filing forged or fictitious invoices or documents, or changing of purchase or sale invoices or other documents with the intention of understating profits or overstating losses. Any word or phrase with no specific definition in this Chapter shall have the same definition it has in other Laws applicable in the Kingdom provided that such definition is not inconsistent with the provisions of this Law. The provisions of this Chapter shall not apply to any company engaged in the production of petroleum, or the production of both petroleum and natural gas, with respect to such company's activities within its areas of operations or concession area, as delineated upon the effectiveness of this Law. Compensation amounts received shall take the character of what is compensated for. (c) The loss of the related party disallowance rule stated in paragraph (d) of Article 63 of this Law shall not be applicable to the partner's share of losses and expenses in a partnership in accordance with paragraph (b) of this Article. (e) Tools used by the taxpayer for its trade, and personal effects and furnishings, are exempt from seizure, with a maximum limit not exceeding three hundred thousand riyals (SR300,000). Cost base adjustments are distributed among assets according to the percentage difference between the cost base and the market value. If he is a partner in a capital company and he, either alone or together with a related person or persons under this Article, controls fifty percent (50%) or more of the voting rights or its value, either directly or indirectly through a subsidiary company or companies of any type. Twenty percent (20%) of the unpaid tax if the delay exceeds ninety (90) days and does not exceed three hundred sixty-five (365) days of the date specified by Law. M/131, dated 20 September 2017G, (29-12-1438H) amending certain articles of the Income Tax Law (ITL). (e) Where a taxpayer disposes of a part of an asset, the cost base of the asset is apportioned between the part retained and the part disposed of in accordance with their market value at the time of purchase of the asset. This Law shall nullify the Income Tax Law issued by Royal Decree No.3321, dated 21/1/1370 H. Tax withholding provisions of Article 68 of this Law shall become effective from the date of its coming into force. construction sites, assembly facilities, and the exercise of supervisory activities connected therewith; installations or sites used for surveying for natural resources, drilling equipment, or ships used for surveying for natural resources, as well as the exercise of supervisory activities connected therewith; a fixed base where a non-resident natural person carries out business; a branch of a non-resident company licensed to carry out business in the Kingdom. (a) The tax base of a resident capital company is the shares of non-Saudi partners in its taxable income from any activity from sources within the Kingdom minus expenses permitted under this Law. a resident non-Saudi natural person who conducts business. (b) From the sales returns, the expenses of the seizure and sale shall be paid first, then tax and fines. real estate ownership and exclusions] Corporate Income Tax [2004] Labor and Workmen Law [1969] Cooperative Insurance Companies Control Law [2003] Law of Printing and Publication [2003] Commercial Data Law and Regulations [2002] (b) The Department has the right not to allow a deduction if the taxpayer is unable without reasonable excuse to produce a document of the expense or evidence supporting the legitimacy of its claim for the deduction. (a) In determining the tax base of a partner, the income, expenses, losses, or credits derived or accrued against the partnership retain their status as to geographic source and type of income, gains, deductions, losses, and debt. (c) A taxpayer may request a refund of opeverpaid amounts at any time within five years from the end of the overpaid taxable year. providing the Department, at the end of the taxable year, with the name, address, and the beneficiary's registration number (identification number), if available, along with any additional information the Department may require. (b) In case of a change of fifty percent (50%) or more in the ownership or control of a capital company, the share of a non-Saudi may not be deducted in losses incurred prior to the change in accordance with Article 21 of this Law in taxable years following the change. Any remaining amount shall be returned to the taxpayer. (d) A person complying with the provisions this Article and Articles 73 and 74 of this Law shall be exempted from any obligation to the taxpayer or any other person, regarding the value of properties seized from the time of its compliance. a non-resident who conducts business in the Kingdom through a permanent establishment. Article 1: Definitions However, the