9. Value of imports goods and services

This section discusses the taxable value of imports, goods and services

The import value

The first paragraph of article 15 of the GCC VAT Agreement referring to import is relatively straightforward: as a general principle the value of imported goods must be, for VAT purposes, the value determined and used for customs purposes, under the provisions of the Unified Customs Law (Article 26 of the Common Customs Law of the GCC States and article 1 of the KSA Customs Procedures Manual). The KSA Customs Procedures Manual provides for several valuation methods. 

The main method is the transactional value. It is however not the only method. Alternatively, the transactional value of identical or similar goods can be used, the deductive value (i.e. roughly the commercial value on the domestic market), the computed value (i.e. roughly the cost of production adding a profit margin and costs) or the value based on a flexible method (i.e. reasonably applying the previous methods in a flexible way).

The Customs Department shall automatically calculate the tax due in accordance with the declared value, including incidental service charges imposed by customs. In addition the tax rate applies to all amounts that are included in the customs declaration.

Accordingly, the imported goods value for VAT purposes must include:

  • Value of the goods determined for customs purposes (methods are described in article 1 of the KSA Customs Procedures Manual);
  • Freight duties and any charges (excluding VAT);
  • Shipping insurance duties;
  • Customs duties paid upon importation;
  • Incidental services not included in the customs duties basis;
  • Potential excise duties.

The value of the transaction is adjusted if there are any increases or discounts on the price declared.

The import VAT must be paid to the KSA Customs Department, which implies the pre-financing of the VAT on imports of goods. Since the COVID19 outbreak, ZATCA has provided for a mechanism to automatically defer the payment of import VAT to the VAT return.

Modification of customs data

In the event the VAT amount due is incorrect due to an error in the customs declaration, in the classifications or values, the importer must notify the Customs before payment.

In some cases, the customs declaration must be modified after the customs clearance process has been completed. If the amendment requires the payment of VAT or additional fees, this is done through an «Order to pay» issued by the Customs Department which shall include those additional amounts.

Evaluation of goods re-exported

This refers to the returned goods regime foreseen in article 105 of the GCC Customs Agreement, which provides for an exemption of customs duties for goods which have left the GCC and are reimported (under certain conditions). Although the wording in this Agreement is slightly different than the wording in the GCC Customs Agreement, this does not seem intentional. VAT only applies to the increase in the value of the goods. The motivation behind this is to not tax the same value twice.

The fair market value

The second part of article 15 of the GCC VAT Agreement provides for two key VAT principles: the determination of the fair market value of the taxable basis and, the consequences of VAT on related persons transactions.

The fair market value of the supply

Paragraph 2 mentions the fair market value as the taxable value of the supply without defining it. This notion is defined in article 26 of the VAT GCC Common Agreement: 

“1. The fair market value is the amount at which Goods or Services can be dealt in in an open market between two independent parties under competitive conditions determined by each Member State.

2. The value of a Supply shall be the value of Consideration less the Tax and includes the value of the non-cash portion of the Consideration determined according to the fair market value.

3. The value of the Supply shall include all the expenses imposed by the Taxable Supplier on the Customer, the fees due as a result of the Supply and all the Taxes including Excise Tax, but excluding VAT”

The VAT GCC Common Agreement generally defines the fair market value as an objective standard, as opposed to a subjective standard (i.e. what am I prepared to pay for it). It is defining fair market value for use elsewhere. 

The principle is that the taxable base of a supply is the consideration without VAT. The consideration is the price of a good or a service. This can be monetary or non-monetary. This constitutes somewhat circular reasoning. Consideration and taxable base are certainly different concepts but this rule only upholds in a B2C environment, where prices are generally agreed inclusive of taxes. In a B2B environment prices are generally agreed exclusive of any taxes. The rule only creates confusion and is unnecessary.

What is important though is that it indicates that where parties agree to consideration which is not necessarily monetary (e.g. an exchange of services), then the taxable base takes into account also the non-monetary part.

Whatever expenses charged in addition by the supplier to the customer have to be included in the taxable supply. These could be for example shipping costs. If you buy something and they charge you 100 for the item and 10 for shipping, then the VAT is due on 110. Everything needs to be added in with respect to the taxable base (except for the VAT itself).

