Zero-rated supplies to diplomatic missions by qualified suppliers under Article 36 bis (2)

Article 32 of the VAT Law provides that the Regulations shall determine the terms and conditions for granting foreign governments, international organisations, diplomatic, military and consular bodies and missions the right to request a refund of the Tax incurred on Goods and Services in the Kingdom, and the terms and conditions required for applying Tax at the zero rate on the Supply of Goods and Services to these bodies. The Law therefore contemplates two routes: a refund of tax incurred, and a zero rate on supplies to these bodies.

The zero-rate route is in Article 36 bis (2) of the Implementing Regulations, headed "Supply to Diplomatic Missions", which was added by Board Resolution No. (1-4-23) dated 26/11/1444H corresponding to 15/06/2023G.

The rule

Article 36 bis (2) provides that, taking into account the provisions of paragraph (2) of Article 70 of the Regulations, supplies to diplomatic missions from qualified suppliers shall be subject to zero-rate value added tax. The application mechanism, controls and conditions for considering suppliers qualified for the purposes of the Article are to be determined by a decision of the Governor.

Two conditions are therefore apparent on the face of the Article:

• the customer is a diplomatic mission; and
• the supplier is a qualified supplier, under the mechanism, controls and conditions set by decision of the Governor.

The Regulations do not themselves set out the conditions for a supplier to become qualified. A supplier that has not been considered qualified under the Governor's decision cannot rely on Article 36 bis (2), even where its customer is a diplomatic mission.

Article 70(2), as amended in 2025

Article 70 of the Regulations deals with the refund of Tax to designated persons. Its Clauses (1) to (13) were replaced by ZATCA Board Resolution No. (01-06-24), published in the Official Gazette on 18 April 2025, with effect from the date of publication. The current text, rather than the June 2023 edition, should therefore be applied.

Amended Article 70(1) provides that, without prejudice to the Agreement and the Law, the Minister of Finance may allow some categories to submit to ZATCA a request to be considered eligible for a refund of the tax imposed on their purchases of taxable goods or services in the Kingdom, which were incurred and paid upon receipt of the goods or services in the Kingdom. The Board of Directors or its authorized representative may issue the requirements that must be met by each category in order for the persons affiliated with it to be considered eligible for a refund.

Amended Article 70(2) lists the categories of designated persons, one or more of which may be identified as eligible for refund. The first category is foreign governments, international organizations, diplomatic, consular and military bodies and missions, and heads and members of the diplomatic and consular corps accredited by the Kingdom.

How the two routes fit together

Article 36 bis (2) expressly requires its zero rate to be applied taking Article 70(2) into account. Diplomatic missions are therefore within a category that may be made eligible for a refund of tax incurred on purchases in the Kingdom, while supplies made to them by qualified suppliers are zero-rated at the point of supply. The two mechanisms operate side by side within the framework that Article 32 of the Law contemplates.

The amended Article 70 also contains a rule that is specific to this category. Amended Article 70(10) provides that an eligible person may not request a refund of tax related to supplies of goods or services that are not allowed to be deducted under Article 50 of the Regulations, but this excludes refund requests submitted by foreign governments, international organizations, diplomatic, consular and military bodies and missions, and heads and members of the diplomatic and consular corps accredited to the Kingdom, provided that reciprocity is maintained or in application of concluded international agreements.

Practical points

• Suppliers serving diplomatic missions should confirm whether they have been considered qualified under the Governor's decision before applying the zero rate.
• Where a supplier is not qualified, Article 36 bis (2) does not apply, and the mission's recovery of tax incurred falls to be considered under the refund procedure in Article 70, as amended.
• A zero-rated supply remains a Taxable Supply as defined in the Agreement, for which associated Input Tax is deducted.

Instruments relied on: VAT Law, Articles 10 and 32; Common VAT Agreement, Article 1 (definition of Taxable Supplies); Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation, Article 36 bis (2) (not amended in 2025); Article 70(1), (2) and (10) as amended by ZATCA Board Resolution No. (01-06-24) dated 17/05/1446H, published in the Official Gazette (Umm Al-Qura, issue 5082) on 18 April 2025, unofficial English translation. The Arabic text prevails.

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