Saudi Arabia - Increase in Duty rates & Increase in VAT
The Government of the Kingdom of Saudi Arabia (‘KSA’) has announced an increase in the customs duty rates for an extensive range of goods, including foodstuff, mineral and chemical products, plastic, rubber, leather goods, textile and footwear, base metals (e.g. steel, iron, nickel, copper, aluminium), cement, ceramic, machinery, equipment and electrical equipment, toys, furniture, vehicles and various other manufactured goods. The measure affects a total of 57 Chapters and more than 2,000 Tariff Lines of the KSA Integrated Customs Tariff. The announced increase in customs duty rates was to be applicable from June 10, 2020 onwards, but recently it has been postponed till July, 1st, 2020. till that time here what you should know about the new rates , and what can you do to minimise the impact on your business?
For ease of reference, we have listed the main categories of goods that will be subject to higher customs duties, starting June 10, 2020, below:
Base metals, e.g. steel, iron, aluminium, etc.
Machinery, equipment, electrical equipment
Other various types of manufactured goods
What can I do to minimise the impact on my business?
The changing trade landscape has become a constant source of uncertainty for companies. More importantly, tariffs impact all aspects of an organization and have a direct impact on profitability. In managing these uncertain times, businesses are expected to understand the tariffs impact on profitability today and the impact that tariffs may have on profitability in the future.
As the customs duty rates have been increased to levels reaching 10%, 15% and 20% in many of the above listed cases, it is critical for businesses importing goods in KSA to consider the possibility of reviewing their customs and international trade policies to ensure efficient duty management.
Some of the options that importers can consider, in accordance with the applicable customs rules and regulations in KSA, may include:
Exploring alternative sourcing, focusing on the KSA local market and Free Trade Agreement (‘FTA’) partners, such as the GCC and other Arab countries, Singapore, Switzerland, Norway, etc.
Considering applying for, or extending the customs duty exemption for industrial activities
Exploring the use of the growing number of bonded warehouses and bonded zones across the KSA to store goods under duty suspension, i.e. deferring the payment of goods intended for the local market, and avoiding the payment of duties for goods to be re-exported from KSA
Evaluating the use of the temporary admission relief for goods imported for a limited period of time
Considering the review of the customs valuation policy, unbundling non-dutiable costs
Considering the review of the tariff classification policy, focusing on streamlining the use of tariff lines
Reviewing the contractual terms with suppliers and logistics service providers to minimise the supply chain costs associated to the imports in KSA
Discussing the changes with customs brokers and third party logistics service providers to ensure compliance and avoid potential fines
Evaluating the potential impact that the increased duty rates have on the VAT, Transfer Pricing and Corporate Tax/Zakat positions of businesses operating in KSA
It is also important to consider the use of digital automated trade solutions (many of which may exist in native ERP environments or can be added with additional software packages).These solutions can automate and standardize import and export processes across business units, manage customs data in a central location as well as enabling local, regional and global reporting dashboards. This helps reduce risk and provides an extra layer of control surrounding interactions with government agencies. These type of solutions also help organizations manage trade uncertainties by providing real time visibility to customs data that can be used to accurately set prices and provide support in managing profitability and ensuring compliance.
Next steps to consider
The announced increase in customs duty rates was supposed to be online on June 10, 2020 , even thought it has been postponed till July 2020, the importers in KSA start to consider the necessary changes required to manage the impact on their operations, and comply with the legal requirements in terms of declaring and paying the right amount of customs duty to Saudi Customs. It is also recommended that importers consider the appropriateness of reviewing their customs and international trade policies to address the impact of the new customs duty rates in KSA in an efficient manner.
To Download the list of HS codes that will be effected , click on the below image: