VAT for Insurance Contracts Related to Financial Lease Contracts

In the Name of Allah, the Most Gracious, the Most Merciful Saudi Arabian Monetary Authority Head Office

General Directorate for Finance Companies Supervision No. : ……………………………… Attachments: ………………………………

Circular

To:
Respected Sirs,
Peace be upon you, and the mercy of Allah and His blessings.

Subject: Regarding the increase in value-added tax for cooperative insurance contracts related to financial lease contracts.

Reference is made to the Authority's instructions communicated via email on 2/7/1441H corresponding to 23/7/2020G, concerning the increase in value-added tax for cooperative insurance contracts related to financial lease contracts.

A copy of these instructions is attached, which must be complied with from the date of their email dispatch.

Yours sincerely,
Badr bin Mzae Al-Otaibi
General Director for Finance Companies Supervision

Distribution Scope:

• Finance companies operating in the Kingdom

P.O. Box 2992 Riyadh 11169 Phone: +966 11 4662030 Fax: +966 11 4662488

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From:
Sent: Thursday, July 23, 2020 3:13 PM
Subject: Regarding the increase in value-added tax for cooperative insurance contracts related to financial lease contracts

To: Respected Finance Companies,
Peace be upon you, and the mercy of Allah and His blessings.

With reference to the decision issued raising value-added tax from 5% to 15% effective July 1, 2020G, and in light of inquiries received from certain lessors regarding the mechanism for handling this increase in cooperative insurance contracts related to financial lease contracts,

The Authority confirms that the lessor must bear the increase resulting from the raised value-added tax for cooperative insurance contracts related to financial lease contracts, and is not permitted to pass it on to the lessee; this based on Paragraph (3) of Article Nine of the Financial Leasing System, which stipulates: "The lessor bears the cooperative insurance for the leased asset, and it may not be stipulated as a condition on the lessee."

For information and compliance.
Regards,

Finance Companies Supervision Department - Offsite Division Saudi Arabian Monetary Authority