Which place-of-supply rule prevails: the priority of the Special Cases under Article 22

Whether VAT is due in the Kingdom on a supply of services depends first on where that supply is made. The VAT Law does not set out the place-of-supply rules itself. Article 13 of the Law provides that the Regulations shall determine the terms and conditions required for determining the place of Supply of Goods and Services according to the provisions of the Common VAT Agreement. The Agreement therefore supplies the rules, and the Implementing Regulations explain how they apply in the Kingdom. Article 22 of the Regulations resolves a practical question that arises whenever more than one of those rules appears to fit the same transaction.

The general principles in Articles 15 and 16 of the Agreement

The Agreement contains two general principles for services. Under Article 15, the place of supply for Services provided by a Taxable Supplier shall be the Place of Residence of the Supplier. Under Article 16, as an exception to Article 15, the place of supply for Services provided by a Taxable Supplier to a Taxable Customer shall be the Place of Residence of the Customer.

The status of the parties therefore matters. Article 21(1) of the Regulations provides that a Supplier or Customer is considered taxable where that Person is registered for VAT in the Member State where it has a Place of Residence on the date the Supply takes place, and that a Customer who is a Taxable Person in the Kingdom by reason of being required to be registered is also a Taxable Customer. Under Article 21(2) and (3), a Supplier making a Supply to a Taxable Customer in another Member State must obtain that Customer's Tax Identification Number valid at the date of supply; until it does, it must determine the place of supply on the basis that the Customer is not a Taxable Customer. Where a Person is established in more than one Member State, Article 21(4) treats the relevant state as the one most closely connected with that Supply.

The Special Cases in Articles 17 to 21 of the Agreement

Section Two of Part Two of Chapter Three of the Agreement sets out Special Cases that displace the general principles for particular categories of service:

• Article 17: leasing means of transport by a Taxable Supplier to a Non-Taxable Customer, which is supplied where the means of transport were placed at the Customer's disposal;
• Article 18: transportation of Goods and passengers and related Services, which is supplied where transportation begins;
• Article 19: Real Estate Related Services, which are supplied where the real estate is located;
• Article 20: wired and wireless telecommunication Services and electronically supplied Services, which are supplied at the place of actual use of or enjoyment from those Services; and
• Article 21: restaurant, hotel and catering services, cultural, artistic, sport, educational and recreational Services, and services linked to transported Goods supplied from a taxable Supplier residing in a Member State to a non-taxable Customer residing in another Member State, which are supplied at the place of actual performance.

The rule of priority in Article 22

Article 22 of the Regulations provides that in cases where the place of Supply of services is determined in accordance with any of the Special Cases in the Agreement, these provisions will take precedence over the General Principles in Articles fifteen and sixteen of the Agreement determining the place of Supply.

The consequence is a fixed order of analysis. A supplier should first ask whether the service falls within one of the Special Cases. If it does, the Special Case determines the place of supply, and the residence of the supplier or of the customer under Articles 15 and 16 is not the deciding factor. Only where no Special Case applies should the supplier turn to Article 15 or Article 16, which in turn requires the taxable status of each party to be established under Article 21 of the Regulations.

Why the order matters in practice

A Saudi supplier providing construction services on a building located in the Kingdom to a customer resident in another Member State cannot rely on Article 16 to place the supply in the customer's state. The service is a Real Estate Related Service, and Article 19 of the Agreement, read with Article 23 of the Regulations, locates it where the real estate is situated. The same discipline applies to telecommunications, transport and event services.

The Special Cases also interact with the zero-rating provisions. Article 34(1)(d) of the Agreement excludes from the export-of-services zero rate the cases provided for in Articles 17 to 21 that determine the place of supply as being in a Member State. Businesses should therefore classify each service against the Special Cases before reaching any conclusion on residence, registration or rate.

Instruments relied on: VAT Law, Article 13; Common VAT Agreement, Articles 15 to 21 and 34(1)(d); Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation, Articles 21 and 22 (neither was 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). The Arabic text prevails.

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