ZATCA’s Major Amendments to Saudi VAT Regulations: A Comprehensive Overview

The Zakat, Tax and Customs Authority (ZATCA) has enacted sweeping amendments to Saudi Arabia’s VAT Implementing Regulations, marking one of the most significant regulatory overhauls since the introduction of VAT in the Kingdom. Published in the Official Gazette on April 18, 2025, these changes affect more than 25 articles and introduce new compliance requirements across VAT grouping, e-commerce, business transfers, refunds, and more. Below is a detailed breakdown of the key developments and their implications for businesses.

Stricter VAT Grouping Rules

The new regulations introduce tighter eligibility criteria for VAT group formation:

• Eligibility and Residency: Only resident legal entities that individually engage in taxable economic activities and are eligible for VAT registration may form a VAT group. Previously, it was sufficient for just one member to meet these requirements.
• Exclusions: Entities operating in special economic zones (SEZs) or those already part of another VAT group are now explicitly excluded.
• Formal Agreement: A binding agreement between group members is required at the time of application, outlining each member’s obligations.
• Grace Period: Existing VAT groups have to align with the new rules by 15 Oct, 2025.
• Purpose: These changes aim to prevent abuse of VAT group structures and ensure that only genuinely integrated businesses benefit from group registration.

Expansion of Deemed Supply Provisions

The scope of deemed supplies has been broadened to close compliance gaps:

• These provisions now cover circumstances where goods are retained after the closure of business or when a taxable person is found to be ineligible for VAT registration.
• The valuation of deemed supplies must now include a proportionate share of previously deducted or refunded input VAT. This adjustment applies to VAT incurred on related purchases, imports, production, and other similar operations. However, if the taxable person has disallowed or blocked the deduction or refund of input VAT, these deemed supply provisions will not be triggered.

Business Transfers (Transfer of a Going Concern, TOGC)

The rules governing business transfers have been clarified and tightened:

• Continuation Requirement: The transferee must continue the same business activity to qualify for VAT relief on a transfer of a going concern.
• Notification: Both parties are required to notify ZATCA within one month of the transfer.
• Transferor’s Tax Identification Number (TIN) : Cannot be transferred.
• Input VAT: Transferee will not be held liable for any VAT of the transferor

E-Commerce and Digital Marketplaces

A major focus of the amendments is on digital platforms and cross-border e-commerce:

• Deemed Supplier Rule: From January 1, 2026, electronic marketplaces facilitating sales for non-resident suppliers (whether resident or not) will be treated as the supplier for VAT purposes, making them responsible for VAT collection and remittance.
• Active Facilitation: Only platforms that actively facilitate transactions—beyond mere payment processing or redirection—are classified as digital marketplaces.

Special Economic Zones and Customs Suspension

The amendments provide detailed VAT treatment for goods and services within or between special economic zones (SEZs):

• Customs Suspension: Imports under customs suspension arrangements will defer VAT until the goods are released into the domestic market.
• Energy Supplies: Supplies of energy to SEZs are taxed at the standard VAT rate.
• Zero-Rating: 0% VAT may apply to goods supplied into customs suspension situations or re-exported after temporary admission.

Overhauled VAT Refund Regime

The VAT refund process has been restructured to improve efficiency and prevent abuse:

• Refund Periods: Refund periods are now quarterly or annual, depending on the applicant’s category.
• Refund Claim Deadline: 6 months.
• Thresholds and Documentation: A minimum SAR 5,000 threshold applies, and stricter documentation and timing requirements are imposed.
• Eligible Persons: Expanded rights for foreign governments, international organizations, and diplomats.

Tourist VAT Refund Scheme

Tourists are now eligible to claim VAT refunds on qualifying purchases:

• Process: Refunds will be processed through approved service providers at a 0% VAT rate, with further details to be announced by ZATCA.
• Objective: This move aims to enhance Saudi Arabia’s attractiveness as a tourist destination by aligning with international best practices.

Additional Compliance Updates

• Credit Notes: Credit notes must be issued within 15 days from the end of the month in which the triggering event occurred.
• Unpaid Input VAT: Input VAT must be adjusted if the corresponding output VAT is not paid within 12 months, with exceptions for certain financing contracts.
• Non-Deductible VAT: Clarifications on when input VAT is non-deductible, with exceptions like for statutory employee benefits.
• Government Grants: Payments from government entities to taxable persons are now considered compensation for taxable supplies if linked to a benefit received by the government. 

Implementation Timeline

Implications and Next Steps for Businesses

These amendments represent a fundamental shift in VAT compliance and administration in Saudi Arabia. Businesses must:

• Reassess VAT group structures and eligibility.
• Update systems to comply with new e-commerce and deemed supplier obligations.
• Review contracts and documentation for business transfers and cross-border transactions.
• Implement new processes for VAT refunds and credit note issuance.
• Monitor further guidance from ZATCA as implementation deadlines approach.

Proactive engagement and timely adaptation are critical to ensure compliance and avoid potential penalties in this evolving regulatory landscape.