company is required to file a tax declaration for the purpose of information showing the amount of income, profit, loss, expenses, debts, and other items or tax-related matters of the partnership for the taxable year. 1110 dated 24/12/1410 [16 July 1990], or any subsequent amendments, Regulations: Implementing regulations of this Law. The Dispute Resolution Committee (DRC) hears tax disputes between GAZT and tax-payers. Withholding tax is applicable when payments is made from a permeant establishment (PE) or a resident party or to a non-resident party for services performed. (e) The tax base of a capital company is determined separately of its shareholders or partners. Article 38: Cost Base of Partner's Interest. The claim that lawyers are prohibited from providing legal- or Sharia-related advice regarding income tax and zakat – in Saudi Arabia may be based on the “Rules Governing Licensing To Provide Zakat And Income Tax,” which was established based on ministerial decision No. a non-resident with a permanent establishment in the Kingdom. (a) A taxpayer, other than a non-resident with no permanent establishment in the Kingdom, shall maintain in Arabic the necessary commercial books and accounting records for precise determination of the tax payable by it. Cumulative annual cash flows shall mean the aggregation of the annual cash flows of the taxpayer subject to the natural gas investment tax for each year starting from the first year of its tax declaration in which the taxpayer was subject to the natural gas investment tax until the year preceding the year in which the tax declaration is due for presentation. (d) A taxpayer who used the cash method shall calculate the cost of stock by use of the prime (direct) cost method or the absorption costing method, but a taxpayer using the accrual method shall calculate the cost of stock by use of the absorption method only. Operational losses incurred by the taxpayer during a tax exemption period may not be carried forward. Employee’s contributions to thrift funds or loans due to such funds. This Law shall nullify the Income Tax Law issued by Royal Decree No.3321, dated 21/1/1370 H [2 November 1950] and its amendments, the Law of Additional Income Tax on Companies Engaged in Production of Oil and Hydrocarbons issued by Royal Decree No.7634, dated 16/3/ 1370 H and its amendments, and the Natural Gas Investment Tax Law issued under Royal Decree No.M/37, dated … Withholding Tax in Saudi Arabia Withholding tax is applicable when payments is made from a permeant establishment (PE) or a resident party or to a non-resident party for services performed. (i) Where all the assets in a group are disposed of, the balance of the group may be deducted at the end of the year. (b) If a partner retires from a partnership and receives a distribution causing him to make profit by disposing of his share in the partnership, the cost base of the partnership's profiting assets shall be adjusted by increasing the amount of profit made, provided that the value of such assets does not exceed their market value. Article 16: Research and Development Expenses. 153/M dated 5/11/1441AH corresponding to June 26, 2020 has been issued approving the ministers’ Council Resolution No. In case the condition of a treaty or an international agreement to which the Kingdom is party are inconsistent with the provisions of this Law, the conditions of the treaty or international agreement shall prevail except for provisions of Article 63 of this Law, which are related to procedures against tax avoidance. Personal Income Tax. The effective rate is 2.5% of the net worth of natural persons and 2.5% of total capital resources of companies. (b) No gain or loss on disposal of a depreciable asset is taken into account other than what is stated in Article 17 of this Law. Amounts for exploitation of a natural resource in the Kingdom. The Department shall notify the taxpayer of the additional assessment and the reasons therefore. (a) The tax base of a resident capital company is the shares of non-Saudi partners in its taxable income from any activity from sources within the Kingdom, minus expenses permitted under this Law. a non-resident with other taxable income from sources within the Kingdom. (d) The cost base of an asset purchased, produced, manufactured, or constructed by the taxpayer is the amount paid or incurred by the taxpayer in cash or in kind in the process of acquiring the asset. Income from natural gas investment activities shall be the gross income derived from the sale, exchange or transfer of natural gas and its liquids, gas condensates, including sulfur and other products, as well as any other incidental or non-operational income derived from the taxpayer's primary activity, regardless of its type or source, including income derived from the utilization of excess energy in a facility