Guideline for

Description of the Product In Sukuk structures, financing is raised by issuing financial certificates to “Investors”. The certificates represent ownership in one or more assets. These certificates are issued through a private company known as the “Issuer”, which uses the issuance proceeds to purchase assets from the financing entity (the Originator). Under this agreement, the Issuer commits to returning full ownership of the assets to the Originator upon maturity of the certificates. The Originator retains use of the assets in its business activities and pays investors periodic returns representing their share of the asset profits. To facilitate asset management, the Originator enters into agreements with the Issuer, such as leases, and handles maintenance, taxes, and insurance for the assets. Upon maturity of the certificates or the occurrence of specific events, the Issuer sells the assets to the Originator at a pre-agreed price, and the proceeds are used to repay investors. Simplified, this structure can be depicted as follows: 1. Payment Investor Issuer/SPV Originator 1. Certificate 2. Payment 2. Asset full ownership 3. Ijara & Service Agency* 4. Payment (+/- Servicing) 6. End/dissolution amount 5. Asset full ownership 3. Payment (+/- Servicing) 4. Payment 9.2 VAT treatment of the Product The following VAT treatment applies to the financing structure as described above if 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. 9.2.1 Transfer of Asset Ownership from Originator to Private Company (Issuer) The Sukuk are issued through a private company known as the “Issuer,” which uses the issuance proceeds to purchase specific assets from the Originator. If the transfer of asset ownership from the Originator to the Issuer is temporary, within a Shari’ah-Compliant Financing Structure, and is not intended for permanent ownership or final consumption, then this transfer is not considered a separate supply of commodities for VAT purposes. Therefore, this transfer is not subject to VAT and is outside the scope of the tax. The financing structure is described in 9.1. is partly comparable with the issuance of bonds (a type of debt security) in a non-Shari’ah compliant financing arrangement. Such bond arrangement does not entail the purchasing and selling of underlying assets under non-Shari’ah-compliant financing. The issuer simply makes the supply of a type of debt security. When the above rules are applied to the Shari’ah-Compliant Financing Structure, the following VAT treatment will apply to the transactions in the structure. 9.2.2 Originator's Use of Assets The Originator retains use of the assets during the term of the Sukuk through lease agreements or similar contractual arrangements with the Issuer. The installments paid by the Originator to the Issuer are used to distribute periodic returns to investors, representing the profits from the assets. 9.2.3 Returns to Investors The returns distributed to Sukuk holders represent a share of the asset profits and are considered consideration for a financing service. In accordance with VAT regulations, profits generated from financing services are exempt from tax. 9.2.4 Operational and Administrative Services The Originator may perform asset-related services, such as routine maintenance, tax payments, and insurance, acting as a “service agent” on behalf of the Issuer. Fees or consideration paid for these services are subject to VAT at the standard rate (15%) when such services are provided within the KSA, unless they fall under the classification of international supply or export.