Guideline for

VAT treatment of the Product The following VAT treatment applies to the financing structure as described above, provided that it concerns a Shari’ah-Compliant Financing Product. Financing structures that are offered under the same conditions, but under a different name, will have the same VAT treatment as described below. The contribution in cash by the financier to the partnership enterprise and the return of this cash from the partnership enterprise to the financier when ending the partnership is considered outside the scope of VAT, other than the profit earned from this partnership, which is an exempt supply. Any commissions implicitly charged, without a capital distribution, for activities exempt from VAT are subject to tax. This applies to any explicit fees, commissions, or restricted discounts within the financing structure that are charged for VAT purposes. An invoice including VAT must be issued to the partnership enterprise where required. Please refer to Paragraph 9.2 for a detailed description of the VAT treatment of Sukuk. VAT Treatment Element of Shari’ah-Compliant Financing Product Outside the scope of VAT Funding Exempt Implicit margin or spread funding participant Taxable at 15% Commissions that are implicitly charged as consideration, explicit fees, commissions, or commercial discounts Please refer to Paragraph Sukuk-related fees Example (11): Omar would like to use his web expertise on developing websites to start a business. He does not have sufficient funds to make the needed investments. He enters into a Mudarabah contract with Al Dirham Bank, whereby the bank contributes SAR 100,000 in exchange for 11% of the profits generated by Omar's business, while Omar contributes only his expertise. Omar also pays SAR 10,000 as part of the partnership. Therefore, Omar's share of the company's profits is 89%. After five (5) years, the partnership will be dissolved, and Omar will repay the bank SAR 100,000. The funds transferred by Al Dirham Bank to Omar at the beginning of the term are considered financing and are exempt from VAT upon the partnership's dissolution. After Al Dirham Bank receives the profit for this funding, based on a fixed rate for the exempt financial service, this fee is treated as an implicit margin, which is also exempt from VAT. 11. Wakala Paragraph 11.1. below discusses the characteristics of the Wakala financing structure, whereby the customer, under a Wakala agreement, appoints a financial institution to invest his funds on his behalf, to grow these funds and achieve a return. Paragraph 11.2 specifies the tax treatment for this case. Other financing structures to which this description applies are also subject to the same tax treatment.