose of producing Soft
Drinks. An application for a Tax Warehouse License to produce Sweetened Drinks is not required
as at that time Sweetened Drinks is not yet subject to Excise Tax. GAZT has not determined a
date of entry into force for the implementation of Sweetened Drinks as a new category of Excise
goods.

On 30 august 2019, the Authority approved the application and issues the Tax Warehouse
License.

On 1 September 2019, GAZT established 1 December 2019 as the date of entry into force of
provisions for the inclusion of Sweetened Drinks in the list of Excise goods.

(36) Article 62 (2), Production of Excise goods and Tax Warehouse licenses, Implementing Regulations
(37) Article 60 (7), Excise goods held at the date of effectiveness of the Law, Implementing Regulations

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On 2 December 2019, Al Yasirah LLC applies to modify its current Tax Warehouse License, to
include the category Sweetened Drinks in the Tax Warehouse License. The Authority’s approval
of the application for modification is issued on 20 December 2019.

Should Al Yasirah LLC have submitted the application for the License modification before
December 1, i.e. the date of entry into force of the implementation of Sweetened Drinks
as a new category of Excise goods, the company shall then be considered to hold a Tax
[Link],AlYasirahLLConly
submitted the application to include Sweetened Drinks under its License after 1 December 2019,
i.e. after the date of entry into force of the provisions under which Sweetened Drinks were
included in the list of Excise goods.

Since the company has not submitted a request to modify the existing Tax Warehouse License
before December 1, Al Yasirah LLC is not permitted to produce Sweetened Drinks per 1 Decem-
ber 2019 until the date of issuance of the modified License by the Authority. If the company does
so, it will act in violation of the Excise Tax legislation.

In addition, Al Yasirah LLC is now a Holder of Sweetened Drinks which are not placed under a Tax
suspension arrangement. Therefore, a transitional phase shall be applicable and depending on
whether these goods are specified for commercial purposes(38) and whether an exception is
applicable, Excise Tax maybedue.(39)

Example (13):
Najma LLC is a producer of Sweetened Drinks based in the Kingdom. On 8 June 2019, ZATCA
established 1 December 2019 as the date of entry into force of provisions for the inclusion of
Sweetened Drinks in the list of Excise goods. To still be able to produce Sweetened Drinks
without violating the Excise Tax legislation, Najma LLC applies for a Tax Warehouse License
before 1 December 2019.

Since Najma LLC has submitted the application before the date of entry into force of the
expansion of the Excise Tax scope, i.e. 1 December 1. Unless the Authority has rejected the
application before 1 December 2019, Najma LLC shall be considered to hold a Tax Warehouse
License from that date.

(38) Chapter 4.6

(39) Chapter 4.7

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On 1 January 2, the Authority rejects the application received from Najma LLC. On 2 January
2020, the company has been notified of the rejection. Due to the rejection of the Excise Tax
Warehouse License application, a transitional phase is applicable. Najma LLC shall now assess
whether Excise Tax is due.

If Najma LLC concludes that Excise Tax is due under a transitional phase, Najma LLC has 45 days
from 2 January 2020, i.e. the date of notification of the rejection by the Authority, to calculate,
fill and submit a single transitional Excise return. Additionally Najma LLC is no longer allowed
to produce Sweetened Drinks in this location, as the Tax Warehouse license is no longer valid.
For the applicability of a transitional phase, please refer to chapter 4.

5.4. Violation of Excise legislation

The previous chapters and sections provided a description of the transitional phase, its
applicability and the obligations derived therefrom. Failure to comply with these obligations
carries penalties for evasion of Excise Tax or violation of Excise Tax legislation.

A detailed overview regarding that topic is addressed in more detail in another guide.

6. CONTACT US
For more information about Excise Tax, please refer to the other guides or kindly visit the
Authority’s website: [Link]; or contact us on the following number: 19993.

You may also contact the Authority in respect of Excise Tax matters using the email address:
ET-zatca@[Link].

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