Saudi Arabia Introduces Comprehensive Amendments to VAT Implementing Regulations

Saudi Arabia has overhauled VAT regulations, tightening compliance and redefining tax treatment across sectors, especially for digital platforms and cross-border services. Businesses must reassess VAT exposure, documentation, and contractual terms to align with the updated rules.

On April 18, 2025, Saudi Arabia’s Zakat, Tax and Customs Authority (ZATCA) enacted sweeping amendments to the Value-Added Tax (VAT) Implementing Regulations, introducing new compliance requirements, clarifying ambiguous areas of the law, and refining tax treatment for a range of transactions and sectors. The changes follow a period of public consultation and are aimed at enhancing tax governance amid the Kingdom’s broader economic reforms under Vision 2030.

The updated provisions, which affect more than 25 articles, address VAT grouping eligibility, nominal supplies, government grants, online platforms, and procedures for correcting errors, among others. Businesses operating in or with Saudi Arabia are advised to assess their VAT exposure and align administrative procedures with the new rules, which are now in force.

Key amendments to the Saudi Arabia VAT regulations

VAT group eligibility narrowed

Entities seeking to form a VAT group must now individually qualify for VAT registration, eliminating the prior flexibility where only one group member needed to meet the criteria. Additionally, businesses licensed to operate in special economic zones or those eligible for VAT refunds under specific provisions are excluded from group participation.

A 180-day grace period, ending October 15, 2025, has been granted for existing groups to comply.

Transfers of Going Concern (TOGC): Notification obligations and risk sharing

In transactions involving the transfer of an ongoing economic activity, both parties are now jointly required to notify ZATCA using a prescribed form within 30 days of the end of the month in which the transaction occurs.

The new rules emphasize shared responsibility for pre- and post-transfer VAT liabilities, unless otherwise agreed. Failure to meet notification or other conditions will reclassify the transfer as a taxable supply.

Revised treatment of nominal supplies and documentation

Nominal supplies are now strictly limited to those explicitly recognized under the GCC VAT Framework, national VAT Law, or the amended regulations. Taxable persons must retain evidence demonstrating that related input VAT was not recovered—a measure likely aimed at preventing undue tax benefit claims.

Clarification on what constitutes a taxable service

The scope of taxable services has been broadened to eliminate ambiguity. It now includes intangible transfers, waivers of rights, and the provision of certain facilities or refraining from actions. This shift seeks to minimize interpretative disputes, particularly in digital and intellectual property-driven sectors.

Government grants recharacterized as consideration

Payments from government entities to taxable persons are now considered compensation for taxable supplies if linked to a benefit received by the government. This recharacterization may impact how grants are structured, particularly in public-private initiatives or infrastructure projects.

Special Economic Zones and customs suspensions: New zero-rating rules

A new article introduces zero-rated VAT treatment for goods supplied under customs suspension schemes and for specified transactions within or between Saudi Arabia’s Special Economic Zones (SEZs).

To qualify, specific conditions must be met, underscoring the need for businesses to maintain robust documentation.

Services supplied to non-GCC residents

The zero-rating of services to non-GCC recipients has been refined. Notably, services are no longer eligible for zero-rating if they directly benefit Saudi residents associated with the non-resident customer, or if they are physically performed on goods located in the Kingdom.

This change may impact service-based sectors working across borders.

Online marketplaces: Expanded VAT responsibility

Digital platforms now face a broader VAT compliance burden. Platforms facilitating the sale of goods or services, particularly by non-resident or unregistered suppliers, may be deemed the principal supplier for VAT purposes, unless they meet several detailed criteria that prove a limited intermediary role.

This echoes trends in other jurisdictions holding platforms accountable for third-party transactions.

Restrictions on input VAT deductions expanded

The revised rules expand existing limitations on input tax recovery. Costs related to food, beverages, hospitality, employee medical coverage, and certain vehicle categories are now excluded from deductions, unless such benefits are legally mandated. Businesses must reassess their expense policies and ensure proper record-keeping.

Correction of errors and refunds

ZATCA now uses “net tax due” rather than “tax payable” as the basis for error correction. While a five-year limit still applies, corrections may be made beyond that period with taxpayer consent.

Refund claims below SAR5,000 (US$1,333.16) are no longer permissible, and the authority may offset refundable amounts against other outstanding liabilities across tax systems under its administration.

Strategic considerations for businesses in Saudi Arabia

These amendments reflect Saudi Arabia’s commitment to aligning its tax framework with international best practices while tightening compliance standards. The changes affect businesses across all sectors—from e-commerce platforms to manufacturing firms operating in SEZs—and introduce stricter recordkeeping, notification, and procedural obligations.

Given the scope and technical complexity of the changes, companies should undertake a thorough VAT health check, review their contractual arrangements, revisit supply chain structures, and ensure that internal teams or advisors are well-versed in the amended regulations. Businesses involved in cross-border trade or digital services are particularly advised to assess the changes’ financial and operational impact.

As ZATCA continues to mature its regulatory infrastructure, staying ahead of compliance developments is critical for risk mitigation and long-term strategic planning in the Saudi market.

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• Major Changes in UAE VAT Regulations: Key Takeaways
• UAE Amends VAT Executive Regulations, Effective November 15

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