The value of a nominal supply under amended Article 39

A nominal supply, also called a deemed supply, is a transaction that the Common VAT Agreement and the Regulations treat as a Supply even though it may be made without Consideration. Once a transaction is treated in this way, a value must be attached to it. Article 26(4) of the Agreement provides that, in the case of a Deemed Supply, the value of the Supply shall be the purchase value or cost and, if the purchase value or cost cannot be determined, the fair market value shall apply.

In the Kingdom, the value rule is set out in Article 39 of the Implementing Regulations. Its title and both of its Paragraphs were replaced by ZATCA Board Resolution No. (01-06-24), published in the Official Gazette on 18 April 2025 and effective from the date of publication. The Article is now headed "Value of Specific Taxable Supplies". The question of which transactions are nominal supplies is governed by Article 15 of the Regulations and is addressed in a separate article.

The value of a nominal supply

Amended Article 39(1) provides that the value of the Nominal Supplies that are treated as supplies in accordance with the provisions of the Agreement, the Law and the Regulations shall be the purchase value or the cost. In cases where it is not possible to determine the purchase value or the cost, the value of those supplies shall be their fair market value on the date of the nominal supply, in accordance with the rules for determining fair market value in Article 38 of the Regulations.

The rule therefore has two steps:

• the primary measure is purchase value or cost; and
• only if purchase value or cost cannot be determined does fair market value apply, measured on the date of the nominal supply and by the methods in Article 38.

What the amendment changed

The June 2023 text of Article 39(1) described specific situations, namely supplies made without Consideration, use for a purpose other than Taxable Economic Activity, and a change of use to make non-taxable supplies. It also applied Fair Market Value to the supply of a capital asset used in the Economic Activity. The former Article 39(2) valued a nominal supply on the ceasing of an Economic Activity at the Fair Market Value of Goods retained on the date of deregistration, other than Goods on which Input Tax was not deducted.

The amended Paragraph (1) applies one rule to all Nominal Supplies treated as supplies under the Agreement, the Law and the Regulations, and links the fallback expressly to the date of the nominal supply and to Article 38. It does not repeat the separate references to capital assets or to goods retained on deregistration. The general rule in amended Paragraph (1), read with Article 26(4) of the Agreement, is therefore the starting point for valuing every nominal supply.

Government payments that are consideration

Amended Article 39(2) addresses a different question. It provides that amounts paid by a government authority to a supplier shall not be considered a subsidy if those amounts, or part thereof, are a consideration for the supply of goods or services to the government authority.

This is relevant because Article 26(6)(b) of the Agreement provides that the value of the Supply is reduced by the value of subsidies granted by the Member State to the Supplier. Amended Article 39(2) makes clear that where a government authority's payment is, in whole or in part, consideration for goods or services supplied to that authority, it is not treated as a subsidy to that extent. Suppliers receiving government funding should therefore analyse whether the payment is made in return for a supply to the government authority before treating it as a subsidy.

Instruments relied on: Common VAT Agreement, Articles 8 and 26(4) and (6); Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation, Articles 15 and 38, with Article 39 (title and Paragraphs (1) and (2)) 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. The Arabic text prevails.

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