subject to natural gas investment tax. (a) Except for land, a depreciation may be deducted for a taxpayer's depreciable tangible or intangible assets which lose value because of wear and tear or obsolescence and which are wholly or partly used in the generation of taxable income, and remain to have a value after the end of the taxable year. The Regulations shall specify the restrictions and amount of fine on different categories of taxpayers. Tax Treaty. (e) income tax paid in the Kingdom or in another sountry. (b) A partner shall take the cost base of the asset which equals the market value of the asset. (a) For the purpose of calculating the natural gas investment tax, the taxpayer's natural gas investment tax base for each gas exploration and production contract or agreement with the Government shall be deemed independent of the natural gas investment tax base or any other gas exploration and production contract or agreement. (c) For purposes of this Article, a payment made by a permanent establishment of a non-resident in the Kingdom is considered as if paid by a resident company. As for taxable years starting on or prior to the date of its coming into force, they shall be subject to tax laws in effect prior to the issuance of this Law. The declaration shall be subject to procedural rules, including fines imposed on tax declarations in accordance with this Law. (b) A taxpayer shall not be obligated to make advance payments under paragraph (a) of this Article if the result of the above equation is less than five hundred thousand Saudi riyals (SR500,000). Saudi Arabia issued a Ministerial Resolution (MR) No. Employee’s contributions to thrift funds or loans due to such funds. (a) The taxpayer may object to the Department's assessment within sixty days of receipt of the assessment letter. Since the level of Saudi taxes is so low, most expats will not see any issue with the lack of a treaty. A partnership's loss suspended in accordance with paragraph (d) of Article 63 of this Law shall not be distributed among the partners until its conditions are fulfilled. (d) The depreciation deduction for each group is calculated by applying its depreciation rate determined in accordance with paragraph (b) of this Article against the balance of the value of such group at the end of the taxable year. Income or expenses relating to jointly-owned property are apportioned among partners in proportion to their respective shares in the property. The tax base from branches of foreign airlines operating in the Kingdom shall be considered five percent (5%) of the gross income realized in the Kingdom from tickets, cargo, mail or any other income. The Kingdom of Saudi Arabia has a very liberal tax ... (a form of tithe) is paid annually by Saudi individuals and companies within the provisions of Islamic law as laid down by Royal Decree No. (a) All persons and government bodies shall provide the Department with any information related to tax requested by the Department for taxation purposes stipulated in this Law. (b) A natural person is considered related to companies of any type in the following circumstances: (c) Companies and agencies are deemed under common control if the same person or related persons control fifty percent (50%) or more according to this Article as follows: Article 65: Statutory Period of Tax Assessment. (e) The provisions of this Law relating to collection of tax and its mandatory procedures shall apply to advance payments of tax as they apply to the tax itself. Salary & Wages in Saudi Arabia and its Deducution Rule. The Arabic version is the governing text. The applicable income tax rate is 20%, with the exception of tax rates for the gas and oil industries. If a company has both Saudi and foreign shareholders, the corporate income tax is calculated on the portion of taxable income attributable to the non-Saudi, while the Saudi part contributes to the tax base of Zakat. (a) A taxpayer who uses the accrual method shall record income and expenses when they are due. (a) A taxpayer's method of accounting must clearly reflect the taxpayer's income. (a) A taxpayer who maintains a stock shall establish and maintain inventories for such stock. (a) A taxpayer may deduct bad debts arising from sales of goods or services that have been previously declared as a taxable income of the taxpayer. The US does not have a treaty for taxes with Saudi Arabia. The Regulations shall specify the maximum limits allowed to be annually deducted. (e) If an individual taxpayer splits its income and divides it with another person, the Department may adjust the tax base of the taxpayer and the other person to prevent any reduction in the due tax. (b) The following are considered a permanent establishment: (c) A place is not considered a permanent establishment of a non-resident in the Kingdom if it is used in the