A VAT-registered mainland Saudi supplier sells goods related to Zone activities to a business located inside the Special Integrated Logistics Zone (SILZ). Separately, a business inside the SILZ sells goods to a customer on the Saudi mainland. Under ZATCA's General Guideline for the Zakat, Tax and Customs Provisions of the Special Integrated Logistics Zone, how are these two supplies treated for VAT purposes respectively?
- Both supplies are treated as ordinary domestic mainland transactions taxed at the standard 15% rate, since the Zone is legally part of Saudi customs and tax territory for VAT purposes
- The mainland-to-Zone supply is exempt from VAT with no input tax recovery allowed on related costs, while the Zone-to-mainland supply is zero-rated in the same way as an export to another country
- The mainland-to-Zone supply is taxed at the standard 15% rate, while the Zone-to-mainland supply is zero-rated because the goods never physically leave Zone premises before reaching the mainland customer
- The mainland-to-Zone supply is zero-rated provided the supplier is VAT-registered and the goods relate to Zone activities, while the Zone-to-mainland supply is treated as an import into Saudi Arabia, subject to VAT and customs duties on exit from the Zone
Why D? And why not the others?
Correct answer: D. The mainland-to-Zone supply is zero-rated provided the supplier is VAT-registered and the goods relate to Zone activities, while the Zone-to-mainland supply is treated as an import into Saudi Arabia, subject to VAT and customs duties on exit from the Zone
ZATCA's General Guideline for the SILZ treats the Zone as effectively outside normal Saudi VAT territory for goods movements connected with Zone activity. A supply from the mainland into the Zone is zero-rated, not merely exempt, as long as the mainland supplier is VAT-registered and the goods relate to Zone activities, which preserves the supplier's right to recover related input VAT. Conversely, goods moving from the Zone onto the mainland are treated as an import into Saudi Arabia, so VAT and customs duties become due at that point of exit, mirroring how goods entering Saudi Arabia from outside the country are taxed. The option treating both flows as ordinary domestic 15% transactions ignores the Zone's distinct customs and tax status entirely. The option describing the mainland-to-Zone leg as exempt with no input recovery confuses zero-rating with exemption, which are not the same: zero-rated supplies still allow the supplier to recover input VAT, unlike exempt ones. The option reversing the two treatments (standard-rating the mainland-to-Zone leg while zero-rating the Zone-to-mainland leg) gets the direction of the rule backwards.
Source: ZATCA General Guideline for the Zakat, Tax and Customs Provisions of the Special Integrated Logistics Zone (10 December 2023)