Saudi Arabia: VAT guide on Electronic Contracts
26 September, 2022
In brief
The Zakat, Tax and Customs Authority (‘ZATCA’) published a VAT guide in September 2022, on its official website, explaining the concept of ‘Electronic Contracts’ along with VAT consequences under various scenarios.
The guide also provides definitions of terms such as contracts, Agents, Principal, etc which are neither defined nor available in the VAT Law and its Implementing Regulations.
The guide is available in both English and Arabic and should be accessed to obtain additional details.
In detail
What constitutes an electronic contract?
An electronic contract may be negotiated and executed electronically over the internet. The parties to the contract often interact with one and another exclusively in a digital format, without the requirement to meet in-person.
Validity and status of an electronic contract
The key requirements for the formation of a contract are ‘offer and acceptance’. For a contract to be valid, there must be an offer by one party and an acceptance of that offer by the other party.
Examples of electronic contracts and VAT implications
The guide provides certain examples of electronic contracts along with VAT consequences which have been tabulated hereunder:
| Example of electronic contract | Key indicators | Output VAT obligations | Input VAT deductibility |
| Goods sold Via manufacturer’s website | Acceptance of general terms and conditions by customer on the website or application | Manufacturer will be responsible to apply VAT as per applicable rules and regulations | The taxable Customer will be entitled to deduct input VAT subject to fulfillment of prescribed conditions |
| Goods sold via an Agent’s online interface or portal | Disclosed* vs undisclosed agency contract | Supplier or Principal will be responsible to apply VAT on sale as per applicable rules and regulations | Taxable customer or recipient will be entitled to deduct input VAT subject to fulfillment of prescribed conditions |
| Provision of consultancy services - KSA based parties | Acceptance of an electronic contract | Service provider will be responsible to apply VAT on its services as per applicable rules and regulations | Taxable customer will be entitled to deduct input VAT subject to fulfillment of prescribed conditions |
| Purchase of online content through a mobile app-store | Disclosed* vs undisclosed agency contract | Supplier or Principal will be responsible to apply VAT on sale as per applicable rules and regulations | Taxable customer or recipient will be entitled to deduct input VAT subject to fulfillment of prescribed conditions |
*Disclosed agent will be entitled to agency commission only as per agreement pursuant to issuance of a valid tax invoice
VAT registration obligation and input VAT deduction
The guide also provides general information on VAT registration obligation and input VAT deduction criteria as per KSA VAT law and its implementation regulations.
The Takeaway
We recommend that taxable persons, who are making supplies of goods and services pursuant to an electronic agreement or through an intermediate online interface/ portal, should assess whether their current VAT practices are aligned with the guidance provided by ZATCA, and whether these new guidance have any impact on their legacy VAT position. In addition, taxable persons are invited to correct their position, if required, by discharging their VAT obligations before the end of amnesty period i.e. 30 November 2022 to mitigate their exposure to penalties.
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Chadi Abou Chakra
Middle East Indirect Tax Network Leader, PwC Middle East
Tel: +966 11 211 0400 Ext: 1858
Guido Lubbers
ITX Partner | TLS Middle East Consumer Markets leader, PwC Middle East
Tel: +966 54 110 0432
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