Saudi VAT: Military Goods and Diplomatic Supplies

Saudi VAT has specific zero-rating routes for qualifying military goods and supplies to diplomatic missions by qualifying suppliers. Neither route makes every government customer tax-free. Establish the actual recipient, goods or supply, qualification and implementing controls; distinguish domestic zero-rating from import relief and a recipient’s refund mechanism.

Military zero-rating requires the actual supplier and recipient

Article 36 bis(1), p. 34, covers qualifying military goods supplied to the government armed forces and internal security forces across their sectors by a taxable person registered with ZATCA and licensed in military manufacturing by the General Authority for Military Industries (GAMI).

The provision concerns a particular qualifying supply. A general public-sector purchase order, supplier registration in a government procurement system or a customer’s military affiliation alone does not establish the route.

Dariba analysis: verify the contracting entity and the seller’s actual ZATCA/GAMI status before choosing the rate. A domestic service or unrelated commercial product must be analysed on its own facts rather than included automatically because it shares a defence contract number.

Locally manufactured goods need the GAMI certificate

Current Article 36 bis(2), p. 35, defines qualifying military goods as locally manufactured military goods, with the supplier holding a GAMI qualifying-supply certificate confirming all the article’s conditions and controls are met.

Use the current Arabic wording. Earlier consultation material and superseded versions can contain different detailed language; a proposed text is not a substitute for the current paragraph or applicable final controls.

Retain the certificate, supplier/customer identity, actual goods and contract connection. Imported finished equipment does not become locally manufactured merely because a Saudi seller invoices it. Conversely, this article does not independently decide the treatment of every component or manufacturing arrangement from a broad product label.

Check the tax-point conditions and eligible consideration

Article 36 bis(3) applies 0% only where all conditions/controls are satisfied at the tax due date and only to the consideration for qualifying goods. The Governor may issue additional controls in coordination with GAMI.

Dariba illustration — original assumptions: an actual supported contract contains SAR 1 million net of certified qualifying military goods and a separate SAR 100,000 net ordinary standard-rated service. Assuming no other relief and genuine supported separation, goods VAT is SAR 0 and service VAT SAR 15,000. This does not establish a universal method of splitting defence contracts.

Identify the applicable controls, certificate scope, actual tax point and any advances before invoicing. A later certificate should not simply be assumed to cure every earlier event retrospectively. Resolve its actual effect under the applicable arrangements.

Diplomatic zero-rating requires a qualifying supplier route

Article 36 bis(2), meaning the separately headed diplomatic article numbered “36 bis (2)”, p. 35, zero-rates supplies to diplomatic missions from qualifying suppliers, subject to Article 70(2). It delegates the application mechanism and supplier-qualification conditions/controls to a Governor decision.

The diplomatic provision is separate from paragraph (2) of the military article. Quoting only “36 bis(2)” without identifying the diplomatic heading can therefore create a reference ambiguity. Read the actual heading and instrument.

A mission’s status or letter does not alone establish that the seller qualifies under the delegated mechanism. Obtain the applicable decision and actual supplier qualification before relying on this route. This analysis does not certify any particular supplier or assert that a searched consultation text supplies the final operational controls.

Article 70 refund eligibility is a different question

Article 70(2) includes specified foreign governments, international organizations and accredited diplomatic/consular/military missions and personnel among categories that can be designated for refund, subject to the governing framework. Membership of a broad category does not itself replace designation, registration and actual refund conditions.

The designated-person refund guide explains the current Article 70 framework. A recipient’s refund approval is not automatically an instruction for every supplier to issue a zero-rated invoice.

Likewise, the specific supplier zero-rating route should not create a second refund of VAT never charged. Identify whether a particular transaction uses qualified-supplier zero-rating or actual tax paid with an eligible recipient refund, and retain the basis.

Import exemption has its own customs conditions

Agreement Article 38 and Article 42, explained in ZATCA’s Imports and Exports guideline section 5.1, pp. 22–23, distinguish specified diplomatic/military import exemptions under the applicable customs conditions. These are not identical to the domestic military manufacturing or diplomatic qualifying-supplier routes.

A qualifying customs import relief does not automatically zero-rate every later local resale. Equally, failing the domestic locally manufactured-goods route does not by itself decide whether a particular military import meets a separate customs exemption.

See the import-relief guide for the difference between exemption, suspension and deferred collection. Preserve the actual customs documents and exemption conditions rather than relying on the domestic customer’s status alone.

Separate rate qualification, invoices and input claims

An actual zero-rated taxable supply remains subject to the applicable invoice and record rules. The recipient’s special status does not abolish accurate descriptions, consideration, supplier identity or evidence supporting the rate.

The supplier’s input deduction under Articles 49–51 requires its own taxable-business use, recipient and restriction analysis. A zero output rate can support entitlement, but an unrelated/private cost does not become deductible because the supplier serves a military or diplomatic customer.

No official worked example for these particular domestic routes has been attributed here. The numerical military-contract comparison is explicitly Dariba’s original assumed illustration. No approval or qualification of a named buyer/seller is inferred from it.

Keep an approval file that supports each actual supply

Record the precise statutory route, current implementing decision, supplier licence/qualification, customer identity, local-manufacture evidence where relevant, certificate, scope/value allocation, tax-point facts and invoice. Keep refund/import documents separate where they concern a different relief event.

Where the required delegated controls or qualification cannot be substantiated, establish that missing condition before concluding 0% applies. The existence of an enabling article is not evidence that every seller has satisfied its implementation mechanism.

Dariba recommends reviewing these conditions during procurement and contract pricing. Confirm the actual route before agreeing who bears VAT; a customer’s expectation of relief does not determine the supplier’s statutory tax obligation or automatically change the contract price.