Zero-Rated vs Exempt Supplies in Saudi VAT: Guide | Hespah LLC [Skip to main content](#main-content)[![Hespah LLC](https://centralcdn.hespah.com/home_logolight_file2png.webp)](/en)Search More [Home](/en) [Learning Hub](/en/courses) [About us](https://hespah.com/who-we-are) [Blog](/en/blog) [Contact Us](/en/contact) Login[New Account](/en/register) 1. [Home](/en) / 2. [Blog](/en/blog) / 3. Zero-Rated vs Exempt Supplies in Saudi VAT: A Guide Zero-Rated vs Exempt Supplies in Saudi VAT: A Guide =================================================== 2026-09-22 / 1 month ago A company exports office furniture to the UAE, while another leases residential apartments in Riyadh. Neither collects a single riyal of VAT from its customer. But the difference between them is fundamental: the exporter recovers every riyal of VAT it paid on its own purchases, while the landlord recovers nothing. The exporter's supply is **zero-rated**; the landlord's is exempt. The distinction looks cosmetic on the customer's invoice, but it flips project profitability on its head when a business owner confuses the two. ![Zero-rated export versus exempt residential lease: zero VAT charged in both cases, but input VAT is deductible only for the zero-rated supply](https://centralcdn.hespah.com/uploads/emils/17908075700.jpeg "Zero-rated export versus exempt residential lease: zero VAT charged in both cases, but input VAT is deductible only for the zero-rated supply") What is the core difference between zero-rated and exempt? ---------------------------------------------------------- Neither type involves collecting tax from the customer. But a zero-rated supply gives the supplier the full right to deduct related input tax, while an exempt supply denies that right entirely. This distinction is set out explicitly in Article 49 and Article 51 of the Implementing Regulations of the VAT Law. So an exporter recovers every riyal of tax paid on production, shipping, and storage inputs, while a company leasing residential real estate absorbs the tax on its related purchases as a final cost baked into its pricing, because it can neither deduct nor reclaim it from the Authority. Element Zero-Rated Exempt Tax collected from the customer Zero SAR Zero SAR Deduction of related input tax Fully allowed Not allowed at all Effect of non-deduction on the supplier None; tax is recovered Becomes a final cost the supplier bears Mandatory VAT registration Fully zero-rated suppliers are exempt from the requirement No equivalent exemption What supplies are exempt from VAT? ---------------------------------- Article 29 and Article 30 of the Implementing Regulations set out two main exempt categories: financial services, and the sale or lease of residential real estate. 1. Interest or lending fees carrying an implicit margin, including loans and credit cards, real estate finance under murabaha or diminishing musharaka, and finance leasing. 2. Commissions based on an implicit margin or spread for brokerage services, or under a mudaraba or wakala contract. 3. Issuing or transferring a debt security, equity security, or any transferable instrument representing an obligation to pay a monetary amount. 4. Life insurance contracts, and their reinsurance. These financial services lose their exempt status if the consideration is an explicit fee or commission rather than an implicit margin — in that case they are taxed at the standard rate like any ordinary service, under the same Article 29. Real estate, meanwhile, is exempt on sale regardless of type — commercial, residential, agricultural, or undeveloped bare land — as long as it transfers through a change of ownership. Leasing residential real estate specifically is exempt too, but leasing commercial real estate remains taxable at the standard rate. Hotels, guesthouses, and serviced apartments are not treated as residential real estate even though they provide accommodation, because the Regulations explicitly exclude them from that definition as temporary lodging for visitors, not permanent housing. ![VAT-exempt supplies in Saudi Arabia: margin-based financial services, sale of real estate and residential leasing; commercial leasing stays standard-rated](https://centralcdn.hespah.com/uploads/emils/17908075701.jpeg "VAT-exempt supplies in Saudi Arabia: margin-based financial services, sale of real estate and residential leasing; commercial leasing stays standard-rated") What supplies are zero-rated? ----------------------------- Articles 32 through 36 of the Implementing Regulations list the zero-rated categories. The table below summarizes them: Supply type Core condition for zero-rating Export of goods outside Council territory Retain shipping and customs clearance evidence within 90 days of the supply Services supplied to non-GCC residents The customer must not be resident in a Member State, nor benefit from the service while inside the Kingdom International transport of goods Always zero-rated, no further condition International transport of passengers Via a scheduled flight with a published timetable, or a qualifying means of transport carrying 10+ passengers Qualifying medicines and medical equipment Per the Ministry of Health's classification Investment metals: gold, silver, platinum Purity of at least 99%, and it must be the first supply by the producer or refiner itself International passenger transport also zero-rates everything directly connected to it: luggage accompanying the passenger — including pets, bicycles, and prams — plus seat reservations