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New VAT guide: Supplies of services to non-GCC residents

Saudi Arabia’s General Authority of Zakat and Tax (GAZT) has published new guidelines on Supplies of Services to Non-GCC Residents.

Source: gov.sa

Keypoint.com’s view (summary):

The supply is subject to the zero-rate – subject to certain exceptions:

  1. the place of supply is in Saudi Arabia due to the operation of the special place of supply rules (e.g. real estate related, educational, transportation, telecommunication services etc.); or
  2. the customer is resident in Saudi Arabia or another GCC member state (taken to only include Saudi Arabia at present); or
  3. the customer or any other person benefits directly from the services when that customer or other person is in Saudi Arabia and the other person is not permitted to deduct input tax in full; or
  4. the services are performed in relation to tangible goods located in Saudi Arabia or a GCC member state (taken to only include Saudi Arabia at present) when the services are supplied.

A direct benefit can arise where the supplier and customer agree that the services will be delivered to an employee of the customer who is physically present in Saudi Arabia.  However, a direct benefit should not arise where:

  • the services provided to the customer physically in Saudi Arabia are not substantial and are ancillary to the main services which are directly provided to the non-resident customer; or
  • the customer is travelling in Saudi Arabia and their physical presence is not related to the provision of the services.

When considering whether a ‘direct benefit’ is provided to ‘another person’, you should consider:

  • did the supplier and customer intend that the main work product, output or performance of the services be supplied directly to another person in Saudi Arabia as a term of the supply? or
  • is the nature of the services such that a different person to the customer, must receive the predominant benefit directly from the supplier?

A direct benefit for the other person should not arise if the customer on-supplies to the person or where the other person derives a secondary/ancillary benefit.

Where another person in Saudi Arabia directly benefits from the supply – it is not automatically standard rated – you still need to consider whether the other person is entitled to 100% input VAT deduction.  The supplier will need to obtain confirmation of this.

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