Executive summary

On 18 April 2025, the Zakat, Tax and Customs Authority (ZATCA) Board Resolution No. 01-06-24 (Resolution), dated 19 November 2024, was published in the Official Gazette. The Resolution approves the previously proposed amendments to the Value-Added Tax (VAT) Implementing Regulations.

Subsequently, the ZATCA published the amended Implementing Regulations of the VAT Law (Amended VAT IRs) and released a Guideline for Clarifying Amendments to the Executive Regulation of Value Added Tax Issued by the Decision of the Board of Directors of the Authority No. (01-06-24), dated 19 November 2024.

The Amended VAT IRs establish stricter criteria for VAT group formation and refine the rules for cessation of economic activities, nominal supplies and transfers of going concern (TOGC).

Additionally, the Amended VAT IRs clarify the VAT treatment for special zones, services to non-GCC residents, government grants, financing contracts and online platforms, while redefining restricted input tax deductions and setting timelines for issuing credit and debit notes.

Detailed discussion

Background

On 28 August 2024, the ZATCA released a public consultation document on the Istitlaa platform (i.e., a public consultation platform), proposing certain amendments (Draft Amendments) to the VAT Implementing Regulations.

The Draft Amendments covered changes relating to more than 25 Articles of the VAT Implementing Regulations and provided further clarifications on the respective articles.

The ZATCA has approved the Draft Amendments based on the outcome of the public consultation and issued the Resolution.

Highlights of the Amended VAT IR

VAT group: To qualify for a VAT group, each entity must engage in taxable economic activities and be eligible for standalone VAT registration, which is a shift from the previous requirement that only one member needed to meet this criterion.

Persons who are (1) licensed to operate in special zones with suspended customs status, or (2) eligible for refunds under Article (70) of the Amended VAT IRs, are not permitted to join a VAT group. All members must comply with Article 10(1) of the Amended VAT IRs during their registration.

Moreover, a grace period of 180 days from the announcement of the approved amendments (i.e., until 15 October 2025) is provided for VAT group members to adjust their status according to the Amended VAT IRs.

Cessation of economic activity: The amendments mandate taxable persons who cease to carry on an economic activity must retain invoices, notifications, books and records for the periods specified in Article (66) of the VAT Implementing Regulations. Furthermore, the deregistration of taxable persons does not relieve them of their obligations to settle any dues to the ZATCA that preceded the date of the deregistration.

Services: The Amended VAT IRs provide a non-exhaustive list of services that includes granting rights, providing facilities, refraining from certain actions, agreeing to waive participation rights, transferring indivisible shares in goods, and allowing the use or transfer of intangible rights such as copyrights and trademarks. The purpose of this amendment appears to be to eliminate any arguments regarding the absence of an explicitly agreed-upon service or benefit in these scenarios.

Nominal supplies: Article 15 of the Amended VAT IRs is aligned with Article 8 of the GCC VAT Agreement. Nominal supplies now apply only to cases specified in the GCC VAT Agreement, the VAT Law, and the Amended VAT IRs, unless otherwise stated.

The Amended VAT IRs mandates that taxable persons retain documents proving that they did not recover the input tax related to their nominal supplies.

TOGC: The Amended VAT IRs mandates that both the supplier and recipient notify ZATCA of a TOGC transaction by the end of the month following the transaction. The ZATCA will provide a specific form for this notification, requiring details such as names, addresses, Tax Identification Numbers, proof of VAT registration application (if applicable), transfer date, and specifics of the transferred goods and services, along with a copy of the transfer agreement.

The amendments state that both the supplier and the recipient are responsible for tax obligations that arise before or after the TOGC transaction, unless the parties agree otherwise. In none of these situations does the recipient assume the supplier's responsibility for any tax violations that occurred prior to the transfer date concerning the goods and services involved in the transfer.

Lastly, if the conditions were not met (including notifying the ZATCA), the TOGC transaction should be treated as a taxable supply.

VAT suspension: The Amended VAT IRs clarify the VAT treatment of goods under customs duty suspension, subject to retaining relevant documents. Water and energy supplies are excluded from these VAT suspension provisions.

Supplies of services to non-GCC residents: Article 33 has been amended so that one of the exceptions to zero-rating has been narrowed. Now, if there is a benefit to a Saudi Arabia resident, arising from a service, that person must be "associated" with the contractual client.

Grants provided by government bodies: The Amended VAT IRs indicate that when government bodies provide grants to taxable persons for goods or services that benefit the government, the payments are viewed as a consideration for those taxable supplies rather than as grants that fall outside the scope of VAT.

Input tax deduction for goods supplied under financing contracts: Generally, taxable persons must adjust their input tax if they recovered the input tax, but did not fully pay it within 12 months. The Amended VAT IRs provide an exception that allows full input tax deduction under financing contracts, if (1) the contract is still valid, (2) there are no legal disputes regarding the contract and (3) the suppliers reported the full output tax amount in their VAT returns and the clients have written certificates from the suppliers confirming the same.

Online platforms: The Amended VAT IRs define electronic markets for VAT purposes as platforms that allow suppliers to display and sell their products. To be considered electronic markets, these platforms must actively facilitate transactions; simply processing payments or redirecting customers does not suffice.

Input tax deduction on certain purchases: The Amended VAT IRs further expand the restriction on input tax deduction under Article (50) of the VAT Implementing Regulations to include food and hospitality, and beverage services in the workplace, and medical insurance and healthcare services provided to employees, unless there is a statutory obligation on the taxable persons to provide those services to their employees under any applicable law. Furthermore, the Amended VAT IRs provide more clarity on the definition of the term "restricted vehicles," which has been updated to exclude vehicles that carry more than 10 persons, vehicles that carry heavy equipment, vehicles intended for resale or lease, emergency vehicles, and vehicles for exclusive economic use.

Duration for issuing credit and debit notes: The Amended VAT IRs establish a timeframe for taxpayers to issue credit and/or debit notes, which is limited to a maximum of 15 days from the end of the month after any event that requires the issuance of these notes.

VAT error time limits: The legislative language concerning the correction of errors and time limits has changed to focus on "net tax due" instead of "tax payable." Additionally, the ZATCA may assess errors after the five-year time limit, if the taxpayer consents.

Offsetting refundable amounts with other amounts due to the ZATCA: According to the amendment to paragraph (5) of Article (69) of the Amended VAT IRs, the ZATCA has the right to offset refundable amounts to the taxpayer, against any tax liabilities, fines, or other amounts payable to the ZATCA under any other system it oversees.

Eligible persons for VAT refund provisions: The amendments to Article (70) of the Amended VAT IRs provide that the refund application form will include additional information such as the bayan number, date, total amount and VAT amount as per the customs documents (if applicable) and date of payment of tax invoices or customs documents.

Furthermore, refund applications cannot be made for tax amounts less than 5,000 Saudi Riyals (SAR5,000). Eligible persons must retain relevant books, records and documents for at least six years from the end of the refund period. If a refund is obtained mistakenly or unlawfully, the individual must inform the ZATCA and repay the amount. Moreover, the ZATCA may cancel the eligible person for VAT refund registration if a registered person (1) is no longer eligible to claim a refund or (2) intentionally and repeatedly claims tax refunds unlawfully.

Implications

Taxpayers should review the approved changes to the Amended VAT IRs to identify and evaluate the potential impacts on their supply chain, administrative processes, and compliance related to their existing and/or planned transactions.