Will 5% VAT be levied on Expat Remittances in Saudi Arabia?

The six Gulf Cooperation councils (GCC) are all set to impose a 5% Value Added Tax (VAT) on certain goods and services. These six nations are Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. The Value Added Tax (VAT) shall be levied from Saudi Arabia from 1st of January, 2018.[irp]

As oil prices have fallen drastically globally, governments of GCC countries are out of revenues.   The government needs revenues in order to make expenditures on defense, health, development, and education. On International Monetary Fund’s (IMF) recommendation, GCC countries have agreed to impose VAT. 

VAT imposition will put an end to long tax-free living in the Kingdom of Saudi Arabia. However, it is for the economic prosperity of the nation. It will help Saudi Arabia to make its economy stronger and make it independent from oil price shocks.

However, as VAT is a new concept not only for Saudi Arabia but other GCC nations, there are a lot many questions. With the time of imposition coming near, people want to clear out all the uncertainties relating VAT. The new buzz related to VAT is that will a Value Added Tax (VAT) be applied on Expat Remittances?

Media has been asking the authorities to clear out the matter of VAT implementation on remittances. This has indeed made expats of Saudi Arabia curious. GCC has amazing population composition where 49% of its residents are foreigners. Thereby the foreigners and foreign companies need to know that will they be charged for sending money home.

Most of the Foreigners of GCC countries belong to India, Pakistan, Egypt, the Philippines, Bangladesh and Sri Lanka and are categorized to be appointed under blue collar jobs. This indicates that they have relatively fewer earnings. However, the news indicates that the tax will be applicable on the remittances from Saudi Arabia.

A fee shall be charged by the exchange houses working therein. The news has been disclosed by CEO of UAE Exchange Group, Promoth Manghat, who says that VAT is expected to be levied on the fee charged by the Exchange Houses on remittance. He has assured that VAT may not be applied to the total amount remitted back home by expats.

COO of Xpress Money, Sudhesh Giriyan, has also indicated that VAT may be applicable on remittance charge. He says that it may not be applied directly yet a customer fee might be imposed on sending remittances home.

However, if the VAT is applied according to European Union practices, VAT may not be levied on transaction fees. A transaction fee is a fee that is levied for the provision of remittance services by the financial services.[irp]

Nominal fees: Exchange houses in the Kingdom charge varying fee on remittances for various corridors. The fees range on average between SR 10 and SR 20 for Asia, between SR 15 and SR 35 for the Middle East and Asia, and between SR 35 and SR 55 for the US, the UK, and Europe.

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Steve has been living in Saudi Arabia since 2013 and writing about Saudi rules, regulations, guides, and procedures since then.