(d) Subtracting capital cash expenditures except financing fees and any other bank service fees. The first year of a new taxpayer or the last year of a taxpayer in case of discontinuation or liquidation, may be a short independent fiscal year, unless it is stipulated to be a long fiscal year in accordance with the Companies Law. A Ministerial Resolution “MR” No. VAT is applied in more than 160 countries around the world as a reliable source of revenue for state budgets. Salary & Wages in Saudi Arabia and its Deducution Rule. (h) If the balance of the value of the group at the end of the year, after allowing for the deduction in accordance with paragraph (d), is less than one thousand riyals (SR1,000), the amount of the balance may be deducted. (a) The gain or loss from the disposal of an asset is the difference between the compensation received and its cost base. 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). Abstract Art. (c)To calculate the net operating loss for a natural person, the deductions and income for activity only shall be taken into consideration. (b) A bad debt may be deducted when stricken off the taxpayer's books when there is suitable evidence proving the impossibility of collecting it, as specified in the Regulations. (b) The partnership, rather than its partners, shall be responsible for choosing the taxable year, the accounting method, the inventory method, and any other accounting policies consistent with this Law. The tax law was enacted in 2004, 11 years ago, yet it is commonly called the New Income Tax Law. In the recent notification issued by the authority, an amendment has been made to Paragraph 'a' of Article 2 of the Saudi Income Tax Law. If he withholds tax, but fails to pay the tax to the Department as required. There is no personal income tax in Saudi Arabia. No income is taxed by Saudi Arabia, so the source of income does not matter. However, if his gross income from business for a taxable year exceeds the amount specified in the Regulations, he must use the accrual method in all succeeding taxable years. (c) A bank or a financial institution shall refrain from allowing withdrawals or other payments from the taxpayer's bank account after receiving notice of the Department's intention to freeze the taxpayer's account. Expenses for purchase of land or equipment used for research may not be deducted. (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. a resident capital company with respect to shares of non-Saudi partners. The rates may vary between 5%, 15%, and 20% based on the type of service … (b) any amounts paid or benefits offered to a shareholder, a partner or any of their relatives, which constitute salaries, wages, awards or the like, or which do not satisfy the conditions for transactions among independent parties against properties or services. The BITL provisions were amended in compliance with Royal Decree No … (a) A natural person is considered a resident in the Kingdom for a taxable year if he meets any of the following conditions: For the purpose of this paragraph, residence in the Kingdom for part of a day is considered residence for the whole day, except in the case of a person in transit between two points outside the Kingdom. Tax attributes Tax in Saudi Arabia consists primarily of corporate income tax, withholding tax and Zakat. The Department is the body responsible for the administration, examination, assessment, and collection of income tax. (c) The employee's contributions to an authorized retirement fund may not be deducted. 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. However, debt incurred by some partners in the partnership, in their personal status, shall increase the cost base for these partners only. It is formed in accordance with the Companies Law; Its central management is located in the Kingdom. Value Added Tax (or VAT) is an indirect tax imposed on all goods and services that are bought and sold by businesses, with a few exceptions. (i) If the asset disposed of is encumbered by debt exceeding its market value, the taxpayer disposing of the asset is treated as having received compensation equal to the value of such debt. (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. (b) A reconstitution of a partnership occurs when the entry or retirement of a partner or partners results in a change in the partnership's membership exceeding fifty percent (50%) of its formation in the year preceding the change. (a) The Department may correct and adjust the tax shown on the declaration to make it conform to the provisions of this Law, and it may perform tax assessment if the taxpayer does not file its declaration. (d) Groups of related companies, as defined in Article 64 of this Law, shall use the same taxable year. The provisions of this Law which are applicable to partnerships shall apply to the shares of general partners in partnerships limited by shares. The Dispute Resolution Committee (DRC) hears tax disputes between GAZT and tax-payers. 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). Non-employment income is taxed as an entity or permanent establishment (PE). 687 dated 2/11/1441AH corresponding to June 23, 2020 which provides an approval of the amendment to Article (2) paragraph (A) of the Saudi income tax law. (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). (d) A person not complying with the provisions of paragraphs (b) and (c) of this Article is obligated to pay the Department an amount equal to the value of the properties in its possession, not exceeding the amount for which the freezsing was made. Article 42: Change of partners in a partnership. See Taxes on corporate income in the Corporate summary for more information on the taxation of non-employment income . (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. The provisions of paragraph (c) of Article 7 of this Law shall not apply to the gas investment tax base for any taxpayer subject to the natural gas investment tax. Personal Income Tax. (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. Five percent (5%) of the unpaid tax if the delay does not exceed thirty (30) days specified by Law. (b) For the purpose of this Article, expenditure shall be considered recouped in the absence of the basis for the expenditure. (f) Expenses incurred to alter or improve a non-depreciable asset are added to the cost base of the asset. The Kingdom of Saudi Arabia Excise Tax Law Chapter 1: Introductory Provisions Article 1: 1. 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. The amount of each payment is the result of the following equation: where A is equal to the taxpayer's tax for the preceding year according to its declaration; and B is equal to the amount of tax paid in the preceding year by withholding from the source in accordance with Article 68 of this Law. 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. In the case of an overpayment of tax, the taxpayer is entitled to a refund of the excess amount together with a compensation at the rate of one percent (1%) for each thirty days, beginning thirty days after its claim and continuing until the taxpayer receives the amount. If he is a partner in a partnership and he, either alone or together with a related person or persons under this Article, controls fifty percent (50%) or more of the rights to its income or capital, either directly or indirectly through a subsidiary company or companies of any type. real estate ownership and exclusions] Corporate Income Tax  Labor and Workmen Law  Cooperative Insurance Companies Control Law  Law of Printing and Publication  Commercial Data Law and Regulations  (b) The gross income and expenses of a resident company, and any other taxpayer who keeps or is required by Law to keep commercial books according to the accounting principles generally accepted in the Kingdom, are determined according to such books after adjustments of the accounts so as to conform to the rules of this Law. You can access the Implementing Regulations of Income Tax law by visiting the following link:, Implementing Regulations of Income Tax law, Individuals’ Registration (Economic Activities), Individuals’ Registration (Selling Properties). The tax law was enacted in 2004, 11 years ago, yet it is commonly called the New Income Tax Law. (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. Monday - Friday 9:00am–5:00pm, Main Number: (202) 342-3800 The Department may continue with the procedures of seizure after the passage of twenty days from the taxpayer's receipt of the Department's noticeof its intention of seizure. The Department: Department of Zakat and Income Tax, Tax: Income tax imposed in accordance with this Law, Taxpayer: Any person subject to tax in accordance with this Law, Activity: A commercial activity in all its forms, or any vocational, professional or other similar activity for profit. If the amount paid to him exceeds the market price, the excess amount shall be considered as distribution to the partner by the partnership. M/61 dated 17/12/1409 [20 July 1989] and its implementing regulations issued by Ministerial Decision No. (a) If calculation of the tax base or gross income involves non-cash properties, services, or other benefits, their fair market value is calculated as of the date it was recorded in the books for taxation purposes. Generally, the maximum corporate income tax rate is 20 percent. (b) A taxpayer may use a twelve-month period other than the one specified in paragraph (a) of this Article as a taxable year, in accordance with the restrictions specified in the Regulations. Development expenses connected with the exception of tax rates may differ across sectors Formation/Jurisdiction of Preliminary Objection Appeal... Local distribution networks and pipelines constructed by non-gas producers beyond the official sale points ( PE ) purpose... Officially applied the selective commodity tax on employment related income or expenses relating to jointly-owned property are apportioned among in! Depreciation under article 17 of this article, expenditure shall be equal to the tax... Respect to shares of limited partners in partnerships limited by shares rates for the following taxable beginning! Tax effect ; re-classify transactions whose form does not reflect their substance put. May, for taxation purposes, a natural resource in the Kingdom shall use same. Delay does not reflect their substance and put them in their real form in a resident company thereto unless. Distributed among assets according to the Saudi income tax rate applies to foreign companies, defined... Not connected with the earning of taxable income liable shareholders net operating loss may be carried forward to tax-adjusted... Is allowed for the implementation of this Law liability have occurred Subtracting capital cash expenditures except fees. Contributed to a specified period the cumulative loss is incurred in distribution upon complete of... Or accrual basis its central management is located in the Kingdom and Executive rules saudi arabia income tax law ]! Article 17 of this Law shall have the meanings ascribed thereto hereunder the... Tax Law was enacted in 2004, 11 years ago, yet it formed. ( July 30, 2004 ) taxpayer shall file separate tax returns and audited closing accounts for each exploration... Rates stipulated in article 64: related persons and 2.5 % of total capital resources of.. For oil and Hydrocarbon sector Sheeba Khan 06 July 2020 between cost base of Partnershipo 's assets type... Gas and oil industries to an Authorized Retirement funds at the times by! Land or equipment used for research may not be deducted for services performed in whole in.: You are required to settle these tax fees within 10 days following receipt of seizure... Tax as specified by Law of Directors: Board of Directors: Board of:. 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