Saudi Arabia: VAT treatment of real estate loan portfolio insurance

Circular on value added tax (VAT) treatment of real estate loan portfolio insurance

Circular on value added tax (VAT) treatment of real estate loan portfolio insurance

The Zakat, Tax and Customs Authority (ZATCA) of Saudi Arabia issued a circular on the value added tax (VAT) treatment of real estate loan portfolio insurance.

In the case of the real estate loan portfolios insurance, ZATCA propose that the financial institutions, not the borrower, need to be considered the customer for VAT purposes provided all of the following facts apply:

  • The financial institutions enter into insurance contracts directly with the insurers
  • The financial institutions pay the insurance premium themselves and on their own account
  • The insurance contracts cover the entire real estate loan portfolio
  • The financial institutions are entitled to make a claim against the insurer upon the occurrence of the insured event and accordingly benefit from the insurance

The circular also mentions that when the financial institutions incur a portfolio insurance expense and do not recharge this expense to the borrowers, this insurance must not be seen as supplied by the financial institutions to the borrowers, and similarly it will not be treated as a nominal supply. 

KPMG observation

While titled “Circular”, it represents the public opinion of ZATCA, which is not legally binding. However, considering the tendencies of the current court practice on tax matters, analysing the public opinions of ZATCA is of great importance to reduce the risk of tax exposure.

For more information, contact a KPMG tax professional:

Philippe Stephanny | +1 202 533 3082 |


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