Exclusively zero-rated supplies and exclusion from mandatory VAT registration
A Person who at any time has annual Supplies made in the Kingdom whose value exceeds the Mandatory Registration Threshold which are exclusively zero-rated Supplies is excluded from the requirement to register. A Person who falls under that rule may elect to apply to register voluntarily. The Agreement likewise provides that a Taxable Person who makes only zero-rated supplies may request to be excluded from Mandatory Registration. The Mandatory Registration Threshold stated in the Agreement is SAR 375,000.
The exclusion in Article 9(1)
Article 9(1) of the Implementing Regulations provides that a Person who at any time has annual Supplies made in the Kingdom whose value exceeds the Mandatory Registration Threshold which are exclusively zero-rated Supplies, is excluded from the requirement to register. A Person who falls under this Paragraph may elect to apply to register voluntarily.
Two conditions are built into the exclusion: the value of annual Supplies made in the Kingdom exceeds the Mandatory Registration Threshold, and those Supplies are exclusively zero-rated Supplies. Where both are met, the Person is excluded from the requirement to register. The same paragraph preserves an election to apply to register voluntarily.
The Agreement counterpart
Article 50(4) of the Common VAT Agreement provides that a Taxable Person who makes only zero-rated supplies may request to be excluded from the Mandatory Registration requirement for Tax purposes in accordance with the conditions and provisions determined by each Member State. Article 9(1) of the Regulations is the Kingdom’s implementing rule for that exclusion and election.
Article 50(2) of the Agreement states that the Mandatory Registration Threshold shall be SAR 375,000, or its equivalent in the GCC State currencies. Article 9(1) uses the term Mandatory Registration Threshold as detailed for registration purposes under the Agreement and the Regulations.
Relationship to mandatory and voluntary registration
Articles 3 and 4 of the Regulations ordinarily require a Resident Person to apply for registration where historic or expected annual Supplies exceed the Mandatory Registration Threshold. Article 9(1) removes the requirement to register where the annual Supplies that exceed that threshold are exclusively zero-rated. The Person may still elect to apply to register voluntarily under the closing sentence of Article 9(1). Separate voluntary registration under Article 7 remains available on its own terms for a Resident Person who is not required to register.
What the legislation does not determine
Article 9(1) and Article 50(4) do not list which Supplies are zero-rated; those categories are set out elsewhere in the Law, the Regulations, and the Agreement. They do not state whether a mixed portfolio of zero-rated and standard-rated or exempt Supplies can ever fall within the exclusion. They do not prescribe the form of the voluntary election under Article 9(1), or the consequences for Input Tax recovery of remaining unregistered. Nonresident registration under Article 5, and Related Persons aggregation under Article 9(2), are outside the exclusively zero-rated rule stated here.
Instruments relied on: Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation, Article 9(1) (this paragraph was not amended by the text of ZATCA Board Resolution No. (01-06-24) relied on here); Common VAT Agreement, Article 50(2) and (4), executed in Arabic on 27/2/1438H corresponding to 27/11/2016. The Arabic text prevails.