6. Place of supply services

In this section we discuss the KSA Place of Supply rules for services.
In Effect From 01 Jan 2018


General Principles for the place of supply of services 

There are two sets of general rules for services set in the Agreement.

The place of supply for services provided by a taxable supplier will be the place of the supplier’s residence. 

As an exception to the above provision, the place of supply for services provided by a taxable supplier to a taxable customer will be the place of the customer’s residence. 

The first one determines that by default the place of supply for services provided by a taxable supplier shall be the place of the supplier’s residence. In other words, a service supplied by a business in Oman will be deemed to take place in Oman.

The second determines that the place of supply of services supplied by businesses to another taxable customer (‘B2B services’) will be the country where that customer is located not limited to the GCC. Generally, one can conclude on the basis of the VAT number awarded to the customer that that customer is a taxable person. If the country of the recipient does not have a VAT legislation applicable, other documents can be used as well.

Special cases for the place of supply of services

As an exception to the provisions of Article 15 and 16 of the Agreement, the following rules apply in special cases.

Conveyance Leasing Services 

The place of supply for conveyance leasing Services between a Taxable Supplier and a Non-Taxable Customer shall be the location where these conveyances were placed at the Customer’s disposal. 

This article concerns an exception to article 15 of the Agreement. It determines that the place of supply of the lease of a transportation mean to a non-taxable customer is the place where these goods are put at the disposal of the customer. 

In other words, if a rental company rents a car to an Omani tourist in Bahrain and that tourist drives it immediately to the Kingdom of Saudi Arabia, Bahrain VAT will still be applicable.

This article may cause widespread abuse in such cases, as well as lead to cases of non-taxation. In the EU, this provision was already adapted in 2013 on the basis of an amendment to the VAT directive adopted in 2008 (Council Directive 2008/8/EC of 12 February 2008 amending Directive 2006/112/EC as regards the place of supply of services).

Supply of Goods and Passenger Transportation Services 

As an exception to the provisions of Article 15 of this Agreement, the place of supply of Services for the transportation of Goods and passengers and related Services shall be the place where the transportation begins. 

This article determines that when a service to supply the transport of a good (e.g. a delivery) is made to any type of customer, the supply of goods will be located where the transportation begins. 

When a business is providing a passenger transportation service, it is located in the place where transportation begins. In other words, a bus service from Bahrain to Saudi is located for VAT purposes in Bahrain. When buying a plane ticket for a trip from Abu Dhabi to Muscat (Oman), the service is located in the UAE. This service will be zero rated though (see comments under article 32).

The rule is substantially different from how passenger transportation services are treated in the EU. There the place of supply is determined according to the length of the journey on the territory of a Member State. It means that a journey has to be split up according to where it takes place. A train ride between Amsterdam and Paris is therefore subject to three different VAT regimes, the Dutch, Belgian and French one, because the train crosses the territories of these three countries.

Supply of Real Estate Related Services 

As per the Regulation real estate has been defined as,

      1. Any specific area of land over which rights of ownership or possession or other rights in rem can be created 
      2. Any building, structure or engineering work permanently attached to the land
      3. Any fixture or equipment which makes up a permanent part of or is permanently attached to the building, structure or engineering work 

Real Estate related services are those which affect or are related to a specific area of Real Estate. Such as, real estate experts and agent services, granting the right to possess or use real estate and services related to construction work. For example such services include, but are not limited to: 

      1. The grant, assignment or surrender of any interest in or right over Real Estate
      2. The grant, assignment or surrender of a personal right to call for or be granted any interest in or right over Real Estate 
      3. The grant, assignment or surrender of a license to occupy land or any other contractual right exercisable over or in relation to Real Estate, including the provision, lease and rental of sleeping accommodation in a hotel or similar establishment
      4. Any works of construction, demolition, conversion, reconstruction, alteration, enlargement, repair or maintenance of Real Estate
      5. By estate agents, auctioneers, architects, surveyors, engineers and others involved in matters relating to Real Estate

This is a classic exception to the general rule. Any services related to real estate are located where the actual land or building is located. This rule is often contrasted with the general B2B rule in article 16 of the agreement, as applying it may cause prefinancing issues for a foreign recipient of the service. Indeed, insofar as the foreign recipient is not registered for VAT purposes, it will have to make use of a specific VAT refund mechanism, which generally takes more time.

In the OECD model Tax Convention on Income and on Capital 2014, income from immovable property is also an exception to the general rule.

The EU has been facing these interpretation issues for a long time and has provided guidance through Council Implementing Regulation 282/2011 and Explanatory Notes on the place of supply rules with respect to services connected with immovable property.

