International transport of goods, and the absence of a customer-residence test in Article 34

The international transport of goods is zero-rated under Article 34(1) of the Implementing Regulations where the supply is international transport as defined in Article 34(7). That definition turns on the means of transport and on a carriage to a place outside the Kingdom or from a place outside the Kingdom into the Kingdom. Article 34(1) and Article 34(7) do not state a customer-residence test. They do not provide that residence of the customer in the Kingdom grants the zero-rate, and they do not provide that it denies the zero-rate. It does not follow that every supply of transport to a customer resident in the Kingdom is zero-rated.

Two zero-rates that must be kept apart

One zero-rate applies to international transport. The other applies to a supply of services to a customer who does not have a Place of Residence in any Member State. The instruments relied on do not make the second a condition of the first.

Article 34(1) of the Regulations states that the international transport of Goods is zero-rated in accordance with these Regulations. Article 34(7) defines international transport, for the purposes of that Article, as the provision of a transportation service by means of a vehicle, aircraft or vessel, together with a driver or pilot and with a crew where necessary for the purpose of that service, provided that the transportation service involves transport of Goods or passengers either to a place outside the Kingdom, or from a place outside the Kingdom into the Kingdom.

Neither Article 34(1) nor Article 34(7) conditions that zero-rate on the customer’s Place of Residence, on the customer being a Non-Resident, or on the customer not being resident in the Kingdom. The paragraphs do not refer to Article 33. On the text, residence of the customer in the Kingdom is not a test which Article 34 imposes, and it is not a test which Article 34 disapplies in express words. The article is silent on customer residence.

The separate rule in Article 33

The separate zero-rate is Article 33(1). Except as stated in the second paragraph of that Article, a supply of services made by a Taxable Person to a customer without a Place of Residence in any Member State shall be zero-rated. The Agreement’s definition of Place of Residence, and of a Resident Person as a person who has a place of residence in a State, is the definitional background to that condition. Article 33(2), including as amended by ZATCA Board Resolution No. (01-06-24), then sets out cases in which the first paragraph does not apply. Nothing in Article 34 incorporates those cases into the international transport of Goods.

Silence on residence is not a zero-rate for every domestic customer

It does not follow, from the absence of a residence test, that every transport supplied to a customer resident in the Kingdom is zero-rated. Article 34(1) applies where the supply is international transport as defined in Article 34(7). That definition requires a vehicle, aircraft or vessel, with a driver or pilot and with a crew where necessary, and a transportation service that involves transport of Goods or passengers to a place outside the Kingdom, or from a place outside the Kingdom into the Kingdom. A supply which does not meet that definition is not brought within Article 34(1). The text does not further state how the route words apply where neither end of the carriage is the Kingdom.

The Agreement’s transport zero-rate, and where transport begins

Article 32 of the Agreement is the common-framework provision. It subjects to Tax at the zero-rate, first, Goods and passenger transport from one Member State to another and the supply of transport-related Services, and, second, international Goods and passenger transport from and to the GCC Territory and the supply of transport-related Services. That Article likewise states no customer-residence condition. It is not identical in wording to Article 34(7) of the Regulations. The instruments relied on do not contain a reconciliation of the two formulations.

A further provision sits beside the zero-rate and is not a residence test. Article 18 of the Agreement provides that, as an exception to Article 15, the place of supply of Services for the transportation of Goods and passengers and related Services shall be the place where transportation begins. The texts do not apply Article 18 as a condition of Article 34, and they do not state the consequence where transportation begins outside the Kingdom. Place of supply and the zero-rate are stated in different instruments and are not worked together in the texts relied on.

What the legislation does not determine

The instruments relied on do not contain any ZATCA ruling, guide or administrative practice on a customer resident in the Kingdom, and they do not determine whether a particular contract, bill of lading or routing meets Article 34(7). Passenger transport under Article 34(2) and (3) is not set out here, except so far as the definition in Article 34(7) also covers passengers. The zero-rate for a qualifying means of transport, and for ancillary services, which are separate paragraphs of Article 34, is not the rule in Article 34(1). Any interaction between Article 18 of the Agreement and Article 34 of the Regulations, beyond the observation that the texts do not reconcile them, is not determined.

Instruments relied on: Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation (Articles 33(1) and 34 were not amended by the text of ZATCA Board Resolution No. (01-06-24) relied on here; Article 33(2) and (3) were, and are cited only to identify the separate rule); Common VAT Agreement, Articles 1, 18 and 32, executed in Arabic. The Arabic text prevails.

← All VAT & tax articles