VAT Group Registration Rules: Ownership, Residency, SEZ Restrictions — Saudi Arabia

Ownership / Control Thresholds (Typical)

• Entities must be under common control (e.g., a person or persons holding 50% or more of capital/voting rights, directly or indirectly).
• Control can be legal or factual (e.g., board appointment rights, decisive management control) and must be demonstrable.
• Each member should independently qualify for VAT registration in Saudi Arabia.

Evidence You’ll Need

• Group org chart with % shareholdings and control links.
• Memorandum & Articles, shareholder agreements, board minutes.
• Audited FS/trial balances to support economic links.

Who Can Join

• Resident legal persons (e.g., Saudi-incorporated companies) with a fixed establishment in KSA.
• Branches of a resident company in KSA (same legal person) are not separate “members,” but their activity is covered through the principal entity.

Who Cannot Join

• Non-residents without a KSA fixed establishment.
• Entities that do not meet VAT registration criteria on a stand-alone basis.
• Persons covered by special regimes listed under exclusions (see next section).

Generally Ineligible for VAT Grouping

• Entities licensed in Special Economic Zones (SEZs) operating under customs suspension rules.
• Persons registered under certain eligible refund categories (e.g., special refund regimes under VAT regulations).

Why the Restriction?

• SEZ and special-regime entities may be subject to distinct VAT/0%/customs suspension treatments that are incompatible with group neutrality.
• Grouping could distort input VAT recovery or treatment of cross-border flows; hence the exclusion.

Once Grouped

• The representative member files the VAT return for the entire group.
• Intra-group supplies between members are generally disregarded for VAT (no output VAT); keep intercompany invoices for accounting control.
• Members are often jointly and severally liable for the group’s VAT debts—reflect this in governance and cash management.

Change Management

• Monitor ownership changes; falling below control thresholds can force de-grouping.
• Track residency/SEZ status; moving into a special regime can make a member ineligible.
• Notify ZATCA promptly of additions/removals and maintain evidence for audits.

1) Pure KSA Group (Qualifies)

HoldCo (KSA) owns 100% of Subsidiary A (manufacturing) and 80% of Subsidiary B (distribution). All are resident and VAT-registered. No SEZ licences. → Eligible to form a VAT group; intra-group supply of goods/services is disregarded.

2) SEZ Subsidiary (Excluded)

Group has a logistics entity licensed in an SEZ with customs suspension status. Even though ownership >80%, the SEZ company is ineligible. Other resident entities can still group without it.

3) Foreign Parent, KSA Subs Only

Foreign Parent controls two Saudi subsidiaries (resident). Only the Saudi entities can join the VAT group; the parent remains outside. Intercompany charges with the parent are taxable per normal rules.