Supply of Wired and Wireless Telecommunication Services and Electronically Supplied Services

As per the Regulations the, wired and wireless telecommunications services and electronic services include, but are not limited to: 

Any service relating to the transmission, emission or reception of signals, writing, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems

  • The transfer or assignment of the right to use capacity for such transmission, emission or reception 
  • The provision of access to global information networks, 
  • The provision of audio and audio - visual content for listening or viewing by the general public on the basis of a program schedule by a person that has editorial responsibility, 
  • Live streaming via the internet, 
  • Supplies of images or text provided electronically, such as photos, screensavers, electronic books and other digitized documents or files, 
  • Supplies of music, films and games, and of programs on demand, 
  • Online magazines,
  • Website Supply or web hosting services,
  • Distance maintenance of programs and equipment,
  • Supplies of software and software updates, 
  • Advertising space on a website and any rights associated with such advertising. 

The place of supply for wired and wireless telecommunication services and electronically supplied services shall be the place of actual use of or benefit from these services. It is important to note that the place of actual use or benefit of services is determined based on the circumstances existing at the time of the supply. Any subsequent changes to the use of the services received will not affect the determination of the place of supply.

This rule is more or less a copy of rules which entered into force in the EU on 1 January 2015 (see for a discussion on these rules the study performed by Deloitte for TAXUD 'Options for modernizing VAT for cross-border E-Commerce' as well as abundant literature). In the EU though, broadcasting services were also included in this category. 

Additionally, in the EU these rules only apply to B2C services, whereas in the Agreement, the application is not limited to B2C services. In the absence of specific wording, the legal interpretation of the Agreement would require that it also applies to B2B services. The impact of this lack of clarity in the Agreement is very important for roaming services, which are B2B services charged between telecommunications businesses but actually enjoyed in another country.

The wording of the article hints towards a use and enjoyment provision, i.e. a provision which is intended to provide for a correction for the application of the normal place of supply rules where the application of the normal rules could lead to abuse.

However, we are not in the presence of such a situation. Instead the rule foreseen in article 20 of the Agreement just follows the destination principle in that it aims to tax services in the country where they are consumed, in conformity with the OECD VAT/GST guidelines.

The Regulations further specify the location of the customer as, in cases where wired and wireless telecommunications services and electronic services are provided at a telephone box, a telephone kiosk, a Wi - Fi hot spot, an internet café, a restaurant or a hotel lobby or in other cases where the physical presence of the customer at a particular location is needed for those services to be provided, the customer consumes and enjoys the services at that location. Otherwise the usual place of residence of the customer will be considered for this purpose. 

Additionally, it is noteworthy that the same guidelines recommend a simplified VAT reporting mechanism for such services. The Agreement has ignored this suggestion. In other words, foreign suppliers will have to register for VAT purposes as local companies would. This will certainly have a negative effect on compliance.

Supply of Other Services 

The place of supply for the following services shall be the place of actual performance:

  • Restaurant and hotel Services and Services for the supply of food and beverages
  • Cultural, artistic, sport, educational and recreational services
  • The services linked to transported goods supplied from a taxable supplier residing in a Member State to a non-taxable customer residing in another Member State 

Parts of this article are fairly standard in the EU. In the VAT directive, one can find back similar provisions to a. and b. However, insofar as b. is concerned, since 2013 it is merely limited to the actually entrance for these services. Strangely enough, this article does not distinguish between providing these services in a B2B or B2C context.

The article determines that restaurant and hotel services and services for the supply of food and beverages are taxed at the place of actual performance. This means that when I am being served in a restaurant or hotel, irrespective of my capacity as a customer (taxable person or not), the supplies made to me will have local VAT. A German tourist staying at a hotel in Riyadh will therefore be charged with KSA VAT. The same will hold for any restaurant visits that person might undertake in the KSA.

Cultural, artistic, sports, educational and recreational services are also located where they are actually performed. What is mainly targeted here (implied) are actual events, such as concerts, art exhibitions, sports events and other types. The provision of educational services where these are provided in a physical location. The physical location is the place in which the services are offered. 

The last part of the article, i.e. c., is also absent in EU law. It is not clear what is actually meant with the place of actual performance for services linked to transported goods. Most likely it tries to target so-called distance sales and intends to make sure that when distance sales are made, both the actual supply of the good and the transport of it are both taxed in the country where these goods arrive. The supply of services relating to goods or passenger transportation includes the following services: 

  • Port fees or charges, including docking, mooring, landing and parking fees
  • Charges for customs or immigration clearance relating to the transportation
  • Air navigation services
  • Pilotage services
  • Supplies of crew members
  • Loading, unloading or reloading


  • Opening for inspection
  • Cargo security services
  • Preparing or amending bills of lading, air or sea - waybills and certificates of shipment
  • Packing necessary for transportation
  • Storage services
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