Accountancy in Saudi Arabia

>> Taxation in Saudi Arabia

Income tax

All companies doing business in Saudi Arabia are required to submit Income Tax and Zakat to the Department of Zakat and Income Tax (DZIT) on an annual basis and obtain a tax or Zakat clearance certificate. Non – Saudi Arabian and non GCC companies pay income tax and the rates on taxable net income as follows:

 

Explanation Rate
Non Saudi (foreign shareholders) flat rate 20%
Gas investment business 30%
Production of oil and other hydrocarbons 85%

An audit financial statements with a certain supporting schedules as required by DZIT forms must be submitted with the tax returns to DZIT.

Companies subject to tax in Kingdom are as follows:

  • A company engaged in oil and other hydrocarbons products.
  • A company engaged in Natural gas investment fields.
  • A Non- Resident company who has other income subject to tax from sources within KSA.
  • A Non- Resident company who carried out activities in KSA through a permanent Establishment.
  • A Resident company non-KSA natural person who conducts business activates.
  • Resident capital co. to the extent of its non-KSA shareholding.

Tax incentives

In the process of developing a number of economic cities in several areas all around the kingdom such as ( HAIL , JAZAN,NAJRAN, AL ABHA, AL JOUF and NORTHERN TERRITORY may be able to benefit from certain tax incentives.

Moreover dedication are granted if the investment capital for any project excesses one Million.

Furthermore an exemption from customs duties is available on machinery and raw materials that are required for approval projects, provided that they aren’t available in the local market.

Such exemptions should be applied for prior to their importation and are subject to a certain terms.

Applicable tax penalties

The tax due must be paid within 120 days after the taxpayer’s year end. The system is one self assessment.

1% for of the unpaid tax for each 30 days of delay payment.

Value added tax

Along with its partners across the GCC, the Kingdom of Saudi Arabia has chosen to implement a standard VAT tax rate of 5%. This is one of the lowest rates in the world. See the examples below of standard VAT rates in other countries.

In line with GCC Supreme Council Resolution made in its session No. 36 on authorizing the Financial and Economic Committee to complete the necessary requirements of “GCC VAT Unified Agreement”, KSA approved the Agreement with a Royal Decree No. M/51 dated on 1438/5/3 H. Also, KSA issued its National VAT Law with a Royal Decree No. M113 dated on 1438/11/2 H and published its Implementing Regulations issued by GAZT Board of Directors Resolution No.3839 dated on 1438/12/14 H based on the provisions in the Agreement.

When a VAT-registered business sells a good or service, it charges – assuming a standard case – an extra 5% of VAT on top of the sales price. The business will account for that 5% from all eligible sales separately from its revenue in order to later remit a portion of it to the government. The VAT that a business collects on its sales is called Output VAT. That same business will also pay 5%VAT on top of the goods or services purchased from other taxable businesses.

The VAT that a business pays to its suppliers is called Input VAT. In order to calculate how much they owe to GAZT, each business will note how much VAT it has collected from customers and subtract from it the total VAT it paid in the same period.

VAT’s impact on prices Overall, businesses will not pay higher pre-tax prices for input goods and services. Costs should not change because businesses are able to deduct their input VAT from their output VAT. The end-consumer, however, will not collect or be able to deduct any VAT.

Therefore, end-consumers will initially experience a 5% price increase; compared to the price before tax implementation.

Goods and services in scope of VAT

Taxable businesses All businesses whose taxable sales in the past twelve months or expected taxable sales in the next twelve months exceed SAR 375,000 are required to register for, collect, and remit VAT. In 2018, only businesses whose taxable sales in the past twelve months or expected taxable sales in the next twelve months exceed SAR 1,000,000 are required to register for, collect, and remit VAT.

Additionally, there are two groups for whom the VAT is optional:

  1. Firms with taxable sales of SAR 187,500-375,000: Companies with taxable sales in thepast twelve months or expected taxable sales in the next twelve months between SAR 187,500 and SAR 375,000 can choose to register for the VAT or not.
  2. Firms with taxable sales above SAR 375,000 who sell exclusively “zero-rated” products: Goods and services such as certain medical products, international transportation, and exports to non-GCC countries are all “zero-rated,” meaning zero VAT will be charged (Zero-rated supplies are described in detail in section 5). If a firm has VAT-eligible sales above SAR 375,000, but its revenue is exclusively from zero-rated goods or services, it has the option to register for VAT or not.

VAT registration deadlines

The deadline for VAT registration depends on the business’s annual taxable sales:

  • Businesses with annual taxable sales over SAR 1,000,000 must register by December 20, 2017
  • Businesses with annual taxable sales under SAR 1,000,000 must register by December 20, 2018.

Registration of non-KSA residents

Non-KSA residents who make VAT-eligible sales and purchases in the Kingdom are required to register for and pay VAT.

In order to register for VAT, non-resident businesses have to appoint a tax representative based in KSA.

That representative, once approved by GAZT, is able to submit VAT returns and payment to GAZT and correspond with the Authority on the taxpayer’s behalf.

The representative will be held jointly and severally liable for the VAT the business owes to GAZT.

Which means that if the establishment neglects to pay tax for a prolonged period of time, the tax representative shall be held accountable for the remaining balance.

Transfer pricing rules

The Department of Zakat and Income Tax has been drafting guidelines on the application of the transfer pricing with related parties in the future.

The tax law provides the DZIT With the power to re-allocate Revenues and Expenses in the financial transaction between related party transaction.

Property tax

Recently the KSA Tax authority will issues new legislation is not clear to practice imposing certain Zakat charges on KSA nationals owning land property that is not in use.

Capital gains tax

A non – resident investor paid the capital gains tax in KSA at the rate of 20% for the sale of shares in KSA .

Stamp tax

There is no stamped taxes levied in the kingdom.

Zakat

Zakat is based on Islamic concepts and applicable on KSA / GCC ownership of the higher of net income or net worth in KSA company, Zakat is assessed at 2.5% compared to a higher amount for Income Tax.

The Department of Zakat and Income Tax which is part of the Saudi Ministry of Finance consider a administrators and collectors Zakat and Tax liabilities.


Latest version updated 10th April 2019

Country Breakdown

32.28

Million

Population

?

Saudi Riyal

Currency

$ 646.4

Billion

GDP

2.15

Million

km2