Saudi Arabia: E-Commerce VAT Guide
13 September, 2021
In brief
In August of 2021, the Zakat, Tax and Customs Authority (“ZATCA”) published a guide on E-Commerce which explains the VAT implications for businesses operating within the e-commerce sector. The guide contains information about the VAT treatment with respect to supplies of goods and services through electronic means, supplies made through agents as well as indicators to determine the customers place of residence.
The guide is available in Arabic at the moment and can be accessed here.
In detail
The guide discusses various general aspects of VAT, applicable to most businesses including e-commerce business, such as VAT registration requirements, place of supply rules for goods and services, reverse charge mechanism (RCM), input tax recovery and record keeping requirements. In addition to the general VAT provisions, specific e-commerce related VAT considerations have been discussed in details, such as supplies made through agents (intermediary) acting as disclosed or undisclosed agents, returned goods,
ground transportation services and smart transportation applications, data center, etc.
Definitions
The term E-Commerce has not been defined in the KSA VAT legislation. The guide provides a definition of key terms as follows:
E-Commerce is a process of buying and selling goods or services through a website, electronic platform, social media store, or application, and transferring money and data to complete the sale.
Portals and electronic interfaces include a site, an electronic market or a similar application that facilitates the sale of goods or services from a supplier to a customer, acting as an agent or intermediary to complete the transaction.
The guide illustrates various types of supplies known in the e-commerce content, which are summarized as follows. The VAT implications will vary for each type of supply depending on contractual arrangements, etc:
| Types of supplies | Brief description |
| Business to Customer (B2C) | Supplies from a VAT registered person to an individual or non-registered business |
| Business to Business (B2B) | Supplies from a VAT registered person to another registered person |
| Business to Business to Customer (B2B2C) | Combined supplies from business to business and supplies from business to customer. |
| Direct-to-consumer (D2C) | Direct supplies by one of the International brands to the end customer without the help of retailers, distributor or wholesaler |
| Customer to Customer (C2C) | A supply of goods or services to another customer through electronic platforms |
| Customer to Business (C2B) | An individual sells their services or products to businesses |
Place of supply
The guide clarifies that the application of ‘place of supply rule’ will vary on a case by case basis (depending on the location of the supplier/goods, etc.) such as orders from within KSA or from outside KSA/other GCC countries etc. In the case of services, VAT rules of the country in which those services are actually used and/or enjoyed will apply.
Supply of goods and the relevant VAT treatment
The guide clarifies the place of supply and the related VAT treatment of various cases related to goods provided electronically from inside and outside KSA. The table below summarises these cases as follows:
| Transaction Type | From Supplier to Customer | Place of Supply | VAT Treatment |
| Goods supplied electronically to KSA (inside KSA) | B2B | KSA | Supplier to apply VAT in KSA |
| B2C | KSA | Supplier to apply VAT in KSA | |
| KSA supplier to a non-resident customer | Outside KSA | Zero-rated supply (subject to meeting conditions related to export of goods) | |
| KSA supplier not registered for VAT in KSA to a resident customer (registered or not registered for VAT) | KSA | VAT to be applied in case the KSA supplier is required to register for VAT | |
| Good supplied electronically to KSA from outside the KSA | Non-resident supplier to a KSA VAT registered customer | KSA | Goods imported to KSA: VAT to be applied at the time of importing goods into KSA Goods available in KSA: Recipient to apply VAT through the reverse charge mechanism |
| Non-resident supplier to a KSA customer (not registered for VAT in KSA) | KSA | Goods imported to KSA: VAT to be applied at the time of importing goods into KSA Goods available in KSA: Non-resident supplier to apply VAT and discharge VAT obligations in KSA |
Summary of the VAT treatment of various scenarios related to supplies of electronic services
| Supplier Place of Residence | Place of Use and Enjoyment | Customer VAT Registration Status | VAT Treatment |
| KSA | KSA | Not registered | Supplier to apply VAT at standard rate of 15% |
| KSA | Outside KSA | Not registered | Outside the scope of VAT |
| Outside KSA | KSA | Registered for VAT in KSA | Recipient to apply VAT through the reverse charge mechanism |
| Outside KSA | KSA | Not registered | Supplier to apply VAT at standard rate of 15% |
| Outside KSA | Outside KSA | Not registered | Outside the scope of VAT |
Special cases
The guide explains the VAT treatment associated with special cases of which a few have been documented hereunder:
| Description | VAT Treatment |
| Imported goods (sales return) | If imported goods are subsequently returned to the supplier, VAT paid at the time of import will be not be refunded by ZATCA. |
| Shipping service providers | Import VAT paid by a shipping provider is an additional cost (without the right to deduction), unless the import is made on behalf of a person registered for VAT purposes and a VAT identification number is provided for that person at the time of import. |
| Ground transportation services and smart transportation applications | ZATCA is of the view that transportation companies usually act as a ‘principal’ in performing the transportation service, while individual drivers provide their services to the companies. |
| Data Center Services (connection fee and supplies) | For items included in the connection fee that can be used or consumed individually in KSA (for purposes separate from the process of regulating devices and network access), the VAT treatment of these items will vary depending on the underlying circumstances. |
Supplies through an Electronic Interface or Portal
ZATCA clarifies that depending on the relationship between seller/buyer and terms/conditions of the sale, the interface or portal may act as an ‘agent’ or ‘principal’. The guide illustrates that the parties of a transaction are responsible for assessing their respective situation and discharging the VAT obligations in the prescribed manner.
The Takeaway
Taxable persons in the e-commerce business or those who are acting as an intermediary providing an online platform for the supply of goods and services need to assess the VAT treatment of their supplies in the context of the VAT legislation and the recent guidelines.
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