Nominal (deemed) supplies under amended Article 15 and how their value is measured

VAT is ordinarily charged on supplies made for Consideration. The Common VAT Agreement extends the charge to “Deemed Supplies”, being anything considered a Supply under Article 8 of the Agreement. Article 6 of the VAT Law leaves the terms and conditions for implementing the provisions on Nominal Supplies to the Implementing Regulations, and Article 15 of the Regulations sets them out. ZATCA Board Resolution No. (01-06-24), published in the Official Gazette on 18 April 2025, amended Paragraphs (1), (7), (8) and (9) of Article 15. The amended text uses the expression “deemed supply”.

The cases in the Agreement

Article 8(1) of the Agreement deems a Taxable Person to have made a Supply of Goods when disposing of Goods forming part of its assets in the following cases: disposal for purposes other than Economic Activity, with or without Consideration; changing the use of Goods to use for non-taxable Supplies; retaining Goods after ceasing to carry on an Economic Activity; and supplying Goods without Consideration, unless the Supply is in the course of business, such as samples and gifts of trivial value as determined by each Member State. Article 8(2) deems a Supply of Services where the Taxable Person uses Goods forming part of its assets for purposes other than an Economic Activity, or supplies Services without Consideration. Under Article 8(3), these provisions apply if the Taxable Person has already deducted Input Tax on the Goods and Services concerned.

The general rule in amended Article 15(1)

Amended Article 15(1) provides that, unless otherwise provided in Article 15, a taxable person is deemed to have made a supply transaction of goods or services in the cases of deemed supply provided for in the Agreement, the Law and the Regulations. The remainder of Article 15 then identifies the cases that are not deemed supplies.

Gifts, samples and staff benefits: fair market value limits

Paragraphs (2) to (6) of Article 15 were not amended by the Resolution. They use Fair Market Value to measure whether relief applies:

• a supply of Goods without Consideration is not a deemed supply where the Taxable Person supplies gifts or samples to promote its Economic Activity, provided the Fair Market Value of each gift or sample does not exceed SAR 200 exclusive of VAT per recipient per calendar year (Article 15(2)(a));
• the same applies to Goods provided to employees as part of carrying on the Economic Activity, subject to the same SAR 200 limit per recipient per calendar year (Article 15(2)(b));
• the maximum annual value of such gifts, samples and Goods supplied without Consideration while remaining eligible for the relief is SAR 50,000 in any calendar year, based on Fair Market Value (Article 15(3));
• services supplied without Consideration to promote the Economic Activity, or to employees as part of carrying on the Economic Activity, are not deemed supplies provided the Fair Market Value of each supply does not exceed SAR 200 per person per calendar year (Article 15(5)), subject to an annual maximum of SAR 50,000 based on Fair Market Value (Article 15(6)).

Article 15(4) also provides that Goods not used for the Economic Activity because of their destruction, theft or loss do not give rise to a deemed supply.

Goods retained on cessation or ineligibility

Under the previous text, Article 15(7) provided that the Nominal Supply on ceasing an Economic Activity took place on the date of deregistration and was based on the Fair Market Value of the Goods retained. Amended Article 15(7) provides that a taxable person is deemed to have made a supply of goods when retaining the goods after ceasing to conduct business activity, or when it is deemed ineligible for registration in accordance with the Law and the Regulations. The timing of that deemed supply is addressed in Article 20(6), under which it takes place, and the tax is due, on the date of deregistration.

Partial deduction: amended Article 15(8)

Amended Article 15(8) provides that if a taxable person incurs VAT on direct costs related to the importation, purchase, production or supply of goods or services associated with the deemed supply, and deducts or refunds part of that tax, the value of the deemed supply is adjusted to reflect the proportionate value of the tax deducted or refunded. The value is therefore scaled to the share of input tax actually recovered.

No deduction, no deemed supply: amended Article 15(9)

Amended Article 15(9) provides that a supply without Consideration is not a deemed supply if the taxable person previously incurred input tax on the direct costs related to the purchase, production or supply of those goods or services, has not deducted that tax in its tax returns or refunded it, and has maintained documents indicating that it has not deducted or recovered it. The amended text adds the documentary condition, consistent with Article 8(3) of the Agreement.

Where the value is determined

Article 15 measures relief by Fair Market Value and adjusts the value of a deemed supply under Paragraph (8). The general rule for the value of a nominal supply is set out separately in Article 39 of the Regulations, which should be applied together with Article 15.

Instruments relied on: Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation, Articles 15, 20(6) and 39, with Article 15(1), (7), (8) and (9) 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; VAT Law, Article 6; Common VAT Agreement, Articles 1 and 8. The Arabic text prevails.

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