Saudi Arabia has issued several amendments to the Executive Regulations of the VAT Law, published in the Official Gazette, 18 April 2025. These changes strengthen compliance, tighten VAT grouping eligibility, clarify zero-rating rules for customs-suspended goods and special zones, implement deemed-supplier rules for digital platforms, and adjust how businesses should treat input VAT in unpaid invoices.
VAT amendments of 2025 and its impact on businesses
Let us have a look at each of the VAT amendments and how they impact Saudi businesses:
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VAT grouping rules significantly tightened (Articles 10–11)
- Only resident legal persons can form a VAT group.
- The controlling entity must hold 50% or more of share capital OR voting rights (directly or indirectly).
- Businesses operating in special/customs-suspension zones are excluded from grouping.
- Entities eligible for VAT refund (developers of real estate & certain public-benefit bodies) are also excluded, except in specific cases.
- Registered VAT groups must re-validate their eligibility within 180 days of the amendment’s publication (grace period applies).
- ZATCA may remove a member or cancel a group entirely if the structure provides a tax advantage inconsistent with VAT law.
Impact:
Businesses must reassess their ownership structures and confirm if they still qualify under the new rules.
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Transfer of a business as a going concern (Article 17)
A business transfer is not treated as a taxable supply if:
- The transferred assets form a self-contained, operational economic activity.
- The recipient is or becomes a VAT-registered taxable person.
- Both parties agree in writing that the transfer is treated as a “transfer of economic activity.”
If any conditions fail, the transfer becomes a taxable supply.
Impact:
Companies undergoing mergers, acquisitions, or restructuring should ensure legal documentation supports VAT exemption.
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Deregistration, notifications, and record-keeping(Articles 13 & 14)
- When a business ceases economic activity, VAT deregistration becomes mandatory, and becomes effective upon ZATCA’s approval.
- After deregistration, businesses must retain invoices, records, and accounts for the required period (usually 6 years).
- Failure to notify ZATCA of a business transfer triggers joint liability for VAT debts.
Impact:
Closing businesses, or businesses transferring ownership, must ensure proper filing and documentation.
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Clarified rules for deemed supplies (Articles 14–15)
New definitions specify what counts as a taxable “supply of services.”
Examples include:
- granting rights,
- providing privileges,
- agreeing not to perform an action, etc.
Deemed supplies also apply when:
- goods remain after business cessation,
- goods are used for non-business purposes,
- the business can no longer be VAT-registered.
Impact:
Businesses must ensure they account for VAT even when there is no sale but economic value is transferred.
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Customs suspension, zero-rating, and special zones(Article 32)
Zero-rating currently applies to:
- Goods placed under customs suspension regimes,
- Goods re-exported after temporary import for repair, processing, or modification.
A new Article 32 extends zero-rating and VAT suspension to:
- Special zones (free zones with customs-suspension status),
- Transfers between these zones,
- Imports into zones under customs-suspension conditions.
Impact:
Importers, logistics hubs, and manufacturers in special zones must maintain robust customs documentation for zero-rating.
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Place of supply for services— Exceptions (Article 33)
Article 33 outlines cases where a service supplied by a Saudi business is treated as supplied in another GCC state. These situations arise when:
- The customer is based in another GCC country,
- The service is consumed in that country,
- The service is performed on goodslocatedthere.
Impact:
- Cross-border service providers must verify where VAT is due
- Businesses must track where services are actually used
- Manufacturers, repair workshops, labs, and logistics providers must know the goods' physical location at the time of service.
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Input VAT adjustment for unpaid invoices after 12 months (Article 40)
If a business claims input VAT but does not pay its supplier within 12 months, it must:
- Reverse the claimed input VAT (proportional to the unpaid amount).
- If payment happens later, the business may reclaim the VAT again.
Exceptions apply for:
- Leasing,
- Murabaha financing,
- Lease-to-own,
- Other compliant financing structures.
Impact:
Accounts payable teams must outstanding supplier invoices to avoid compliance violations.
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Electronic marketplaces & digital platforms - Deemed supplier rules (Article 47)
A marketplace or online platform may be treated as the deemed supplier responsible for:
- Collecting, reporting, and remitting VAT - when facilitating supplies of goods or services in Saudi Arabia.
The rules apply differently for:
- Non-resident suppliers,
- Unregistered resident suppliers,
- Cases where the platform controls pricing, terms, or customer-experience.
Platforms are not deemed suppliers if they:
- Only process payments,
- Only market goods/services,
- Only redirect users to the actual supplier.
Impact:
Marketplaces, apps, delivery aggregators, SaaS aggregators, and online booking platforms must assess whether they fall under the deemed-supplier model.
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Restrictions on input VATrecovery for certain goods & services (Article 50)
Input VAT cannot be claimed on:
- Entertainment, sports, cultural activities,
- Food & beverage for staff unless mandatory by law,
- Medical insurance for employees unless mandated,
- Purchase/lease of passenger vehicles (“restricted vehicles”),
- Repairs, insurance, and fuel for restricted vehicles,
- Goods/services used for personal purposes.
Impact:
Businesses should adjust their VAT recovery policies accordingly.
The recent VAT amendments reflect more than regulatory updates—they represent a strategic shift toward a smarter, more accountable, and digitally enabled tax ecosystem in Saudi Arabia. As compliance expectations rise, businesses must strengthen their VAT readiness, streamline documentation, and adopt systems that support real-time accuracy.
Those that respond early will not only avoid penalties but also build stronger financial governance and unlock smoother operations across borders, sectors, and digital platforms. With robust internal processes and reliable tools like TallyPrime, Saudi businesses can navigate this new VAT era with clarity and confidence.
