Supplies by a legal person to itself under Article 18 of the Implementing Regulations

A supply ordinarily requires a supplier and a separate recipient. Where goods or services move within one legal person, for example between departments, branches or establishments, there is in principle no second party. Article 18 of the Implementing Regulations sets out how the Kingdom treats such internal transactions, and how it treats transactions between members of a tax group. Article 18 was not amended by ZATCA Board Resolution No. (01-06-24).

The general rule in Article 18(1)

Article 18(1) provides that Goods and services provided by a legal Person to itself, with the exception of Nominal Supplies, are not within the scope of Tax, and are subject to Article 16 of the Regulations.

Two qualifications are built into that sentence. First, Nominal Supplies remain within scope: where the conditions for a deemed supply under Article 8 of the Common VAT Agreement and Article 15 of the Regulations are met, the fact that no other person is involved does not remove the charge. Second, the reference to Article 16 preserves the rule on the transfer of a Taxable Person’s own Goods from the Kingdom to another Member State, which Article 6 of the Agreement deems to be a Supply of Goods unless an exception is evidenced.

Supplies between tax group members: Article 18(2)

Article 18(2) provides that supplies of Goods or services from one member of a Tax Group to another member of the Tax Group are not within the scope of Tax. This follows from Article 4 of the VAT Law, under which the members of a Tax Group are treated as a single Taxable Person, and from new Article 11(7) of the Regulations, added by Resolution No. (01-06-24), under which any supply made by a member is considered a supply made by the tax group.

Article 12(7) of the Regulations, as amended by the same Resolution, allows the Authority to remove tax group status for supplies between members, cancel the group’s registration, or exclude a member where continuation of the group or member leads or may lead to tax benefits contrary to the purpose of the Law or the Regulations. Where such a notice is issued, the relief in Article 18(2) may no longer be available for the supplies concerned.

Internal services received from abroad: Article 18(3)

Article 18(3) contains an important exception to the general rule. Services are deemed to be Taxable Supplies by a Nonresident Supplier to a legal person established within the Kingdom where all of the following apply:

• the legal Person is established in the Kingdom and in another member country;
• the services are supplied by a Nonresident Supplier to the establishment of the legal Person outside the Kingdom, and are subsequently used by the establishment of the same legal Person in the Kingdom; and
• the services are not deemed to take place outside the Kingdom by reason of any of the Special Cases prescribed in the Agreement to determine the place of Supply.

The effect is that the Kingdom establishment is treated as receiving a supply from the Nonresident Supplier, even though the contract was concluded with, and the services were delivered to, the establishment of the same legal person outside the Kingdom. This should be read with Article 9 of the Agreement, under which a Taxable Person that receives taxable services from a person resident in another Member State, or from a person not resident in the GCC Territory, is deemed to have supplied those services to itself, and the Supply is taxable under the Reverse Charge Mechanism.

Applying the rule in practice

The conditions in Article 18(3) are cumulative. A group operating through establishments in the Kingdom and in another member country should map which external services are contracted by the foreign establishment but used by the Kingdom establishment, and should consider whether any of the Agreement’s Special Cases for place of supply, such as real estate related services or transportation, places the supply outside the Kingdom. Where the conditions are met, the Kingdom establishment should account for the deemed supply in the Kingdom.

Instruments relied on: Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation, Articles 15, 16 and 18 (Article 18 was not amended by the text of ZATCA Board Resolution No. (01-06-24) relied on here), and Articles 11(7) and 12(7) as added and amended by that Resolution dated 17/05/1446H, published in the Official Gazette (Umm Al-Qura, issue 5082) on 18 April 2025, unofficial English translation; VAT Law, Article 4; Common VAT Agreement, Articles 6, 8 and 9. The Arabic text prevails.

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