Zero-rated supplies are those supplies of goods and services on which VAT is applicable at 0%, i.e. these supplies are not exempt from taxation but fall under the 0% VAT rate category. Unlike exempt supplies, suppliers can claim a refund of input tax in case of zero-rated supplies.
Under Saudi VAT Implementing Regulations, the supply of certain notified goods and services can only be treated as zero-rated supply. Such supplies are:
Export means the supply of goods from any member state of the Gulf Cooperation Council (GCC) to outside GCC. The VAT rate on such supplies was made 0% specifically to make exports more competitive and cheaper overseas to boost international trade.
However, suppliers need to comply with certain rules and regulations while exporting their goods to claim the benefits of zero-rated supply. For example, the goods need to be sent outside the territory within 90 days from the date of sale. The suppliers need to maintain adequate documentation to claim the benefits of export. Such documentation can be:
Services supplied by a VAT registered entity in GCC to a non-resident in GCC constitute export of services. Such a supply of services is zero-rated, and VAT is charged at 0%. However, it is subject to certain terms and conditions as given below:
The international transportation services by air, rail or vessel in connection with the transfer of goods and services from a place in GCC to outside GCC or vice versa comprises a zero-rated supply. This was done to make the export of goods and services further economical.
The zero-rated services related to transportation include:
Certain medicines and medical goods are grouped under zero-rated VAT supplies. They are an item of necessity, and thus, made cheaper by way of 0% VAT. The qualifying medicines and medical equipment are classified by the Ministry of Health (MoH) or any other competent authority from time to time.
Qualifying investment metals include precious metals like gold, silver, and platinum, generally used as long-term investment mediums. Any sale of such materials shall be considered zero-rated if:
There is a line of difference between zero-rated supplies, exempt supplies and out of scope supplies. Let us discuss in detail:
|Basis||Zero-rated supplies||Exempt supplies||Out of scope supplies|
|Meaning||Supplies covered under VAT but taxable at 0%||Supplies covered under VAT law but have been specifically exempted from tax||Supplies that are not covered under VAT law|
|Taxability||These are taxable supplies, but the rate is 0%. In future, the rate may be changed.||These are exempt, i.e. no VAT is leviable. However, they may be made taxable by future notifications.||These are out of the purview of VAT and may be covered under other laws.|
|Input credit||Input is available by way of a refund.||Input is not available, and consumers have to bear the burden of VAT on input supplies||There is no concept of input credit as such supplies are out of scope|
|Example||Export of goods and services, international transportation, investment metals||Notified Financial services and qualifying residential estate||Supplies by persons not registered under VAT supplies not in the course of furtherance of business|