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VAT is an indirect tax on consumption that is paid and collected at every stage of the supply chain. Hence the place where the goods/services are consumed is of utmost importance to determine changeability of VAT.
How to determine the place of supply
The place of supply is the place where tax is ultimately levied. It is the jurisdiction where the final consumption occurs and this does not necessarily have to be the same place where the value is created. Hence, place of supply and the place of value creation can be different. For changeability under VAT, only the place of Supply is important.
Let’s look at an example:
If a dealer is located in Riyadh, being a resident of the same place operates and limits his operation selling electronic gadgets to the particular city, then the place of supply is the Kingdom of Saudi Arabia, and then he will pay VAT to GAZT.
Due to the nature of some businesses, place of supply is determined on a different basis and are considered to be special situations. The following are the special situations which demand determination of place of supply on a different basis as applicable to the relevant business.
- Real estate services outside KSA: If Real estate related services are conducted by a business registered in KSA on a real estate located outside the Kingdom; in that case, the place of supply is considered to be outside KSA.
- Wired or wireless telecommunications and electronic services: In case of wired or wireless telecommunications and electronic services, the place of supply of services is wherever the customer resides. In case the customer is paying to use the service at a specific location, it will not be treated as a special situation.
- In case of cultural, artistic, sport, education or entertainment services, the place of the supply is wherever the relevant service is performed.
- Where services related to passenger and goods transportation are provided, the place of supply is where the relevant service is performed. In case the service is performed in multiple countries, VAT is calculated by proportionally apportioning the value of the service between the services performed inside outside KSA.
- Imported goods supplied locally: Where a KSA-based supplier first imports a product from outside the Kingdom of Saudi Arabia and sells the product to a customer who is based in KSA, the transaction gets split into two: 1) Import transaction and 2) Domestic supply transaction.
Businesses registered in multiple countries
Where a customer gets his business registered for VAT in more than one GCC country, the VAT paid or collected on each transaction should be accounted for with the country most closely associated to the transaction. Suppose, a manufacturer registered in KSA has factories in both KSA and UAE and he sells to a customer in USA from the factory located in the UAE, the sale should be noted on its VAT return of UAE instead of KSA.