What are zero-rated supplies?
Published
Zero-rated supplies are supplies that are taxable under VAT, but at a rate of 0%. The apparent contradiction is deliberate and carries money: because they are "taxable," the supplier keeps the full right to deduct input VAT - unlike an exempt supply.
The equation that makes the difference
Zero-rated: Output VAT = 0, input VAT deduction = preserved Net position with ZATCA = 0 − inputs = a credit in your favourExempt: No output VAT, and no input deduction The tax on your purchases = a final cost to you
The main cases
| Case | Practical note |
|---|---|
| Exports outside the Kingdom meeting the conditions | Proof of exit is the condition - export documentation decides the rate |
| International transport of goods and passengers, and related services | Includes specified associated services |
| Qualifying medicines and medical goods | Per the approved competent-authority lists - not everything a pharmacy sells |
| Qualifying investment metals (gold and silver at investment purity) | For investment trading under the rules |
The detailed lists and conditions live in the implementing regulations and ZATCA's guides, which are the reference before classifying any supply.
A worked export from Al-Waha
Al-Waha sells SAR 80,000 of furniture to a customer outside the Kingdom, meeting export conditions with documentation. The goods and local costs of SAR 52,000 carried SAR 7,800 of input VAT.
Output VAT on the export = 80,000 × 0% = 0Related input VAT = SAR 7,800 - remains deductibleEffect on the return = a 7,800 credit for Al-Waha, offsetting output VAT on its domestic sales
Had the supply been "exempt" rather than "zero-rated," the 7,800 would have become a cost, raising the deal's cost by 15% on every taxable component - which is exactly why exports are zero-rated: so goods leave the Kingdom with no tax embedded in their price and compete globally.
On the invoice and the return
- A zero-rated line shows 0% explicitly - not blank, not omitted.
- On the return, zero-rated supplies are declared within taxable supplies in their designated box - leaving them out distorts the sales reconciliation.
- The documents proving the zero conditions (exports above all) are retained with the invoice; a zero rate without its documents is treated at audit as a 15% supply whose tax was never collected.
Frequently asked questions
Why call them "taxable" when there is no tax?
Because taxability is what grants input deduction and brings them into the return and invoicing scope. Zero is the rate; taxable is the status.
Does selling to a foreign customer automatically mean zero?
No. What matters is meeting export conditions or place-of-supply rules, with documents. A local sale to a customer holding a foreign passport is an ordinary domestic supply.
All my supplies are zero-rated - do I register?
Zero-rated supplies count toward the registration thresholds because they are taxable. Registration is usually in your interest anyway: it is your route to recovering your inputs.