Kingdom only for the following purposes: (d) A non-resident partner in a resident partnership is considered an owner of a permanent establishment in the Kingdom in the form of an interest in a partnership. Saudi Arabia: Income Tax Law Date of adoption 6 March 2004 Entry into force In effect Text versions Arabic Source: – Kingdom of Saudi Arabia Bureau of Experts at The Council of Ministers, accessed: 21 May 2013. The Minister shall have the following powers: The Embassy of The Kingdom of Saudi Arabia Saudi Arabia: Income Tax Law Date of adoption 6 March 2004 Entry into force In effect Text versions Arabic Source: – Kingdom of Saudi Arabia Bureau of Experts at The Council of Ministers, accessed: 21 May 2013. (a) If a partner or partners enter into or retire from a partnership which results in its reconstitution, all its assets shall be considered transferred to the new partnership against shares in the partnership. 1 defines activity as commercial activity in all its forms that is … A resident of Saudi Arabia who is not native to the nation but conducts business there will be obligated to pay taxes on income earned within Saudi Arabia less any deductions allowed by law. A taxpayer is subject to income tax stipulated under paragraph (b) of Article 7 of this Law on the following: (a) Its income from processing and fractionation of natural gas in a licensed independent plant. The internal rate of return shall mean the discount rate that causes the net present value of these cumulative annual cash flows (after being discounted to the start of the first year of such cash flows) to equal zero, and then rounded to the nearest tenth of one percent (1%). Henceforth, the general partners' shares are deducted in determining the tax base of the partnership. Saudi corporate tax rates range from 25 percent (on annual taxable income of up to SR 100,000) to 45 percent (on annual taxable income of over SR 1 million). If he withholds tax, but fails to pay the tax to the Department as required. The Dispute Resolution Committee (DRC) hears tax disputes between GAZT and tax-payers. Saudi Arabia Collects New Tax On Expats From July, Saudi Arabia is collecting a new tax from expats and their dependants, a move that is seen to boost the country’s revenues amid weak oil prices. a resident non-Saudi natural person who conducts business in the Kingdom. The US does not have a treaty for taxes with Saudi Arabia. (d) Debt incurred by the partnership, including the debt against its properties, increases each partner's cost base according to his share in the partnership. It looks like your browser does not have JavaScript enabled. The conditions shall be considered fulfilled in case a loss is incurred in distribution upon complete disposal of the partner's share. Abstract Art. employees of the Department in the course, for the purpose, of carrying out their duties under the law; employees of the Customs Authority, for the purpose of enforcing the Customs Law; the General Audit Bureau, in its official capacity, for the purpose of auditing and reviewing; the tax authorities of foreign countries in accordance with treaties to which the Kingdom is a party; law enforcement agencies, for the purpose of the prosecution of tax offenses; any judicial body in the Kingdom, upon its order, in a case under review, to determine a taxpayer's tax liability, or in any other administrative or criminal matter under review. Without prejudice to the Certified Accountants Law, the Department may prosecute any certified accountant proven to have presented or certified false statements, which constitutes a violation of established accounting principles with the intention of assisting the taxpayer to evade all or part of the tax. A taxpayer shall pay its due tax in accordance with the declaration within one hundred and twenty days from the end of its taxable year. Article 61: The Department's Right to Information. A Royal Decree No. That does not include local distribution networks and pipelines constructed by non-gas producers beyond the official sale points. Please turn on JavaScript and try again. Payments for air tickets, air freight and maritime freight - 5%, Payments for international telecommunications services - 5%, Any other payments specified in the By-Law - Not to exceed 15%. Labour laws in Saudi Arabia: Saudi Arabia’s labour laws have been reformed by the country’s Ministry of Human Resource and Social ... No Income Tax on … If the distribution is a complete disposal of a partner's share, and is less than the partner's cost base, the difference between the cost base and distribution may be deducted on the basis that it is a loss resulting from his disposal of his share. Saudi corporate tax rates range from 25 percent (on annual taxable income of up to SR 100,000) to 45 percent (on annual taxable income of over SR 1 million). (c) If