Guideline for

Repurchase of Assets at Sukuk Maturity At the end of the Sukuk term or upon a specific maturity event, the Issuer resells the assets to the Originator at a pre-agreed price. If it is explicitly stipulated in the contract that the transfer of ownership is temporary and intended for repurchase, this transfer is not considered a separate supply of commodities and is treated as outside the scope of VAT, provided this is documented in the contractual documents. Example (10): Riyadh Steel Enterprises, a company established in the KSA and registered for VAT, wishes to raise SAR 100 million in financing for its business activities. It is decided to establish Riyadh Steel SPV in a country outside the KSA to facilitate the issuance of Sukuk. Riyadh Steel SPV issues 10,000 certificates with a face value of SAR 10,000to foreign investors that will terminate after 10 years. Riyadh Steel SPV uses the proceeds of the certificates to acquire full ownership of specific assets from Riyadh Steel Enterprises with a value of 100 million SAR. These assets are subsequently leased back to Riyadh Steel Enterprises, so it is able to retain use of the assets for its business. The periodical lease payments of SAR 500,000 per year by Riyadh Steel Enterprises to Riyadh Steel SPV are used for periodical distribution by Riyadh Steel SPV to the investors. After 10 years, at the end of the term, Riyadh Steel SPV will contractually transfer ownership back to Riyadh Steel Enterprises for SAR 100 million. Riyadh Steel SPV will pay the investors back the face value of the certificates. Since the transfer of ownership of assets from Riyadh Steel Enterprises to the private company is temporary and for financing purposes within the structure of a Shari’ah-Compliant Financial Product (Sukuk), this transfer is not considered a separate supply of commodities for VAT purposes. Furthermore, periodic returns paid to investors are exempt from VAT. 10. Mudarabah Paragraph 10.1. below discusses the characteristics of the financing structure of a Mudarabah, where capital is provided by the financing party (the financier) and the other party (the Mudarib) contributes by providing labor/work. Paragraph 10.2. specifies the tax treatment for this case, and other financing structures to which this description applies are subject to the same tax treatment.