1Second Issue | May 2026

(3) Section (F), International Standard Industrial Classification of All Economic Activities - Revision 4 (ISIC). 3.2 Main Contractor and Subcontractor In the contracting and construction sector, the Main Contractor is the Supplier who enters into the Contract with the Customer to deliver the entire building or engineering works and assumes full responsibility for the construction works. The Main Contractor may also arrange for the execution of parts of the work, and in some instances, the entirety of the actual construction works is executed by one or more Subcontractors. In such cases: y The Subcontractor supplies construction services to the Main Contractor, who in turn receives these services in the capacity of a Customer and subsequently uses these services as part of the total supplies provided to the end Customer. The first supply from the Subcontractor to the Main Contractor is subject to VAT at a rate of %15, separate from the second supply from the Main Contractor to the Customer. y The Main Contractor supplies construction services to the Customer relating to the entire building or engineering works. This supply is subject to VAT at a rate of %15. Example 1: Five Stars Co. Ltd. (a Saudi company registered for VAT), acting as the Main Contractor, is constructing a new commercial project. The company contracts with a Subcontractor (Red Sea Services Co.) to execute site preparation works, and also contracts with another Subcontractor (Black Rose Co.) to execute foundation works on a plot of land in Jeddah. Both Subcontractors issue their invoices to Five Stars Co. for the works completed. Five Stars Co. agreed with the end Customer, Development Co., to calculate VAT on the total value of the supplies (the entire building). Both Subcontractors are registered for VAT purposes in the Kingdom, and they must charge VAT on the amounts they invoice to Five Stars Co. for the construction services performed. Five Stars Co. may deduct the VAT incurred as Input Tax. 3.3 Place of Supply All supplies of construction services are treated as a supply of services related to Real Estate. (4) These are among the special cases regarding the Place of Supply, whereby the Place of Supply is located in the country where the Real Estate is situated (including any specific plot of land, the building erected thereon, or the construction works being executed upon it). All contracting and construction services performed on Real Estate located in the Kingdom are subject to Value Added Tax in the Kingdom(4). (4) Article 19, Unified VAT Agreement; Article 23, Implementing Regulations of the VAT Law.