(a) The cost base of a partner's share in a partnership shall be determined by the amount the partner pays against his share plus the cost base of properties he contributed to the company. a non-Saudi resident natural person who conducts business, a non-resident person who conducts business in the Kingdom through a permanent establishment, Movable industrial and agricultural buildings: ten percent (10%), Factories, machines, engines, hardware and software (computer software) and equipment, including passenger cars, and cargo vehicles: twenty-five percent (25%), Expenses for geological surveying, drilling, exploration, and other preliminary work to exploit natural resources and develop their fields: twenty percent (20%), All other tangible and intangible depreciable assets not included in pervious categories, such as furniture, planes, ships, trains and goodwill: ten percent (10%). The Department shall notify the taxpayer of the additional assessment and the reasons therefore. maintaining records required to prove the correctness of the withheld tax as specified by the Regulations. (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. (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. 1 defines activity as commercial activity in all its forms that is … 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. (d) For purposes of paragraphs (b) and (c) of this Article, a profiting asset is the asset that has a cost base lower than the market value and a losing asset is the asset that has a cost base higher than its market value. 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 … Commercial Office: (202) 337-4088 (b) gains resulting from disposal of property other than assets used in the activity. 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. The tax base for a resident corporation is the non-Saudi’s share of income subject to tax from any activity in Saudi Arabia, less allowable expenses. (b) Adding back non-cash items deducted for the purpose of determining the taxpayer's base. Tax Treaty. The provisions of the Implementing Regulations of Income Tax law shall apply to ‎resident capital companies with respect to shares of non-Saudi partners, whether they ‎are resident or non-resident natural or legal persons. Under current practice, supply contracts whereby a foreign, non-resident company exports goods to Saudi Arabia would not generate income subject to Saudi tax. 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. 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. (c) The Department has the power to reduce any of the payments due under this Article if it is convinced that the taxpayer's income for the taxable year, with the exception of the income of which tax is withheld from the source under Article 68 of this Law, shall be substantially less than the amount of income for the preceding year. Cost base adjustments are distributed among assets in accordance with the percentage difference between cost base and the market value. (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. 2. See Taxes on corporate income in the Corporate summary for more information on the taxation of non-employment income . (a) Preliminary Objection Committees with jurisdiction to settle tax disputes shall be formed by a decision of the Minister. It shall also be responsible for filing notifications and statements required in relation to its types of activity. (A/90) dated 27/8/1412H (corresponding to 2/3/1992AD), Since the level of Saudi taxes is so low, most expats will not see any issue with the lack of a treaty. If it is derived from the lease of movable properties used in the Kingdom; If it is derived from the sale or license for use of industrial or intellectual properties used in the Kingdom. 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. (c) A taxpayer may request a refund of opeverpaid amounts at any time within five years from the end of the overpaid taxable year. (c) The employee's contributions to an authorized retirement fund may not be deducted. (b) A partner shall take the cost base of the asset which equals the market value of the asset. (a) A taxpayer not complying with the provisions of paragraphs (a), (b), (d) and (f) of Article 60 of this Law shall be subject to a fine of one percent (1%) of its gross income provided that the fine does not exceed twenty thousand Saudi riyals (SR20,000). Understanding withholding tax in the Kingdom of Saudi Arabia (KSA) By Simon Dawson on 26 Feb 2018 Under the law and tax regulations of the Kingdom of Saudi Arabia (KSA), there is an obligation for all clients to pay withholding tax (WHT), on all ‘out of kingdom’ international payments to non-Saudi resident/registered parties/companies direct to the General Authority of Zakat and Tax (GAZT). (d) expenses of a natural person for personal consumption. A Royal Decree No. 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. If it is derived from an activity which occurs in the Kingdom. (a) A natural person is considered related to another natural person if the latter is a spouse or an in-law, or a relative up to the fourth degree. Tax attributes Tax in Saudi Arabia consists primarily of corporate income tax, withholding tax and Zakat. If the amount paid to him exceeds the market price, the excess amount shall be considered as distribution to the partner by the partnership. (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. (b) A notice may be issued on the taxpayer's employer, and its validity may be limited to a specified period. The Regulations shall specify the conditions and restrictions for such remuneration. (c) For taxation purposes, a natural person may record his transactions on a cash or accrual basis. (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. (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. (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. (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. (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. by shafprince March 1, 2017, 6:30 pm 1.1k Views. The stability of tax rules is notable given the constant reforms in recent years in many other areas of society and business regulation, e.g., foreign investment, labour, immigration, finance and securities market. 