• What is a supply?
• What is place of supply?
• Determining the place of supply
  • Place of supply for goods
  • Place of supply for services
• Businesses registered in multiple countries

What is a supply?

A supply refers to an exchange in which goods or services are traded for money or some other consideration. A supply is said to have taken place any time there is a transaction between two parties, of which at least one is a registered taxpayer. This includes buying goods in order to sell them, outsourcing a service, and importing and exporting goods. Purchases, sales, and stock transfers are considered supplies even if there is no exchange of money. 

It’s important for business owners to know about the various components of supply to claim their input VAT correctly and file their tax returns without errors.

What is place of supply?

The place of supply for a transaction is the location where the final consumption of the goods or services occurs. It’s not necessarily the same place where the goods were manufactured. 

Business owners should determine the place of supply for their transactions in order to distinguish between domestic, intra-GCC, and non-GCC business transactions. Once the place of supply is established, the business owner can determine whether a transaction is taxable and then choose the appropriate tax rate.

Determining the place of supply

The place of supply is determined differently for goods and services, as well as for domestic and international supplies. 

Place of supply for goods

The place of supply for goods is affected by whether the goods are moving across borders, and if so, which party is providing the transportation. When a supplier sells goods to a different country without providing transportation, the place of supply is the country of origin. When a supplier transports goods to the buyer’s country, the place of supply is the destination country. 

• Domestic supply

When goods are transported within Saudi Arabia, the place of supply is Saudi Arabia.

Example: If a manufacturer located in Jeddah sells their goods to a retailer in Riyadh, then the place of supply is Saudi Arabia and the transaction is taxable. 

• Intra-GCC supply

When goods are sold and transported from Saudi Arabia to another GCC state, the place of supply is the member state of the final destination. If the supplier is not transporting the goods, however, the place of supply is the member state in which the goods originated. 

Example: If goods are shipped from Saudi Arabia to Bahrain, then the place of supply is Bahrain, and the invoice issued will display 0% VAT (out-of-scope tax). This transaction is considered out of the scope of KSA VAT and it is taxable under the reverse charge mechanism.

However, if the recipient chooses to pick up the goods from Saudi Arabia and transport them to Bahrain on their own, then the place of supply is Saudi Arabia. 

• Export to non-GCC states

When goods are delivered to non-GCC states, the place of supply is the member state from which the goods are dispatched. So if goods are sold and transported from Saudi Arabia to the UK, the place of supply is Saudi Arabia.

• Importing goods from non-GCC states

When goods are imported into Saudi Arabia from non-GCC states, the place of supply is Saudi Arabia, and the transaction is taxable under the reverse charge mechanism.

• Goods supplied after import

If a KSA-based supplier is selling goods to a KSA-based customer but needs to first import those goods from outside the Kingdom, that sale is treated as two transactions: the import transaction and the domestic supply transaction. The place of supply for the import transaction is determined according to the import rules above. The place of supply for the domestic transaction is KSA.

Transportation of goods by the supplier

Transportation plays a major role in determining the place of supply for goods:

• When goods are supplied without transportation, the place of supply is the country of origin.
• When goods are transported by the supplier, the place of supply is the destination country.    Example: If goods are shipped from Saudi Arabia to Bahrain, then the place of supply is Bahrain, and the invoice issued would display 0% VAT (out-of-scope tax). This transaction is considered out of the scope of KSA VAT and it is taxable under the reverse charge mechanism. However, if the recipient chooses to pick up the goods from Saudi Arabia by themselves and transport them to Bahrain, then the place of supply is Saudi Arabia. 

Place of supply for services

The place of supply for services is normally where the taxable supplier has their place of residence.

Exceptions to the basic rules

There are some special situations that override the basic rules for determining the place of supply.

• Real estate services: If a business registered in Saudi Arabia provides real estate services outside the kingdom, the place of supply is the country where the services are received.

• Wired and wireless telecommunications and electronic services: The place of supply is the customer’s location, unless they are paying to use the service at a specific location such as an internet cafe or a hotel. 

• Services related to passenger and goods transportation: The place of supply is the country where the service takes place.

• Cultural, artistic, sport, education, and entertainment services: The place of the supply for these services is the location where the service is performed.   

• Services supplied to recipients in other GCC states: The place of supply for services provided to recipients in other GCC states is the location where the services are received.  

• Services provided by KSA non-residents: The place of supply for services supplied by non-residents to registered businesses in Saudi Arabia will be Saudi Arabia.

Businesses registered in multiple countries

Some customers might be registered for VAT in more than one GCC country. In these cases, the VAT paid or collected on each transaction should be reported to the country most closely associated with the transaction.

For example, consider a KSA-based manufacturer that has factories in both KSA and the UAE. If the manufacturer fulfils a purchase order for a European customer from its factory in the UAE, the sale should be noted on its UAE VAT return. The orders it fulfils from its KSA factory should be noted on its KSA return.