Saudi Arabia: Services related to tangible goods subject to VAT at 15% rate

Saudi Arabia: Services related to tangible goods

The Saudi Arabian General Authority for Zakat and Tax (GAZT) issued guidance that reflects its position that the standard rate (15%) of value added tax (VAT) applies to services related to tangible goods located in Saudi Arabia—including “administrative, consultancy and promotional services, market research, public relations and communication services.”


The GAZT on 13 October 2020 issued a tax circular outlining its interpretation of the application of VAT at a zero (0%) rate to the supply of services to non-residents regulated under article 33 of the VAT implementing regulations. The circular, however, is not legally binding, but provides an understanding of how GAZT intends to interpret the VAT rules.

For the most part, the circular follows the approach already expressed by GAZT in its guide on “Supplies of services to non-GCC residents” as issued previously. However, there is a new statement that may affect many international businesses.

When commenting on which services would be subject to the standard VAT rate (15% from 1 July 2020) on the basis of having tangible goods as their main subject, GAZT provides the following example: “administrative, consultancy and promotional services, market research, public relations and communication services.”

KPMG observation

Many international businesses conduct business transactions with Saudi Arabian customers using the support of Saudi subsidiaries or distributors that charge fees for their support. When applying this interpretation, such services may become subject to VAT at a rate of 15%.

There reports of several instances when GAZT has already adopted this approach (which is being disputed). Now, with the VAT rate increase to 15% and the VAT refund non-residents still not being available, applying VAT at the standard rate—instead of the zero rate—may lead to a significant increase in operational costs for business.

While GAZT has stated the intention to apply this interpretation forgoing forward, taxpayers need to consider historical risks.

For more information, contact a KPMG tax professional:

Philippe Stephanny | +1 202 533 3082 |

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