Article 38 of the KSA Implementing regulations adds precisions on how to determine the fair market value. Accordingly the fair market value is the consideration which should be paid for a similar and contemporaneous supply between two unrelated parties, taking into account the characteristics, quality, quantity of the goods, as well as the place and date of supply and reputation of the supplier.

In case this method is not satisfying, ZATCA or the supplier shall apply the comparable transactions method, using the value of resembling supplies or the costs incurred by the supplier to make the supply - whichever is higher.


The last paragraph of article 26 of the VAT GCC Common Agreement finally gives flexibility to the KSA in terms of other situations not foreseen in this article where they deem it necessary. The KSA took this opportunity in dealing with specific situation in article 40 of its Implementing Regulations.

This rule allows an adjustment of the taxable base in the following situations.

If the domestic transaction is canceled or rejected by the buyer, whether in whole or in part, or if the value of the supply is reduced (discount, material change or alteration),  or if the goods are returned, the original taxable base of the VAT shall be reduced. These situations usually also trigger the obligation to issue a credit note to the customer, causing the customer to amend his input VAT deduction and pay back VAT which was initially deducted. The correction shall also be taken into account by the supplier in its VAT return regarding the output VAT.

To be allowed to proceed to such adjustment, the taxable person must have:

  • issued tax invoices in relation to the supply and the amount shown therein on the basis of which the tax due has been calculated does not reflect one of the cases aforementioned, 
  • accounted for an amount of tax that does not reflect the occurrence of one or more of the aforementioned cases

In addition, if the supplier does not manage to collect its receivables from its customer, then the KSA VAT regulations prescribe so-called bad debt rules. The taxable person can accordingly reduce its output tax when the following conditions are met:

  • the corresponding tax has been calculated on the taxable supply as output tax on a tax return and paid
  • the consideration is in respect of a supply of goods or services made to a person who is not a related person
  • a period of at least twelve months has passed from the date of the taxable supply
  • the taxable person holds a certificate from his certified accountant indicating that the unpaid consideration has been written off in his books
  • in cases where the total amounts unpaid by the customer exceed one hundred thousand riyals, formal legal procedures have been taken to collect the debts without success (evidence are required, e.g: judicial ruling, debtor’s bankruptcy, court order initiating any other formal recovery procedure)
  • the taxable person does not use cash accounting basis

If a part or all the receivables are finally paid by the customer, relating VAT becomes payable and must be accounted for in the tax return for the tax period in which the payment occurs, and a new tax invoice must be issued to reflect the additional amount received.

Customers having deducted input tax in respect of supply they did not pay in full, must, after a period of twelve months from the date of supply, reduce the input tax deduction by the amount of VAT calculated on the consideration not paid at that date. If payment is finally made, corresponding input tax can be deducted.

Foreign currency

In terms of the situation in which the supplier charges an amount in a foreign currency, this currency needs to converted in the local currency based on the official exchange rate applicable on the due date. The official exchange rate is usually published by Saudi Arabian Monetary Authority. The risk lies in suppliers charging in one amount and being due the amount in another currency and experiencing financial losses because of the fluctuations in the currency. In the end, VAT will have to be paid in the local currency. In terms of the currencies used, this risk will especially present itself when dealing in EUR or GBP, whereas the USD is pegged to a number of currencies in the Gulf. This rule is not flexible, as in other jurisdictions it is allowed to contractually override this rule.


The taxable base should exclude numerous elements.


Contrary to how price subsidies are treated in the EU, in the GCC subsidies are simply not part of the taxable base. The provision prescribes that the taxable base needs to be reduced by the subsidies granted by the Member State to the supplier. Subsidies in generally do not constitute consideration for a service or a good supplied. This provision intends to avoid that subsidies granted by the government are subject to VAT. The adverse effect though of this provision is that a private supplier sees the price charged for his service entirely subject to VAT, whereas a supplier that receives subsidies for the same service sees the taxable base reduced and only has part of the consideration subject to VAT. In other words, a subsidized provider will be able to not only offer his services at a lower price but also the tax burden will be lower.


Disbursements are also not part of the taxable base to the extent that the supplier is asking for the refund of costs he has incurred in the name and for the account of the customer. That same supplier on charging those expenses shall not recover input VAT on those costs. 

This implies to distinguish:

  • Expenses paid to a third party and incurred by the supplier in the course of making his own supply of services to the client and which are part of the whole of the services rendered by the supplier to the client (e.g., office supplies); and
  • Expenses for specific services that have been supplied by the third party to the client and where the supplier merely acted as the client's known and authorized representative in paying the third party, which qualify as disbursements for VAT purposes, where they do not form part of the consideration for the supplier's own services to the client (e.g., payment of licensing fee).

