Employment wages and secondment: what falls outside Economic Activity
Economic Activity does not include the activity practiced by workers and other persons to the extent that they are contractually connected with the employer or linked to any other link under which the work relationship is established, for the purposes of registration under the Law and the Implementing Regulations. That employment exclusion in Article 9(6) of the Regulations is extended, on stated conditions, to remuneration specified as benefits or wages for workers in employee secondment services contracts. Where those conditions are met, the wages or benefits remain outside Economic Activity in the same way as employment remuneration; the taxable commission under the secondment arrangement is identified separately in the contractual documents and is not swept into that exclusion.
Employment exclusion under Article 9(6)
Article 9(6) of the Implementing Regulations provides that Economic Activity does not include the activity practiced by workers and other persons to the extent that they are contractually connected with the employer or linked to any other link under which the work relationship is established for the purposes of registration in accordance with the Law and these Regulations.
The exclusion is limited to the extent of that contractual or other work relationship. It bears directly on registration because Article 2 of the Regulations defines a Taxable Person by reference to conducting an Economic Activity independently for generating income. Activity that Article 9(6) removes from Economic Activity does not, to that extent, support Taxable Person status for registration purposes.
Secondment wages and benefits under Article 9(7)
Article 9(7) of the Regulations provides that the provision contained in Paragraph (6) of this Article shall apply to the remuneration specified as benefits or wages for workers in employee secondment services contracts, provided that the following is achieved: (a) the work relationship between the seconded worker and the client must be achieved; (b) the customer must be a legal person, or a natural person in accordance with controls issued by a decision of the Governor; (c) the supplier must be a government entity, a licensed human resources company, or a person who has obtained a labor services loan permit from the competent authority; (d) the contract, agreement, or other contractual documents between the supplier and the customer must include a detailed explanation of the value of the worker’s wages or benefits, and the value of the taxable commission.
All four conditions must be achieved for Article 9(6) to apply to the secondment wages or benefits under Article 9(7). Condition (d) requires the contractual documents to identify both the worker’s wages or benefits and the value of the taxable commission. The structure of the paragraph therefore separates remuneration that remains outside Economic Activity from the taxable commission that the documents must state.
Wages outside Economic Activity; commission remains distinct
Reading Article 9(6) and (7) together, where the Article 9(7) conditions are met, the remuneration specified as benefits or wages for the seconded workers is treated under the employment exclusion in Article 9(6). The taxable commission is a separate amount that the contractual documents must detail. Article 9(7) does not state that the commission is outside Economic Activity or outside Tax; it requires that the commission’s value be explained in the documents alongside the wages or benefits.
What the legislation does not determine
Article 9(6) and (7) do not set the rate of Tax on the taxable commission, or the invoicing rules for secondment Supplies. They do not reproduce the Governor’s controls for natural-person customers under condition (b), beyond referring to controls issued by a decision of the Governor. They do not define “labor services loan permit” beyond that phrase in condition (c). They do not address Related Persons aggregation, government-body public-authority activities under Article 9(5), or mandatory registration thresholds. Those subjects remain governed by the provisions that address them.
Instruments relied on: Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation, Article 9(6) and (7) (these paragraphs were not amended by the text of ZATCA Board Resolution No. (01-06-24) relied on here); Implementing Regulations, Article 2, same edition; Common VAT Agreement, Article 1 (Taxable Person and Economic Activity), executed in Arabic on 27/2/1438H corresponding to 27/11/2016. The Arabic text prevails.