Who may be in a VAT tax group under amended Article 10 of the Implementing Regulations
Group registration allows two or more legal persons to be treated as a single Taxable Person for VAT purposes. Article 4 of the Common VAT Agreement permits each Member State to treat a VAT Group as a single Taxable Person in accordance with the rules and conditions it puts in place, and describes a VAT Group as two or more Corporate Persons who are Residents of the same Member State. Article 4 of the VAT Law leaves the terms and conditions for registering, amending or cancelling a Tax Group to the Implementing Regulations, and provides that the members of a Tax Group are treated as a single Taxable Person and are jointly and severally liable for the Tax obligations of the group arising during their membership.
The Kingdom’s eligibility conditions are set out in Article 10 of the Implementing Regulations. ZATCA Board Resolution No. (01-06-24), published in the Official Gazette on 18 April 2025, replaced the previous conditions with a materially different text. This article addresses the amended text.
The four cumulative conditions in amended Article 10(1)
Under Article 10(1) as amended, two or more legal persons may apply for registration as a tax group for VAT purposes in the Kingdom if all of the following requirements are met:
- each of them is a resident of the Kingdom and has the right to register as a taxable person in accordance with the Regulations;
- fifty percent (50%) or more of the capital, voting rights, or market value of each legal person in the group is owned, directly or indirectly, by the same legal person or by the same legal persons, or one of the legal persons in or outside the group has the power to control and dominate the other persons in the tax group;
- none of the members of the group is licensed to operate in any special zone enjoying tariff suspension status in accordance with the statutory provisions of such zones, or is a member of another tax group;
- neither the applicant nor any member of the group is a person eligible for a refund under Article 70 of the Regulations, subject to two exceptions discussed below.
The conditions are cumulative. Failure of any one of them, by any one member, means the persons concerned do not meet Article 10(1).
Residence and the right to register
Membership remains confined to legal persons resident in the Kingdom, consistent with Article 4 of the Agreement. The Agreement treats a Person as resident in a State if he has a Place of Residence there, being the location of the Place of Business or any Fixed Establishment.
The previous text of Article 10(1) required each legal person to carry out an Economic Activity and required at least one of the legal persons to be a Taxable Person. The amended text does not restate those two elements. Instead, it requires that each member be resident and have the right to register as a taxable person under the Regulations. Each prospective member should therefore be assessed against the registration rules in its own right.
The ownership or control test
The previous wording referred to fifty percent or more of the capital of each legal person, or ownership or control of fifty percent or more of the voting rights or value, held by the same Person or group of Persons. The amended wording refers to fifty percent or more of the capital, voting rights, or market value of each legal person being owned, directly or indirectly, by the same legal person or the same legal persons.
The amended paragraph also adds an alternative limb: one of the legal persons, whether inside or outside the group, has the power to control and dominate the other persons in the tax group. The Regulations do not define “control and dominate” within Article 10. Groups relying on that limb, rather than on the fifty percent ownership measure, should retain evidence of how that power is exercised.
Special zone licensees and membership of another group
The amended text excludes any member licensed to operate in a special zone enjoying tariff suspension status under the relevant statutory provisions of those zones. It also confirms that a legal person cannot be a member of more than one tax group. Neither exclusion appeared in the previous text of Article 10.
Persons eligible for a refund under Article 70
Article 70 of the Regulations allows the Minister of Finance to permit certain categories of persons to apply to be treated as persons eligible for a tax refund, and Article 70(14) addresses a licensed real estate developer applying to register as a designated Person eligible for a refund. Under amended Article 10(1), neither the applicant nor any member may be a person eligible for a refund under Article 70, except for:
- a person considered eligible for a refund as a licensed real estate developer whose licensed real estate activity is limited to making real estate supplies by way of sale and transfer of ownership, which the unofficial translation renders as “exclusively to his employees”; and
- a person deemed eligible for a refund as a donor in public benefit projects.
Given that the translation is unofficial, a person seeking to rely on the first exception should confirm its scope against the Arabic text.
The conditions must be met throughout registration
Article 10(2), as amended, provides that all requirements in Article 10(1) must remain fulfilled by all members of the group throughout the period of the group’s tax registration as a taxable person. Eligibility is therefore a continuing condition rather than a test applied only on application. Where a member ceases to be eligible, Article 12(1) of the Regulations requires the representative to notify the Authority within twenty (20) days of the change.
Transitional grace period for existing groups
Clause II of Resolution No. (01-06-24) grants the representative member of any tax group registered with the Authority before the issuance of the Resolution a grace period not exceeding 180 days from the date of publication, in order to regularize the status of the tax group in accordance with the amendments to Article 10. Groups registered under the previous text should therefore have reviewed each member against the amended conditions.
Instruments relied on: Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation, Articles 10, 12(1) and 70, with Article 10 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, including Clause II of that Resolution; VAT Law, Article 4; Common VAT Agreement, Articles 1 and 4. The Arabic text prevails.