1Second Issue | May 2026

General Rules for the Application of VAT on Construction Services For VAT purposes, contracting and construction services are considered services related to Real Estate, subject to VAT at a rate of %15. The Unified VAT Agreement states: “Services related to Real Estate shall mean services that are closely linked to Real Estate, including: c- services relating to construction.(2)“ According to the International Standard Industrial Classification of All Economic Activities - Revision 4 (ISIC 4) adopted in the Kingdom, contracting activities are divided into 3 Sections as follows: 1. Construction of buildings. 2. Civil engineering. 3. Specialized construction activities(3). As part of a construction project, the Supplier may also perform broader activities related to building or engineering works. Engineering works include, but are not limited to, design and engineering services, and the procurement and supply of materials used during construction. In most cases, the Supplier agrees to provide these goods and services as part of a single contractual arrangement (often referred to in practice as an “Engineering, Procurement, and Construction” contract or “EPC”). Supplies made under these joint contracts are usually viewed as a single supply of construction services, where the other elements form part of this single supply.