Zero-Rated VAT Supplies in Saudi Arabia

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.

List of zero-rated Supplies in KSA VAT

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 of Goods

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:

• Export documentation issued by the customs department or equivalent department of another member state
• Commercial documentation such as invoice 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

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 recipient of services should be a non-resident of GCC, and the supplier should have proof of his residence outside GCC
• The benefit of services should be received and consumed by a person outside GCC
•  The services supplied should not be related to any tangible movable/immovable property located within GCC, even though the recipient resides outside GCC
• The supplier does not have any knowledge about the consumption of services within GCC

International Goods and Passenger Transport Services

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:

•  Transportation of goods and passengers: Any international transportation of goods or passengers will constitute o zero-rated supply only if it is via qualifying air, road or water transport. A qualifying transport means that the transport should have a capacity to carry a minimum of 10 passengers or should carry goods on a commercial basis. Such transport cannot be used for any domestic transfers.
• Vehicle and equipment to be used for international transportation: Any vehicle purchased for international transportation only will qualify as a zero-rated supply.
• Services incidental to international transportation like luggage transportation, vehicles’ transportation, passengers’ trailers, seat reservations, etc.

Qualifying Medicines and Medical Goods

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 Metal

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:

• The purity level of the investment metal is 99% or more
• Sale is either made by producer/refiner (first sale) or subsequent sale by retailers where purity level is maintained

Differences between Zero-rated, exempt and out of scope supplies

There is a line of difference between zero-rated supplies, exempt supplies and out of scope supplies. Let us discuss in detail: