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
Your
contact
point
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