The correct treatment depends on whether the item of expenditure is:

  • a disbursement incurred through the agency of the supplier, or
  • a cost incurred by a supplier as principal which is re-charged on to the client.

No precisions are given regarding the identification of these costs in the KSA  law or Implementing Regulations. However ZATCA Guidelines specifies that in some cases, a provider will have to collect payment from a customer for a an expense made on its behalf, for a supply performed directly by a third party. 

Accordingly, this charge may be passed on to the final customer without any additional VAT, when: 

  • The service provider acts in the name of the customer 
  • The servicer provider does not directly incur the cost on its own behalf to perform its own service
  • This cost is not be treated as an expense for the provider, 
  • The input VAT on this expenses is not deducted by the service provider

These costs can, as well, be fees from government organisations (e.g.: fees from SAMA, incurred by the customer but collected by the bank on behalf of SAMA).

VAT on these disbursements will then be only deductible by the final customer as he was the direct buyer of the services.

Conversely, where the service provider incurs costs in its own name, these supplies shall be seen as received directly by the provider and re-charged onwards. Their VAT treatment will be the applicable treatment of the underlying supply, generally taxable.

Even though this regime is provided in ZATCA Guidelines regarding Financial Services Sector, it should apply to all business sectors.

This provision is to be connected with article 79, first paragraph, point (c) of the European VAT Directive states that the taxable amount shall not include amounts received by a taxable person from the customer, as repayment of expenditure incurred in the name and on behalf of the customer, and entered into his books in a suspense account. The taxable person must provide proof of the actual amount of the expenditure referred to in point (c) of the first paragraph and may not deduct any VAT which may have been charged. The amounts re-charged can be treated as a disbursement for VAT purposes, once these conditions are met.

The main idea remains that the fair market value is deemed to be the amount of the consideration agreed between the two parties of a contract. This approach is based on the theory whereby the market price converges at a point where the forces of supply and demand meet. 

However, the resulting price might be unbalanced in case of relations between the contracting parties. 

The required competition conditions to reach the fair market value

In order to prevent companies from the same group from underestimating the value of their intra-company supplies, article 38 of the KSA Implementing Regulations sets an anti-avoidance mechanism only applicable to transactions between related parties. 

Thus, when a supply is made between related persons, for a consideration less than its fair market value, and the customer is not entitled to a full input tax deduction in relation to the supply, Tax Authority has the right to reassess the invoiced VAT.

This mechanism is meant to deter group of company from artificially decreasing the value of their transactions where a related company is not allowed to fully deduct the input VAT on its purchases due to its activity. 

This provision ensures that related persons behave as non-related when it comes to supply goods or services to each other, and guarantee the collection of the fair amount of VAT due. 

Therefore a price set between related persons lower than the fair market value, and invoiced to a customer not fully entitled to recover input tax has to be adjusted to reach the fair market value of the supply. 

Related persons are defined in article 37 of the KSA Implementing regulations, and in article 1 of the GCC VAT Common Agreement. Whereas the latter seems to dedicate the notion of related person to legal entities, the KSA Implementing regulations extend it to natural person. 

The GCC Common agreement provides for a general definition of Related Persons being  two or more Persons where one of them has supervisory or directive control over the others in such a way that he has administrative power that enables him to influence the business of the other Persons from a financial, economic or regulatory aspect. This includes Persons who are subject to the authority of a third Person that enables him to control their businesses from the financial, economic or regulatory aspect.

The KSA Implementing Regulations gives a more precise definition of what are related persons: 

  • For individuals:
    • Where two natural persons are married or relatives to the fourth degree (including brother-in-law)
    • Where two natural persons have an employer - employee relationship 
    • Where two or more natural persons are partners;
  • For natural person and legal entity:
    • Where a natural person has the power to direct strategic decisions (including partners, directors…) 
    • Where one or more related natural persons together owns or controls over 50% of the capital, voting rights, or of the value of the legal entity;
  • For legal persons:
    • Where two or more legal persons’ capital, voting rights or value are owned or controlled over 50% by the same person or a same group of persons. 
    • Trustee or settler and their beneficiary are also considered as Related Persons
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