1Second Issue | May 2026

Compensation for Damages 6. Import of Materials and Equipment 1. Introduction 1.1. Application of the Value Added Tax System in the Kingdom of Saudi Arabia The Kingdom of Saudi Arabia ratified the Unified Value Added Tax (henceforth ‘VAT’) Agreement for the Cooperation Council for the Arab States of the Gulf (“GCC”) pursuant to Royal Decree No. (M/51) dated 3rd Jumada al-Awwal 1438H/31st January 2017 (“Unified VAT Agreement”). Based on the provisions set forth in the Unified VAT Agreement, the Kingdom of Saudi Arabia issued the VAT Law pursuant to Royal Decree No. (M/113) dated 2nd Dhu al-Qa’dah 1438H/26th July 2017(“VAT Law”), as well as the Implementing Regulations of the VAT Law pursuant to the Board of Directors Resolution of the former General Authority of Zakat and Tax – currently the Zakat, Tax and Customs Authority No. 3839 dated 14th Dhu al-Hijjah 1438H/5th September 2017G (“Implementing Regulations”), as amended by subsequent Board of Directors resolutions. 1.2. About this Guideline The importance of this Guideline lies in providing further clarifications to Taxable Persons and assisting them in understanding the application of VAT regarding construction services and the contracting sector in the Kingdom, particularly discussing how to determine the Date of Tax Due and the value of supply in cases specific to the sector. 2. Definitions Related to Key Terms Real Estate: Land and buildings, including unfinished construction works. This term is defined within the Implementing Regulations of the VAT Law to include the following(1): Any specific area of land over which ownership rights, possession, or other rights in rem may be established. Any buildings or engineering structures permanently erected on land. Any fixtures or equipment forming a fixed part of, or permanently attached to, a building, structural framework, or engineering work. (1) Article 23(1), Implementing Regulations of the VAT Law. Retention (Performance Bond): Not defined for VAT purposes; however, it is used for the purposes of this Guideline to refer to the cash amount withheld from the Contractor or provided as a bank guarantee to ensure the execution of works in accordance with contractual terms. Retention is not considered a Taxable Supply unless it is actually utilized in exchange for a service or product. Supplier: The Person who supplies goods or services. Customer: The Person who receives goods or services. Main Contractor: Not defined for VAT purposes; however, it is used for the purposes of this Guideline to refer to the Person or entity that contracts directly with the end Customer to execute construction or contracting works, and bears full responsibility for the execution of the Contract. Subcontractor: Not defined for VAT purposes; however, it is used for the purposes of this Guideline to refer to the Person or entity that contracts with the Main Contractor to execute part or all of the works specified in the primary Contract. Service Related to Real Estate: Not defined for VAT purposes; however, it is used for the purposes of this Guideline to refer to any service where the subject matter is directly linked to Real Estate (such as building, construction, installation, or maintenance), and the Place of Supply is determined based on the location of the Real Estate. Completion Report: Not defined for VAT purposes; however, it is used for the purposes of this Guideline to refer to the document issued by the Supplier for the purpose of determining the amount payable for a specific part of a construction project, as well as to obtain the recipient’s approval for payment of this amount. This document is referred to as Construction Invoice (Mustakhlas) within commercial practices in the Kingdom. Construction Services: Not defined for VAT purposes; rather, it is used in this Guideline to describe an economic activity whereby fixed assets are created, renovated, repaired, or extended in the form of buildings, and land improvements of an engineering nature, as well as other engineering constructions such as roads, bridges, dams, etc. 3. Application of VAT to Construction Services