Tax Alert: Proposed changes to zero-rating of “export” of services in Saudi Arabia

The Saudi Arabian tax authority (ZATCA) published the draft legislation suggesting changes to Article 33 of Saudi Arabia VAT Regulations which sets an additional rule for applying a zero VAT rate to the “export” of services.

The new clause suggests that the supply of services to a customer without a place of residence in any GCC Member State [currently – any non-Saudi customer] is zero-rated in cases where supply is based on facilitating the supply of taxable services by that non-resident customer to a person in the Kingdom.

The public discussion of the draft is targeting 11 November 2022, upon which we can expect a final amendment to be issued. We also assume ZATCA to update its public guide to advise the market on how it is going to interpret this new rule. The suggested change may be seen as a positive development. Still, it is expected to raise a lot of questions as it introduces a new and non-defined term (”facilitating the supply”) and also provides a new VAT practice.

Once introduced, the change would call for the Saudi companies involved in the supply of services to non-residents and those non-residents suffering from unrecoverable VAT costs to revisit the VAT treatment and, potentially, the business model of respective arrangements. Such areas may include (but not limited to): marketing services, installation, testing, training and maintenance services, subcontracting of work to Saudi entities, etc.

Since VAT introduction in Saudi Arabia in 2018, KPMG is heavily involved in supporting its Clients with the VAT analysis of respective “export of services” models, and helping them in dealing with ZATCA (proactively or during the audit). And we would be happy to assist the companies interested in benefitting from the new change as well.