a partner retires from membership in a partnership and receives a distribution causing him to incur a loss by disposing of his share in the partnership, the cost base of the partnership's losing assets shall be adjusted by reducing the value of the loss incurred, provided that the cost base of such assets is not less than zero. (d) The tax base of each natural person is determined separately. The Regulations shall specify restrictions and procedures required to implement this obligation. Consulate/Visa Section: (202) 944-3126 (c) The Department may re-allocate revenues and expenses in transactions among related parties or parties under the same body, so as to reflect the returns that would have resulted if the parties were independent and unrelated. In determining the tax base of each taxpayer, a deduction is allowed for donations paid during the taxable year to public agencies or philanthropic societies licensed in the Kingdom which are nonprofit organizations and are allowed to receive these donations. Granting remunerations upon recommendations by the Department's Director-General to employees for outstanding performance of their work. Saudi Arabia favourable amendment in Income tax law for Oil and Hydrocarbon sector Sheeba Khan 06 July 2020. Article 59: Confidentiality of Information. (a) An employer's contributions to an authorized retirement fund established in accordance with the laws of the Kingdom may be deducted in favor of the employee. Withholding Tax in Saudi Arabia . With respect to capital companies, control means the ownership of the voting rights therein or its value, either directly or indirectly through a subsidiary company or companies of any type. The Kingdom of Saudi Arabia Excise Tax Law Chapter 1: Introductory Provisions Article 1: 1. M/61 dated 17/12/1409 [20 July 1989] and its implementing regulations issued by Ministerial Decision No. (h) Where a taxpayer disposes of an asset by way of gift or inheritance, the disposer is treated as having received compensation equal to the market value of the asset at the time of disposal, unless paragraph (i) of this Article is applicable. The natural gas investment tax basis shall be the gross income referred to in Article 46 of this Law, minus the expenses deductible under this Law. A taxpayer shall calculate the book value or the stock by use of the weighted average method. (b) The percentage of work completed is determined by comparing the costs of the contract incurred during the taxable year with the total estimated cost of the contract. A) Income tax law amendment. (a) Preliminary Objection Committees with jurisdiction to settle tax disputes shall be formed by a decision of the Minister. The provisions of this Law which are applicable to partnerships shall apply to the shares of general partners in partnerships limited by shares. No income is taxed by Saudi Arabia, so the source of income does not matter. a person engaged in the field of oil and hydrocarbons production. (b) A person withholding tax under this Article shall comply with the following: c) The person responsible for withholding tax under this Article is personally liable to pay the unpaid tax and any delay fines resulting therefrom, in accordance with paragraph (a) of Article 77 of this Law, if any of the following cases applies to him: (d) In addition to what is stated in paragraph (b) of this Article, if tax is not withheld in accordance with the provisions of this Article, the beneficiary remains indebted to the Department for the amount of the tax and the Department may recover it from him, his agent or sponsor. No income is taxed by Saudi Arabia, so the source of income does not matter. If he fails to report withholding statements to the Department as stipulated under subparagraph (3) of paragraph (b) of this Article. (b) The Department may conduct a filed examination of the taxpayer's books and records during working hours to ascertain the correctness of the taxpayer's tax liability. This includes marine or semi-marine areas that are under the sovereignty, sovereignty rights or jurisdiction of the Kingdom in accordance with International Law, Capital company: A joint stock company, a limited liability company, or a company limited by shares. (g) If tax is withheld for an amount paid to a taxpayer which is included in its tax base, the tax withheld shall be deducted from the tax due on the taxpayer against the tax base. (a) Income tax stipulated under paragraph (b) of Article 7 of this Law shall be applied to natural gas investment tax base of a taxpayer subject to natural gas investment tax. Article 40: Transfer of Property to a Partnership. A) Income tax law amendment. • The Saudi tax authority, the Department of Zakat and Income Tax (DZIT), will issue guidelines on transfer pricing for transactions between related parties that meet international