The Reverse Charge Mechanism in Saudi Arabia

The reverse charge mechanism (RCM) is a VAT rule that shifts the obligation to account for VAT from the supplier to the customer. Instead of the non-resident supplier charging and remitting VAT to ZATCA, the Saudi customer self-assesses the tax — treating themselves as both the supplier and the customer for VAT purposes.

The concept is established in Article 9 of the GCC VAT Agreement and implemented in the Kingdom through Article 47(1) of the VAT Implementing Regulations:

The logic is practical: a foreign supplier with no presence in Saudi Arabia cannot register with ZATCA, collect VAT from Saudi customers, and remit it. The RCM solves this by making the customer the taxpayer for that transaction. The tax is collected at the point of consumption, inside the Kingdom, by the party that is already registered and filing returns.

Three conditions must be present simultaneously for the RCM to apply in Saudi Arabia:

• The supplier is a non-resident. The supplier has no place of business or fixed establishment in Saudi Arabia. A foreign company with a Saudi branch or registered establishment is not non-resident for these purposes.
• The customer is a taxable person in the Kingdom. The customer is VAT-registered, or is required to be registered. A private individual or non-registered business is generally not within the RCM scope as a business recipient.
• The place of supply is Saudi Arabia. The service is treated as consumed or benefited from in the Kingdom under the place of supply rules in the Implementing Regulations.

When all three are present, the non-resident supplier does not charge Saudi VAT — and the Saudi customer self-assesses 15% on the value of the supply in their own VAT return.

The Place of Supply Rules: Why They Matter

The place of supply rules determine whether a cross-border service is treated as supplied in Saudi Arabia at all. For most B2B services — where a non-resident supplies to a Saudi business customer — the general rule under the GCC VAT Agreement treats the place of supply as where the customer is established. That means Saudi Arabia. The RCM applies.

For electronic and telecommunications services specifically, Article 20 of the GCC VAT Agreement and Article 24 of the Implementing Regulations place the supply where the customer actually uses and enjoys the service. For a Saudi customer consuming digital services — software, streaming, cloud access — that is Saudi Arabia. The RCM applies there too.

When the RCM applies, the Saudi customer does not pay VAT to the supplier. The supplier’s invoice arrives without Saudi VAT. The customer then performs a self-assessment: they calculate 15% of the service value and report both sides of the transaction — the output tax liability and the corresponding input tax credit — in the same VAT return for the period in which the supply took place.

Currency Conversion

Article 61 of the Implementing Regulations requires that foreign-currency amounts be converted to SAR using the daily rate prescribed by the Saudi Central Bank on the date the tax becomes due. This is the date of supply — typically when the service is performed or when payment is made, whichever is earlier — not the date of payment of the invoice.

Electronic and digital services supplied by non-residents to Saudi customers are subject to VAT in the Kingdom under the place of actual use and enjoyment rule. Article 24 of the Implementing Regulations provides a broad definition of electronic services — covering software, streaming, cloud access, online advertising, web hosting, digital content, and more.

For B2B supplies — where the Saudi recipient is a VAT-registered business — the reverse charge applies as described above. The business self-assesses.

For B2C supplies — where the recipient is a private individual or a non-taxable person — the RCM does not apply in the same way, since the customer has no tax return to self-assess on. This creates a gap that the online marketplace deemed-supplier rules are designed to close.

The Pre-April 2025 Position: Interface and Portal Rules

Under the pre-amendment Article 47(2), where electronically supplied services were provided through an online interface or portal acting as an intermediary for a non-resident supplier, the operator of the interface was presumed to purchase the services from the non-resident and re-supply them — making the platform the taxpayer, not the underlying supplier.

The April 2025 Expansion: Online Marketplace Rules

ZATCA’s April 2025 amendments (BoD Resolution No. 01-06-24, published 18 April 2025) significantly expanded and recast these rules. The amended Article 47 now distinguishes two distinct scenarios — both of which place VAT liability on the marketplace operator:

The definition of an “online marketplace” under the new Article 47(4) is deliberately broad: an electronic or digital platform whose primary purpose, or one of its primary purposes, is to enable suppliers to display, provide, make available, or contract for their products with customers. Most active digital intermediaries fall within this definition.

The general principle is that where the RCM applies, the non-resident supplier does not register in Saudi Arabia — the customer handles the tax. But there are circumstances where a non-resident supplier must register:

• Where the non-resident makes supplies directly to non-taxable customers in Saudi Arabia (B2C) and the online marketplace rules do not apply — the supplier has no mechanism to shift the obligation to the customer
• Where the non-resident has a fixed establishment in the Kingdom — it is then no longer truly non-resident for those supplies connected to that establishment
• Where the non-resident is itself an online marketplace operator collecting and remitting VAT on supplies made through its platform

Article 9(3) of the Implementing Regulations requires that every non-resident person who registers in the Kingdom must do so either directly or through a ZATCA-approved tax representative. The representative’s particulars must be listed on the registration form, and ZATCA must be notified within 20 days of any change in the representative.

• Not self-assessing at all. The most common failure. Many Saudi businesses receive invoices from foreign suppliers and simply post them as costs without applying the RCM. This creates an output tax understatement on every period where foreign services were procured — accumulating silently until a ZATCA audit.
• Wrong currency conversion rate. Using an exchange rate other than the Saudi Central Bank daily rate on the date of supply produces an incorrect self-assessed VAT amount. Even small systematic errors compound over multiple periods.
• Partial recovery errors on mixed-use businesses. A business that makes both taxable and exempt supplies must apply the proportional deduction to RCM input tax. Claiming 100% of the input tax when only a proportion is recoverable overstates recovery.
• Ignoring the April 2025 marketplace rules. Platforms and intermediaries that were operating under the old interface rules and have not reviewed their position under the new Article 47 framework may be operating with incorrect VAT attribution from April 2025 onward.
• Treating the RCM as optional. It is not. The RCM is a legal obligation on the taxable customer. There is no materiality threshold that exempts smaller foreign service payments from the requirement.