Zero-Rated Supplies under VAT in Saudi Arabia

Tally Solutions | Updated on: December 30, 2021

• List of Zero-rated goods and services in Saudi VAT
• Export of Goods under VAT in Saudi Arabia
• Export of Services under VAT in Saudi Arabia
• Transportation services for goods or passengers outside the Kingdom and supplies relating to transportation
• Qualifying medicines and medical equipment
• Supplies of investment metals
• Conclusion

Zero-rated supplies are taxable supplies on which VAT is charged at 0%. The only difference here is, that instead of charging VAT at 5%, it is charged at 0%. Similar to standard rated taxable supplies, businesses are allowed to recover the associated input VAT in accordance with the provisions of KSA VAT. Zero-rated VAT is applicable only on the supply of notified goods and services.

In this article, let us understand the supply of goods and services which can be treated as zero-rated supplies.

List of Zero-rated goods and services in Saudi VAT

The Saudi VAT implementing regulations has notified supplies which need to be considered as zero-rated supplies. The following are zero-rated supplies in Saudi VAT:

Export of Goods under VAT in Saudi Arabia

The export of goods from KSA to a destination outside the GCC territory are considered as zero-rated supplies. In order to apply zero-rated VAT, the supplier of those goods must retain evidence that the goods have been transported from the territory within ninety (90) days of the supply taking place. Otherwise, it will not be treated as export of goods.

The evidence of the goods being transported outside the territory must include any of the following documents:

• Export documentation issued by the Customs Department or equivalent Department of another Member State, showing the goods being formally cleared for export on behalf of the supplier or customer of that supply
  
  
• Commercial documentation identifying the customer and the place of delivery of the goods
  
  
• Transportation documentation evidencing the delivery to, or receipt of goods outside of the territory

Export of Services under VAT in Saudi Arabia

A supply of services made by a taxable person to a non-GCC Resident is zero-rated supplies. However, to be considered as zero-rated, the following conditions need to be met:

• The taxable person has no evidence that the customer has any residence in any Member State and has evidence that the customer is resident outside of the Council Territory
  
  
• The benefit of the services is not received by the customer or any other person when that person is situated in a Member State
  
  
• The services are not related to any tangible goods or property located within a Member State during the supply
  
  
• The taxable person intends that the services are consumed by the customer outside of the Council Territory
  
  
• The taxable person has no evidence that the benefit of the services will be enjoyed within the Council Territory

Transportation services for goods or passengers outside the Kingdom and supplies relating to transportation

For the purpose of VAT, international transport is defined as transportation service by means of a vehicle, aircraft or vessel together with a driver or pilot and with a crew which are necessary for providing that service. Provided that the transportation service involves transport of goods or passengers either to a place outside the Kingdom or from a place outside the Kingdom into the Kingdom.

Within international transport, zero-rated goods and services include:

• International transport of passengers and goods
  
  
• Vehicles and equipment to be used for international transportation
  
  
• Services provided in connection with international transportation

The international transport of passengers by way of any qualifying means of transport or scheduled passenger flight or voyage which runs according to a published timetable is zero-rated. Here qualifying means of transport refers to any vehicle, vessel or aircraft designed or adapted to carry a minimum of ten (10) people, or designed to carry goods on a commercial basis, which is used predominantly for international transportation and not for domestic passenger transportation.

Any means of transport adapted for or intended for recreation or private use is not a qualifying means of transport.

Also, services which are directly connected and incidental to a supply of international passenger transport are zero-rated. These services include:

• Transporting luggage accompanied by passengers, including domestic pets, bicycles, prams and additional luggage charges
  
  
• Transporting vehicles and trailers of passengers
  
  
• Transporting airport passenger charges and passenger load supplements
  
  
• Seat reservations
  
  
• Sleeping berths and cabin charges

Qualifying medicines and medical equipment

All qualifying medicines and medical equipments are considered as zero-rated. The qualifying medicines and qualifying medical equipments are those which are classified by the Ministry of Health (MoH) or any other competent authority from time to time. Qualifying medicines and medical goods will be part of MoH’s formulary drug list. Medicines which are not on MoH formulary list are taxed at the standard rate of VAT 5%.

Supplies of investment metals

The qualifying investment metals such as Gold, silver, and platinum of 99% purity or higher are zero-rated in the following two situations:

• Original sale (first supply) of investment metal by a producer or refiner
  
  
• Any further sale of gold, silver, and platinum where the purity level remains the same

Here, producer refers to a person who carries on the mining and extraction of a qualifying metal discussed above. Refiner means any person who carries on the refining by any process of a commodity into a Qualifying Metal.

Conclusion

It is critical for businesses to understand and identify the zero-rated supplies, so that VAT can be applied at 0%. Though the zero-rated supplies and exempt supplies look similar, since no VAT is levied but the implications on the business are different. To know how zero-rated supplies are different from exempt supplies, please read'Difference between zero-rated supplies and exempt supplies'.

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