When storage, packing and loading are zero-rated as services relating to transport

Storage, packing and loading are not given a free-standing zero-rate. They appear in a defined list of services relating to transport. Article 34(5) of the Implementing Regulations zero-rates services on that list only where the service is ancillary to and provided with a supply of zero-rated international transport, or where it is provided in respect of a qualifying means of transport at an airport or port.

The list in Article 25 is not itself the zero-rate

Article 25(2) of the Regulations provides that the supply of services relating to Goods or passenger transportation includes, among other items, loading, unloading or reloading; packing necessary for transportation; and storage services. The same paragraph also includes port fees, customs or immigration clearance charges relating to the transportation, air navigation, pilotage, supplies of crew members, stowing, opening for inspection, cargo security, and preparing or amending bills of lading, air or sea-waybills and certificates of shipment. The zero-rate under discussion is not conferred by Article 25. Article 25 is a place-of-supply provision which defines the expression used later in Article 34.

The two limbs of Article 34(5)

Article 34(5) provides that any services relating to Goods or passenger transportation, as defined in Article 25, are zero-rated provided they are either ancillary to and provided with a supply of zero-rated international transport, or provided in respect of a qualifying means of transport at an airport or port.

The paragraph uses “either”. It does not require a service to satisfy both limbs. The first limb contains two requirements of its own: the service must be ancillary to a supply of zero-rated international transport, and it must be provided with that supply. The Regulations do not define “ancillary” or “provided with”. The second limb is expressed by reference to a qualifying means of transport and to the place of provision, an airport or port. It does not repeat the words “ancillary to and provided with a supply of zero-rated international transport”.

The transport to which the service must relate

International transport, for Article 34, has the meaning in Article 34(7): a transportation service by means of a vehicle, aircraft or vessel, together with a driver or pilot and with a crew where necessary, involving transport of Goods or passengers to a place outside the Kingdom or from a place outside the Kingdom into the Kingdom. Article 34(1) zero-rates the international transport of Goods. A service of storage, packing or loading follows the zero-rate under Article 34(5)(a) only where it is ancillary to, and provided with, a supply that is itself that zero-rated international transport. The text does not zero-rate storage, packing or loading merely because the goods will at some other time be exported, or because the service is of a kind listed in Article 25(2).

Article 34(3) is a different rule. It zero-rates services which are directly connected and incidental to a supply of international passenger transport, and it lists luggage, vehicles and trailers of passengers, airport passenger charges and passenger load supplements, seat reservations, and sleeping berths and cabin charges. Storage, packing necessary for transportation, and loading, unloading or reloading are not in that list. They are not brought within Article 34(3) by the text.

The Agreement, and the second limb

Article 32 of the Agreement zero-rates specified transport transactions “and the supply of transport-related Services”. It does not enumerate storage, packing or loading, and it does not reproduce the conditions in Article 34(5). The operative conditions in the Regulations are those in Article 34(5), read with the list in Article 25(2).

“Qualifying means of transport” in the second limb is the term defined in Article 34(8), including the main-purpose test elaborated in Article 34(10). That definition is not restated here. The second limb applies the zero-rate to an Article 25(2) service provided in respect of such a means of transport at an airport or port. The text does not say that the airport or port must be in the Kingdom, and it does not say the contrary.

What the legislation does not determine

The Regulations state no quantitative or temporal test for when storage, packing or loading is “ancillary to” and “provided with” the transport, and they do not state an apportionment where a single charge covers a zero-rated service and another supply. A service supplied at a location other than an airport or port cannot fall within the second limb, on the words of that limb; the text does not create a wider place of provision. Domestic transport that is not international transport as defined in Article 34(7) is not brought within Article 34(5)(a). The maintenance and repair rule in Article 34(6) is a separate zero-rate and requires its own certificate.

Instruments relied on: Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation (Articles 25 and 34 were not amended by the text of ZATCA Board Resolution No. (01-06-24) relied on here); Common VAT Agreement, Article 32, executed in Arabic. The Arabic text prevails.

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