The applicability of the Value Added Tax (VAT) in Saudi Arabia is determined based on the Place of Supply (POS) rules. The supply in VAT decides the location where the goods are supplied or the services are performed.
This article aims to explain everything about the place of supply rules for goods and services and special rules if there are any exceptions to the general rule in VAT Saudi Arabia.
The place of supply is where the supply of goods or services occurs for the final consumption. The POS rules play a crucial role in determining the applicability of VAT.
In other words, it is the place of supply where the transfer of goods or services is considered complete.
The POS rules help you determine the place at which your supply is taxable or not taxable. Based on the location of the supply, the taxability is determined as to domestic supply, supply within GCC states, or supply outside GCC states (export).
POS rules for goods are determined based on whether the transportation is also accompanied along with the supply or not.
Supply with transportation: In this case, the POS of goods will be where the transportation of such goods commences.
Supply without transportation: In such a case, the POS will be where the goods are located for the customer’s use.
The POS for the imported goods is where the recipient of the goods is located, Saudi Arabia.
The import of goods is charged for VAT under the reverse charge mechanism, and hence, the place of supply in VAT for the imported goods in Saudi Arabia.
In such cases, the POS is the place where the recipient of the goods is located. When a non-resident person supplies goods to the registered customer in KSA, the VAT Saudi Arabia is applicable under the reverse charge mechanism. The POS will be the KSA.
The POS will be a GCC state if the goods are supplied from the KSA to the other GCC states. However, if the GCC state agrees to pick up the goods from the KSA, the POS will be Saudi Arabia.
For example, if a taxpayer sells goods to the customer in Dubai, the POS will be in Dubai if the supplier transports the goods to Dubai. However, if the customer in Dubai arranges to pick up the goods from KSA to Dubai on his own, the POS will be Saudi Arabia.
When the goods are exported outside GCC states, the POS will be where the goods are dispatched, which is Saudi Arabia.
For example, an export of goods from KSA to India will be Saudi Arabia, but the VAT will be charged zero.
POS for services is the place where the supplier of the services is located. It means the POS for the KSA residents will be Saudi Arabia, and VAT will be chargeable on the supply.
However, the Unified VAT Agreement provides exceptions to the general rule of POS for services as mentioned below:
|Special Services||POS for Special Services|
|Transportation of goods and passengers||POS is the country where the transportation service starts.|
|Services closely related to the real estate||POS is the place where the real estate (land, building or construction works) is located.|
|Telecommunication and services supplied electronically||POS is where the customer can use or enjoy such benefits, primarily the customer’s country of residence.|
|Catering, hotel, and restaurant services||POS is the place where such services are provided.|
|Non-KSA residents providing services||POS is the place where the recipient of the services is located, that is, Saudi Arabia.|
|Cultural, art, educational, sport, and recreational services||POS is the place of performance of such services when they are provided as an entry to an event as a physical location.|
The place of supply in VAT is a primary factor that decides whether VAT in Saudi Arabia is applicable or not and, if suitable, at what rate is it applicable?. Hence, POS rules are crucial in determining the scope and the rate of VAT charged under VAT KSA.
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