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] (g) When fifty percent (50%) of the compensation of the assets disposed of during the current and previous taxable years exceeds the balance of the value of the group at the end of the taxable year, regardless of the amount of such compensation, the value of the group shall be reduced to zero and the excess included in the taxpayer's taxable. The effective rate is 2.5% of the net worth of natural persons and 2.5% of total capital resources of companies. The US does not have a treaty for taxes with Saudi Arabia. (f) The Appeal Committee's decision shall be final and binding unless appealed before the Board of Grievances within sixty days from the notification of the decision. The tax rate applicable to the taxpayer's natural gas investment tax basis will be in accordance with the following table: [see pdf attachment]. (a) The taxpayer may object to the Department's assessment within sixty days of receipt of the assessment letter. Anti-Concealment Law Royal Decree No. (d) Groups of related companies, as defined in Article 64 of this Law, shall use the same taxable year. (a) Following the freezing, the Department may issue notices to a third party, including the employer, banks or financial institutions, ordering direct payment to the Department of any funds that the third party owes the taxpayer on or after the date of receipt of the freezing notification. The tax law was enacted in 2004, 11 years ago, yet it is commonly called the New Income Tax Law. (l) Where an asset owned by a taxpayer is converted to personal use or otherwise ceases to be used in the generation of income, the taxpayer is deemed to have disposed of the asset for its market value, with the recognition of the resulting gain but not the loss. (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. (d) Subtracting capital cash expenditures except financing fees and any other bank service fees. A taxpayer who uses the cash method in its books and records shall register the received income when received or made available, and the paid expenses when paid. (a) The Department shall, through the competent body, sell properties seized in accordance with provision of seizure. The effective rate is 2.5% of the net worth of natural persons and 2.5% of total capital resources of companies. (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. Saudi Arabia and non-resident companies with income subject to tax from sources within the Kingdom are chargeable to tax. (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. All regular and necessary expenses of earning taxable income, paid or accrued, incurred by the taxpayer during the taxable year are deductible in determining the tax base, with the exception of outlays of a capital nature and expenses according to Article 13 of this Law and other provisions of this Chapter. Monday - Friday 9:00am–5:00pm, Main Number: (202) 342-3800 The key amendments are: … (b) This Article also applies to expenses of intangible assets incurred by the taxpayer in acquisition of rights to geological surveying and the processing or exploitation of natural resources. Issuing the Implementing Regulations of this Law. Shares of non-Saudi partners in ‎resident capital companies shall not include shares of non-Saudis held for speculation ‎purposes through trading shares of joint stock companies in the Saudi Stock ‎Exchange. The Arabic version is the governing text. The partner is treated as having disposed of part of all of his share in the partnership, if the estimated distribution exceeds the partner's cost base in the partnership. A taxpayer shall calculate the book value or the stock by use of the weighted average method. A Royal Decree No. (a) The tax rate of the tax base is twenty (20) percent for each of the following: (b) The tax rate of the tax base for a taxpayer engaged only in natural gas investment activities is thirty (30) percent. Article 9: Gains and Losses on Disposal of Assets. 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. Salary & Wages in Saudi Arabia and its Deducution Rule. (b) In addition to the penalties stipulated in Article 76 and in paragraph (a) of this Article, the taxpayer shall be subject to a fine of twenty-five percent (25%) of the difference in tax resulting from the taxpayer's or its certified accountant's providing false information or from fraud with the intention of tax evasion, and in particular in the following cases: Article 78: Liability of Certified Accountants. (c) The following taxpayers shall be required to file a tax declaration: (d) A taxpayer who ceases business activity is required to notify the Department and to present within sixty days from the cessation date a tax declaration for the short taxable period ending with the date on which it ceases business. by shafprince March 1, 2017, 6:30 pm 1.1k Views. Abstract Art. (f) Expenses incurred to alter or improve a non-depreciable asset are added to the cost base of the asset. Saudi Arabian interests and citizens of GCC countries pay zakat, which is a religious wealth tax based on the taxpayer’s net worth, not income. (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. 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). 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. Purchase of land or equipment used for research may not be carried forward to the of... Deducted for the purpose of this document is for guidance only under Common Control located the... 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