All companies that are working on contracts with government departments in Saudi Arabia need to modify their bills to include the five per cent VAT (value-added tax), said a report citing a senior official.

The investors in the contracting and real estate sector have all been updated on this, remarked Hamoud Al Harbi, the project manager of VAT at General Authority of Zakat and Tax (GAZT).

"We have informed contractors that any supplier who issues an invoice or receives consideration before January 1, 2018 but the actual supply of goods or services takes place on or after the date must charge VAT based on the actual date of the supply," stated Al Harbi while speaking to Saudi Gazette on the sidelines of a VAT workshop.

"Since construction services are a continuous process, then VAT is due at the earlier of the due date or the actual payment and VAT becomes due for each progress payment at the earliest of the issue of the invoice or the date of actual payment," he said.

"All contracts that were signed without factoring in VAT rate may have zero VAT under three conditions: the contracts must be in effect before May 31, 2017, the customer should be entitled to deduce input tax in respect of the supply of goods and services and finally, the customer provides a written certification to the supplier that input tax can be deducted or refunded in full," explained Al Harbi.

Under the new rules, companies must also provide financial reports every three months, failing which they will incur fines, stated the Saudi Gazette report.

On the fines, Al Harbi said: "It ranges from SR10,000 to SR100,000 for violations such as not being registered in the VAT, providing fake financial reports, not saving financial documents, not paying the VAT rate and not being co-operative with VAT officials."

However, the official said, taxpayers have the right to appeal against decisions of penalties issued by GAZT within 30 days of the date of notification.

"If taxpayers disagree with the decision issued by the VAT First Instance Committee, an extra 30 days will be given to present an appeal to the VAT Appeals Committee. This committee will issue a decision that shall be final and non-appealable before any other judicial authority," he added.