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May 15, 2026

This ZATCA Circular clarifies the application of the Reverse Charge Mechanism (RCM) under the GCC Unified VAT Agreement. RCM applies when a KSA VAT-registered person receives taxable services from a non-resident supplier, effectively shifting the tax liability to the recipient. The recipient must report Output VAT in Field 9 of the tax return and may claim a corresponding Input Tax deduction. Key clarifications include the 'Within' test for physical presence, the treatment of software subscriptions, and specific exclusions for exempt services like financial products. It explicitly implements Article 47 Clause 1 of the Implementing Regulations.

The Reverse Charge Mechanism Application

VAT Circular

January 2023

1. Reverse Charge Mechanism Application Cases

1.1 Scope of Reverse Charge Mechanism Application
1.2 Import of Taxable Services by a VAT-Registered Person
1.3 Receipt of Services from a Non-Resident Supplier
1.4 Import of Taxable Goods by a VAT-Registered Person

2. Tax Due Date under Reverse Charge Mechanism

3. Reporting Tax Calculated under Reverse Charge Mechanism

4. Input Tax Deduction

5. Failing to Report Tax Due under Reverse Charge Mechanism & The Right to Deduct

The Zakat, Tax and Customs Authority ("ZATCA", "Authority") has issued this Tax Circular for the purpose of clarifying certain tax treatments concerning the implementation of the statutory provisions in force as of the Circular's issue date. The content of this Circular shall not be considered as an amendment to any of the provisions of the Laws and Regulations applicable in the Kingdom.

Furthermore, the Authority would like to highlight that the clarifications and indicative tax treatments prescribed in this Circular, where applicable, shall be implemented by the Authority in light of the relevant statutory texts. Where any clarification, interpretation or content provided in this Circular is modified - in relation to unchanged statutory text - the updated indicative tax treatment shall then be applicable prospectively, in respect of transactions made after the publication date of the updated version of the Circular on the Authority's website.

Subject Matter of This Circular

The Gulf Cooperation Council (GCC) Unified VAT Agreement requires that VAT is charged on receipt by a Taxable Customer of Goods or Services supplied to him by a Non-Resident and Non-Taxable Person in the Member State in instances where the Reverse Tax Mechanism applies. Accordingly, the Implementing Regulations state that Tax is imposed on all Taxable Supplies of Goods and Services made in the Kingdom by a Taxable Person in the course of economic activities, or received in the Kingdom by a Taxable Person in instances where the Reverse Charge Mechanism applies, as well as on Imports of Goods.

This Circular considers the application of the Reverse Tax Mechanism rules to businesses receiving a supply of goods or services, which are supplied in the Kingdom under the place of supply rules from a non-resident supplier.

Contents

Subject Matter of This Circular

Reverse Charge Mechanism Application Cases