Saudi Arabia plans refund scheme to cater for tourists

Ahmed Yosri/Reuters

• VAT policy to entice shoppers
• Tax policy in public consultation
• Rebate excludes cars and boats

Saudi Arabia is planning to introduce a tourist tax refund scheme in an attempt to boost visitor numbers and compete with its Gulf neighbours. 

The Zakat, Customs and Tax Authority opened a public consultation at the end of August on proposed changes to tax regulations that aim to improve compliance with valued added tax legislation and offer relief to some VAT payers. 

Saudi Arabia has no personal income tax but excise duties were added in 2017. VAT was hiked to 15 percent in 2020, up from 5 percent when it was first imposed in 2018. 

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The tourist refund would follow the suspension of licensing fees on hotels, hotel apartments and resorts announced last week as part of government efforts to push tourism towards 10 percent of GDP by 2030. 

Justin Whitehouse, managing director and head of Middle East indirect taxes at consultancy company Alvarez & Marsal, said the tourist refund was aimed at making the kingdom a global shopping destination.

The UAE already has a VAT refund system in place, which has helped Dubai. 

“This would be a welcome boost to the retail sector focused on tourists and make the kingdom a more attractive destination for leisure shopping,” he said. “It’s increasingly an expectation of tourists, especially for luxury shopping.” 

Saudi Arabia hosted 27.4 million tourists in 2023 – the UAE was ahead with 28.2 million visitors, but the kingdom only began issuing tourist visas in 2019. The government has a target of 50 million religious tourists per year by 2030. 

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Saudi Arabia has also said it will simplify registration processes for foreign investors from January as it tries to raise disappointing foreign direct investment numbers. 

Its Capital Markets Authority is considering scrapping the 5 percent withholding tax on interest payments to corporate bondholders, describing it as “unattractive and discouraging for foreign institutional investors”.

Non-GCC investors currently pay a 20 percent corporate income tax in Saudi Arabia. It can increase to at least 50 percent for oil and hydrocarbon producers. 

The tourism VAT rebate excludes vehicles, boats and aircraft, the amendments say. The lowest refundable amount has been increased to SAR5,000 ($1,333) from SAR1,000. 

“The proposed changes will be welcomed by visitors to Saudi Arabia as a means to encourage more retail spending in the kingdom,” said Michael Camburn, indirect tax expert at Deloitte Middle East. 

“This should put it on a level par with the UAE, in particular to achieve its visitor targets per annum by 2030.”