standards (zakat refers to a tax based on Islamic law, that constitutes giving to charity). (a) Gross income and tax base are calculated in the Saudi Riyal. (a) For a taxpayer who uses the accrual method, income and expenses relating to a long-term contract shall be calculated on the basis of the percentage of the work completed during the taxable year. (b) The Department may make or amend an assessment within ten years of the deadline specified for filing the tax declaration for the taxable year if a taxpayer does not file its tax declaration, or it is found that the declaration is incomplete or incorrect with the intent to tax evasion. (f) Expenses incurred to alter or improve a non-depreciable asset are added to the cost base of the asset. Amending depreciation groups and rates stipulated in Article 17 of this Law. 601 New Hampshire Avenue, NW (b) If calculation of income involves an amount in a currency other than the Saudi Riyal, the amount shall be calculated for taxation purposes in Saudi Riyal at the exchange rate declared by the Saudi Arabian Monetary Agency on the date of the transaction. The gross income of a taxpayer includes any payment from which the taxpayer benefits directly or indirectly, as well as any payment dealt with according to its instructions, if such payment is considered income of the taxpayer if paid to the taxpayer directly. Under current practice, supply contracts whereby a foreign, non-resident company exports goods to Saudi Arabia would not generate income subject to Saudi tax. storing, displaying, or delivering goods or products belonging to the non-resident; keeping a stock of goods or products belonging to the non-resident for the purpose of processing by another person; purchasing goods or products for the sole purpose of collection of information for the non-resident; carrying out other activities of preparatory or auxiliary nature for the interests of the non-resident; drafting contracts for signature in connection with loans, delivery of goods, or activities of technical services; performing any series of activities stated in subparagraphs 1 to 5 of this paragraph. (l) As an exception to the provisions of the previous paragraphs, assets under Cuild, Operate and Transfer (BOT) or Build, Own, Operate and Transfer (BOOT) contracts may be depreciated over the contract period or over the remaining period of the contract, if acquired or renewed during that period. (b) Adding back non-cash items deducted for the purpose of determining the taxpayer's base. (b) The provisions of this Article do not apply to taxpayers subject only to final withholding tax in accordance with Article 68 of this Law. (b) Its income from transporting natural gas for a third party through a licensed independent pipeline. The taxpayer shall file separate tax returns and audited closing accounts for each gas exploration and production contract or agreement. disregard any transaction with no tax effect; re-classify transactions whose form does not reflect their substance and put them in their real form. Saudi Arabia’s Minister of Finance issued Ministerial Resolution (MR) No. Article 41: Transfer of Asset Ownership from a Partnership to a Partner. (b) The Department shall notify the taxpayer of tax assessment under paragraph (a) of this Article and the tax due on it by registered official letter or by any other means that provides its receipt of the notification. A natural gas investment tax shall be imposed on every person engaged in natural gas investment, gas liquids and condensates within the Kingdom, its exclusive economic region or its continental shelf. (b) A partner's share in a partnership's income, loss, expenses, and debt shall be taken into account for the purpose of determining the tax base of the partner's taxable year in which the partnership's taxable year ends. (c) The monthly maintenance due upon the taxpayer as well as its living expenses stipulated by provisions of other laws in force are not subject to freezing. The following words and phrases, wherever mentioned in the Law shall have the meanings ascribed thereto hereunder unless the context indicates otherwise. The key aspects of these amendments are summarized below. (d) Subtracting capital cash expenditures except financing fees and any other bank service fees. Emergency Contact Numbers, Cooperative Insurance Companies Control Law, Foreign Investment Act and Executive Rules, Chapter Seven: Additional Rules for Determining Tax Base, Chapter Eight: Taxation Rules of Partnerships, Chapter Nine: Rules of Taxation on Capital Companies, Chapter Twelve: Filing of Declarations, Assessments, and Procedures of Objection and Appeal. (a) The initial cost bas of properties contributed to a partnership shall be equal to the cost base of the contributing partner.
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