and sleeping-berth charges, as long as these remain ancillary to the international journey itself rather than standing alone. Zero-rating services to non-residents is not automatic in every case, either. Article 33 carves out four exceptions: if the place of supply falls inside a Member State under the Agreement's special cases, if the customer is itself resident in a Member State, if the customer or another person benefits directly from the service while inside a Member State without full input tax deduction rights, or if the service relates to tangible goods located inside a Member State at the time of supply. Any of these conditions pulls the service back to the standard rate despite the customer being non-resident. Sometimes a single supply meets both descriptions at once — an exempt financial service delivered to a non-resident customer, say. Article 31 resolves this cleanly: zero-rating always wins, and the dual case is treated as zero-rated rather than exempt, because that is the more favorable outcome for the supplier's deduction rights. How the difference affects mandatory VAT registration ----------------------------------------------------- Anyone whose activity reaches the mandatory registration threshold must register — with one exception: a person whose annual supplies are exclusively zero-rated is excluded from that requirement under Article 9 of the Implementing Regulations, while retaining the right to register voluntarily to reclaim input tax. There is no equivalent exemption for someone whose supplies are entirely exempt; they remain obligated to register once their activity crosses the threshold, even though they will deduct nothing from their input tax. For readers tracking other VAT obligations, see our articles on [VAT registration](https://hespah.com/en/blog/vat-registration-saudi-arabia) and [filing the VAT return](https://hespah.com/en/blog/vat-return-filing-saudi-arabia). Anyone dealing with payments to non-residents will find useful background in our article on [withholding tax](https://hespah.com/en/blog/withholding-tax-saudi-arabia), while comparing zero-rating with [the difference between zakat and income tax](https://hespah.com/en/blog/zakat-vs-income-tax-saudi) rounds out the bigger picture of the Saudi tax system. [Hespah Academy's courses](https://hespah.com/courses) cover these topics in greater applied depth. Frequently asked questions -------------------------- ### Can I deduct input tax on an exempt supply? No. Article 51 of the Implementing Regulations states explicitly that input tax exclusively and directly attributed to an exempt supply is not deductible under any circumstance. ### Is leasing a commercial office exempt from VAT? No. The exemption covers leasing residential real estate only, under the Implementing Regulations' definition. Leasing an office or any commercial property is taxed at the standard rate like any ordinary service. ### What is the difference between a zero-rated supply and one outside the scope of VAT entirely? A zero-rated supply is genuinely within the scope of VAT, just taxed at a 0% rate, and the supplier reports it on the VAT return and deducts related input tax normally. Something entirely outside the scope — such as certain transactions a person makes with itself — is not reported on the return at all, because it is not considered a supply in the first place. ### Are hotels treated as exempt residential real estate? No. The Implementing Regulations explicitly exclude hotels, inns, guesthouses, and serviced apartments from the definition of residential real estate, even though they provide actual lodging, because they are designed for temporary visitor stays rather than permanent housing. Sources ------- - [Implementing Regulations of the VAT Law — Zakat, Tax and Customs Authority](https://zatca.gov.sa/en/RulesRegulations/Taxes/Documents/Implmenting%20Regulations%20of%20the%20VAT%20Law_EN.pdf) *This article is for informational purposes only and does not replace consulting official sources or a qualified professional before taking any action.* Articles you might like ----------------------- [![Nitaqat Wage Floor Rises to SAR 5,000 Then SAR 6,000](https://centralcdn.hespah.com/265/conversions/cover-sm.webp)2026-10-26 ### Nitaqat Wage Floor Rises to SAR 5,000 Then SAR 6,000 The Nitaqat wage floor rises to SAR 5,000 after six months and SAR 6,000 after twelve, by royal directive of 25 October](/en/blog/nitaqat-wage-floor-2026)[![UAE e-Invoicing: the Provider Deadline Falls on 30 October](https://centralcdn.hespah.com/263/conversions/cover-sm.webp)2026-10-26 ### UAE e-Invoicing: the Provider Deadline Falls on 30 October E-invoicing in the UAE: appoint an accredited service provider by 30 October 2026 if revenues reach AED 50 million; go l](/en/blog/uae-einvoicing-asp-deadline)[![Reclaiming VAT on Real Estate Supplies: a 30-Day Window](https://centralcdn.hespah.com/181/conversions/cover-sm.webp)2026-10-14 ### Reclaiming VAT on Real Estate Supplies: a 30-Day Window ZATCA Board Resolution 10-04-26, published 13 October 2026, opens a VAT refund on real estate supplies made by individua](/en/blog/vat-real-estate-supplies-refund)[![ZATCA Objection: The Full Appeal Path, Step by Step](https://centralcdn.hespah.com/138/conversions/cover-sm.webp)2026-10-06 ### ZATCA Objection: The Full Appeal Path, Step by Step A ZATCA objection runs on deadlines: 60 days to file a grievance, 90 for ZATCA to rule, 30 to settle or litigate. 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