KSA

TAX FRAMEWORK IN KSA

Presented by: Franz-Josef Epping

Page 2 Tax Framework in KSA Tax Framework in KSA

Topics covered Background of Taxation System

in Saudi Arabia

Corporate Income tax/Zakat

Withholding Taxation (WHT)

Double Taxation Agreements

Value added Taxation (VAT)

03

04

08

11

14

Page 3 Tax Framework in KSA

Background of Taxation System in Saudi Arabia

Direct Taxes

Tax Category Effective Date Administrative Authority

Corporate tax 2005 GAZT

Zakat 1950 / 2017 GAZT

Withholding Tax 2004 GAZT

Indirect Taxes

Excise Tax 2017 GAZT

Value Added Tax 2018 GAZT

Page 4 Tax Framework in KSA Tax Framework in KSA

Concept of Corporate Tax

and Zakat in KSA

Page 5 Tax Framework in KSA

Company Structure in KSA

Saudi/GCC

Companies

(paying 2.5%

Zakat on

wealth)

Foreign

Companies

(paying 20%

Corporate tax

on profit)

Mixed

Companies

(Saudi – Zakat

Foreign –

Corp. Tax)

There the primarily

three type of

Companies

Page 6 Tax Framework in KSA

Concept of zakat in KSA

► Zakat is a religious levy

► It is calculated at 2.5% of Saudi / GCC shareholder’s share of

zakat base which includes adjusted profit

► zakat base calculation:

Opening equity (capital + reserves + retained earnings)

+ Opening balance of provisions

+ Closing balance of loans used to finance fixed assets

+ Loans obtained in prior years on which complete one year is

elapsed i.e. lower of opening / closing balance

- Adjusted NBV of fixed assets

- Other long term assets

Page 7 Tax Framework in KSA

Concept of corporate tax

► Tax is calculated @ 20% on foreign shareholder’s share of adjusted profit (book profit

which is adjusted for tax purpose based on tax law)

► Adjusted profit is calculated as below :

Accounting net profit

+ Provisions made during the year

+ Accounting depreciation / amortisation for the year

+ Interest in excess of the allowable limit

+ Loss* on sale of fixed assets

+ Contribution to foreign social insurance, pension fund or employee’s share of Saudi social

insurance (GOSI)

+ Income tax, fines, penalties, etc.

+/(-) Unrealised exchange loss / (gain)

+ Other disallowances

- Provisions paid / written-off / utilised during the year

- Tax depreciation

- Exempt income

Page 8 Tax Framework in KSA Tax Framework in KSA

Withholding

Tax (WHT)

Page 9 Tax Framework in KSA

Withholding tax (WHT)

Who is subject to WHT?

► Non-residents (including GCC parties) in Saudi Arabia in respect of

income earned from a source in the Kingdom

Who is responsible to withhold?

► A Saudi Arabian resident entity whether or not a taxpayer

► A permanent establishment of a non-resident in the Kingdom

► A natural person on payments related to business activity

Other rules relating to WHT

► WHT is on gross amount to be paid to the non-resident (i.e. before

deducting any related costs).

► WHT is full and final settlement of the tax liability of non-resident. (no

further taxation, no refund and possible deduction from corporate tax

liability, if any).

► WHT is due irrespective of whether the related cost is deductible for

tax or zakat purposes or not.

Page 10 Tax Framework in KSA

Withholding tax rates/nature

Tax Rate – 5% ► Payments for technical and consulting services

► Loan fees (Interest)

► Insurance or reinsurance premiums

► Payments for air tickets, air freight or marine shipping

► Dividends Payment

► Payments for international telecommunications

► Rent

Tax Rate – 15%

► Royalty or license fees

► Payments for services provided by the head office or

related companies

► Any other payments

Tax Rate – 20%

► Management Fees

Page 11 Tax Framework in KSA

Double

Taxation

Agreement

Tax Framework in KSA

Page 12 Tax Framework in KSA

Global View of Double tax treaty of KSA with other Countries

Algeria

Turkey

Bangladesh

Belarus

China

Czech Republic

Ethiopia

France

Greece

India

Ireland

Hungary

Italy

Japan

Kazakhstan

Kyrgyzstan

Korea (South)

Luxembourg Macedonia

Malaysia

Malta

Netherlands

Pakistan

Poland

Portugal

Romania

Russia

Singapore

South Africa

Spain

Sweden

Syria

Tajikistan

Tunisia

Austria Ukraine

Uzbekistan

UK

Vietnam

Azerbaijan

Page 13 Tax Framework in KSA

Double tax treaties Mainly established after 2007

Dividends (%) Interest (%) Royalties (%)

0 0 7

5 5 10

7 7 10

10 7.5 10

5 5 10

5 5 10

5 0 10

5 5 7.5

0/5 0/5 0/15

5 5 10

5 0 5/8

5 10 10

5 0 5/8

5 5 10

5 10 5/10

5 10 10

0 0 7.5

5 5 5/10

5 0 5/7

5 0/5 10

5 5 8

5 0 5/7

Algeria

Austria

Azerbaijan

Bangladesh

Belarus

China

Czech Republic

Ethiopia

France

Greece

Hungary

India

Ireland

Italy

Japan

Kazakhstan

Kyrgyzstan

Korea (South)

Luxembourg

Macedonia

Malaysia

Malta

Netherlands

Pakistan

Poland

Portugal

Romania

Russian

Federation

Singapore

South Africa

Spain

Sweden

Syria

Tajikistan

Tunisia

Turkey

Ukraine

United Kingdom

Uzbekistan

Vietnam

Non-treaty

countries

Dividends (%) Interest (%) Royalties (%)

5 5 7

5 10 10

5 5 10

5/10 10 8

5 5 10

5 5 10

5 5 8

5 5 10

0/5 5 8

5/10 0 5

0 7.5 15

5/10 8 8

5 2.5/5 5

5 10 10

5 10 10

5/15 0 5/8

7 7 10

5/12 10 7.5/10

5 5 15

Page 14 Tax Framework in KSA Tax Framework in KSA

Value Added

Tax (VAT

Page 15 Tax Framework in KSA

Supplies within the scope of VAT

VAT Rate Output Tax Areas of Application

Standard Rate 5% ► Majority of goods and services

Zero Rate 0%

► Supply of any qualifying medicine or qualifying medical

equipment

► Intra-GCC and international transport

► Supplies of investment gold, silver, and platinum that are

at least 99% pure and tradable in international bar market

► Exports outside the GCC

Exempt Nil

► Rental of residential real estate

► Financial services with no explicit fee, commission or

commercial discount

Out of Scope NA

► Government services (e.g. public healthcare, public

education etc.)

► Supply of real estate that was used or intended for use as

a permanent dwelling by the Person, or by a related

person

Page 16 Tax Framework in KSA

Page 17 Tax Framework in KSA

Interesting Fact — VAT violations published by GAZT

Sector/Business Number of audits Percentage of violations Percentage of VAT compliant

Car showrooms 151

Car spare parts workshops 140

Women's supplies stores 178

Various businesses

(food supply, vegetables and fruit shops, dates, sweets, restaurants) 800

Entertainment sector 1,000

Education sector 1,577

Telecommunications and electronic appliances 1,876

Hotels and furnished apartments 2,000

Various businesses (tourism agencies, restaurants,

cafes and shopping centers) 2,363

80.14%

84.29%

37.08%

83.12%

80.20%

88.14%

82.78%

75%

72.79%

19.86%

15.71%

62.92%

16.88%

19.80%

11.86%

17.22%

25%

27.21%

In addition to the above statistics the GAZT has reported around 10006 cases of VAT violations in various business (malls, car maintenance centres, electrical shops and food markets)

Page 18 Tax Framework in KSA

Questions

Thank you

Page 20 Tax Framework in KSA

Franz-Josef Epping Tax Partner

MENA Leader for Global Compliance

Reporting

+966 59 3722 290

franz-josef.epping@sa.ey.com

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contact

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