What is a taxable supply in the Kingdom under amended Article 14

Every VAT analysis begins with whether a transaction falls within the charge to Tax. Article 2 of the VAT Law imposes Tax on the import and supply of Goods and Services in accordance with the Common VAT Agreement, the Law and the Regulations. Article 2 of the Agreement identifies three taxable transactions: Taxable Supplies by a Taxable Person in the Member State; receipt by a Taxable Customer of Goods or Services supplied by a Non-Resident and non-Taxable Person where the Reverse Charge mechanism applies; and the importation of Goods by any Person.

Article 14 of the Implementing Regulations applies that framework in the Kingdom. ZATCA Board Resolution No. (01-06-24), published in the Official Gazette on 18 April 2025, amended Paragraph (1) of Article 14 and added a new Paragraph (2).

The charge to Tax in amended Article 14(1)

Amended Article 14(1) provides that, without prejudice to Article 2 of the Law, and for the purposes of applying the Agreement and the Law in the Kingdom, tax is imposed on:

• all taxable supplies of goods or services, or both, made by any taxable person in the Kingdom in conducting business activity;
• taxable supplies received by any taxable person in the Kingdom in conducting business activity in cases where the reverse charge mechanism is applied; and
• the import of goods into the Kingdom.

Each limb has its own conditions. For supplies made, the supplier must be a taxable person, the supply must be made in the Kingdom, and it must be made in conducting business activity. For supplies received, the recipient must be a taxable person in the Kingdom acting in conducting business activity, and the reverse charge mechanism must apply. Imports of goods are charged without reference to whether the importer is a taxable person, consistent with Article 2(3) of the Agreement.

Key defined terms

The Agreement defines a Taxable Person as a Person conducting an Economic Activity independently for the purpose of generating income, who is registered or obligated to register for VAT. It defines an Economic Activity as an activity conducted in an ongoing and regular manner, including commercial, industrial, agricultural or professional activities or Services, or any use of material or immaterial property and any other similar activity.

Taxable Supplies are defined in the Agreement as supplies on which Tax is charged, whether at the standard rate or the zero rate, and for which associated Input Tax is deducted. Exempt supplies fall outside that definition. A transaction may therefore be a supply within the scope of Tax and still not be a Taxable Supply because it is exempt.

Goods and services: the residual rule

Article 5 of the Agreement defines a Supply of Goods as the transfer of ownership of Goods or the right to dispose of them as an owner, and includes specified transactions. Article 7 of the Agreement provides that any Supply that does not constitute a Supply of Goods is considered a Supply of Services.

The new list of supplies of services in Article 14(2)

New Article 14(2) provides that, for the purposes of applying the Agreement and the Law, any supply transaction that does not constitute a supply of goods is considered a supply of services, including but not limited to:

• granting, waiving, assigning, allocating, suspending or abandoning a right;
• providing a facility or advantage;
• an undertaking to refrain from doing or permitting a certain act;
• agreeing to waive the right to participate in any activity, not allowing it to take place, or agreeing to carry out any activity;
• assigning or transferring an indivisible interest in a commodity; and
• allowing the exploitation, transfer or assignment of intangible rights, such as the rights of authors, inventors and artists, trademark rights, and rights within that category under the laws in force in the Kingdom.

The list is expressly non-exhaustive. Its practical effect is to confirm that arrangements which do not involve the delivery of anything physical, such as restrictive covenants, waivers, exclusivity undertakings and licences of intellectual property, are supplies of services for VAT purposes. Whether Tax is then due depends on the remaining conditions: the place of supply, the status of the supplier and recipient, the presence of Consideration or a deemed supply, and whether an exemption or the zero rate applies.

Points to apply in practice

Contractual terms that grant, waive or restrict rights should be reviewed in the same way as conventional service contracts. Where a payment is received for agreeing not to act, or for releasing a right, amended Article 14(2) indicates that it is consideration for a supply of services rather than a transaction outside the scope of Tax by reason of its form alone.

Instruments relied on: Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation, Article 14, as amended (Paragraph (1)) and supplemented (new Paragraph (2)) 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 2; Common VAT Agreement, Articles 1, 2, 5 and 7. The Arabic text prevails.

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