Saudi VAT: Same Legal Person and Foreign Branch Services

An internal recharge can record work within one legal person, a supply between separate companies or an external service ultimately received in Saudi Arabia. Those cases need different VAT analysis. Article 18 of the VAT Implementing Regulations and ZATCA’s current financial-services guidance provide the starting points; the invoice route alone does not determine the answer.

Establish the legal person before analysing the charge

A branch or division can be part of the same legal person as its head office. A separately incorporated subsidiary is a different person, even if wholly owned. Shared branding, consolidated accounts and common management do not convert one into the other.

ZATCA’s Financial Services Sector Guideline, second edition May 2026, sections 8.2-8.3, distinguishes these cases. Keep the incorporation and branch records alongside the service contracts. A tax analysis that starts with the word group can miss whether the actual parties are separate persons or establishments of one person.

Dariba recommendation: prepare a transaction map showing the contracting supplier, invoiced establishment, actual recipient, work performed and payment route. Analyse that map before treating a head-office allocation, management recharge or third-party reimbursement as a taxable supply or an outside-scope amount.

Read Article 18(1) with its express boundaries

Article 18(1) generally places goods and services supplied by a legal person to itself outside the scope of VAT. Its wording preserves Article 16 and excludes deemed supplies from that general treatment.

The first boundary matters for qualifying movements of a person’s own goods between Member States. The second matters where the actual deemed-supply rules apply. It is therefore unsafe to describe every transfer involving branches or the same company as outside scope without considering the nature of the event.

See the own-goods transfer guide and deemed-supplies guide for the separate conditions, evidence and transition issues. A conclusion about an internal service allocation does not answer customs or own-goods movement questions.

Distinguish actual VAT grouping from common ownership

Article 18(2) places supplies between members of the same VAT group outside scope. Apply it to the actual approved members and effective period, rather than companies that merely share a shareholder or expect to join a group.

Articles 10-12 govern eligibility, application, continuing membership and changes. Read the VAT-group analysis where a service company and its recipients are separate entities. A pending application should not be treated as retrospectively eliminating all earlier service invoices.

Grouping also does not remove the group’s external purchases, output obligations or need to attribute input tax. An internal fee disappearing from the VAT analysis does not establish full deduction of external costs supporting exempt or non-economic activities.

Preserve the cumulative conditions in Article 18(3)

Article 18(3) addresses specified services from a nonresident to a legal person established in the Kingdom. Its Arabic wording requires all of the following: establishments in the Kingdom and in more than one Member State; services supplied by a nonresident to an establishment of that same legal person outside the Kingdom and subsequently received by its Saudi establishment; and no Agreement special place-of-supply case placing those services outside the Kingdom.

Record each condition rather than shortening the provision to all foreign-branch charges are taxable. In particular, do not silently replace its Member State wording with any foreign country, or disregard a relevant special place rule.

The guidance also explains actual receipt of unchanged third-party services through a foreign branch. That explanation must be read on its own facts and with the wider supplier, recipient, residence and place-of-supply rules; it is not an amendment removing Article 18(3)‘s stated conditions. Where the result depends on that paragraph’s exact establishment scope, check the current GCC transitional position and obtain specific clarification if needed.

Use the branch-created marketing example on its actual facts

Section 8.3 of the Arabic Financial Services guideline, Example 21, p. 53, concerns ABC’s Saudi head office and UAE branch. The UAE branch develops marketing material across the GCC and receives a compensating amount from the head office. ZATCA treats this as an internal transaction within the same legal person, rather than a supply for VAT purposes.

The corresponding English case is Example 20, also p. 53. The different numbering should not be mistaken for a different transaction. The example concerns work developed by the branch; it does not establish that every external purchase passing through that branch is disregarded.

Dariba analysis: evidence of what the branch actually did is material. Retain the work product and allocation basis. Neither a markup nor its absence independently proves that the service is internal, and ownership of a subsidiary is not a substitute for the example’s same-person facts.

Trace unchanged software through the foreign branch

Arabic section 8.3, Example 22, p. 54, concerns ABC’s Saudi head office, its US branch and a UK software supplier. The US branch contracts for software to be used at the Saudi head office, without modifying it before passing it on. The UK supplier invoices SAR 200,000 to the US branch, which recharges the head office. ZATCA treats the Saudi head office as receiving the service directly from the software supplier and requires VAT to be accounted for on that value.

The English guideline numbers this Example 21. The preceding explanation identifies the Saudi establishment as the actual beneficiary of a third-party service passed through without substantial modification or addition. The software purchase is therefore not disregarded merely because the later cost entry is between branches.

Dariba calculation — additional assumptions: if the SAR 200,000 service is standard-rated at 15%, reverse-charge output is SAR 30,000. This arithmetic is Dariba’s calculation; the official example identifies the SAR 200,000 value but does not print that tax calculation. Do not add an assumed branch markup to the official facts.

Materially different contracts, local use, modification or separate supplies require fresh analysis. The absence of the example’s unchanged-service facts does not automatically establish that every other recharge is outside scope.

Keep reverse-charge output separate from input recovery

Section 8.3 distinguishes exempt services from taxable external services for reverse-charge purposes. Identify the actual service before calculating tax; a foreign supplier’s invoice does not make every financial transaction standard-rated.

Where reverse-charge output is due, Articles 49-51 and the Input Tax Deduction Guideline require the recipient’s own entitlement, use and evidence to be considered. A bank or mixed business may not recover all VAT on services supporting exempt activities. Declaring output and input in the same return does not make the two amounts automatically equal.

Dariba illustration — original recovery assumption: on the SAR 30,000 output calculation above, assume a properly established 40% deductible proportion applies to this particular input. Deductible input is SAR 12,000, leaving SAR 18,000 attributable to this item before other return entries. The 40% is an assumed outcome for illustration, not a statutory default or permission to apply a turnover percentage without analysis.

Retain a transaction trail that survives the allocation entry

Keep the original third-party contract and invoice, branch status, actual-use evidence, modifications or work performed, allocation, Saudi receipt and VAT calculation. For a group case, keep approved membership and effective dates as well. Reconcile the supplier amount to the recharge so an external service is neither omitted nor counted twice.

The imported-services guide addresses the wider reverse-charge framework. Escalate a specific uncertainty about recipient, establishment or statutory scope with the actual documents. The practical aim is a supported conclusion about this service, rather than a blanket tax code for every head-office or foreign-branch account.