Tag Archive: Saudi Arabia

1. Saudi Arabia’s Tax Reforms – An invitation to invest?

   18 March 2024 6:11 am Leave a Comment

   Saudi Arabia’s Tax Reforms – Introduction

   Saudi Arabia’s tax landscape has undergone significant transformations in alignment with the ambitious Saudi Vision 2030.

   In this article, we’ll look at some of the incentives designed to attract investments to the Kingdom.

   Saudi Arabia’s Tax Framework

   Overview

   Taxation in Saudi Arabia falls under the purview of the Zakat, Tax and Customs Authority (ZATCA).

   The tax regime is unique due to the inclusion of zakat and its approach to personal income tax which is levied only on non-residents.

   Income Tax and Zakat

   The fundamental distinction in the Saudi tax system is between:

   • non-Saudi investors, who are subject to income tax, and
   • Saudi and Gulf Cooperation Council nationals, who are subject to zakat—a religiously mandated form of almsgiving.

   For non-Saudi businesses, income tax is levied on profits while zakat is calculated on the net worth for Saudi entities, at a rate of 2.5%.

   The Income Tax Law imposes a 20% tax rate on profits, while income from hydrocarbons is taxed between 50% and 85%.

   Notably, a new draft tax law introduced in December 2023 – which is open for public feedback – is set to further align Saudi tax policy with international standards.

   Customs Duty and Other Taxes

   Customs duties in Saudi Arabia protect local production, with rates up to 25%.

   Value Added Tax (VAT) experienced an increase from 5% to 15% in 2020, with excise taxes levied on products like tobacco and energy drinks to discourage consumption.

   Furthermore, a Real Estate Transaction Tax (RETT) applies to property transactions at a rate of 5%.

   Investment Incentives

   Regional Headquarters Incentives

   To attract multinational corporations to set up regional headquarters in Saudi Arabia, ZATCA has introduced lucrative tax exemptions for income tax, WHT on dividends, and more.

   These incentives can last up to 60 years.

   Regional Development Incentives

   The Kingdom provides incentives for investments in certain underdeveloped regions, offering deductions on training, education expenses, and salaries of Saudi personnel.

   Withholding Tax (WHT)

   Payments to non-residents from within Saudi Arabia are subject to WHT, with the rate depending on the type of payment.

   Conclusion – Saudi Arabia’s Tax Reforms

   Saudi Arabia’s revised tax framework reflects its attempts to foster a competitive, integrated global economic environment.

   Final thoughts – Saudi Arabia’s Tax Reforms

   For more insights on Saudi Arabia’s changing tax environment and investment opportunities, feel free to get in touch.

2. In the Zone: KSA Introduces New Special Economic Zones

   26 February 2024 4:22 am Leave a Comment

   KSA Introduces New Special Economic Zones – Introduction

   In a strategic move to diversify its economy and offer an attractive environment for investors, the Kingdom of Saudi Arabia (KSA) announced the creation of new Special Economic Zones (SEZs) on 13 April 2023.

   This initiative, led by the Economic Cities and Special Zones Authority (ECZA), marks a significant development in the Kingdom’s efforts to enhance its business landscape and stimulate investment.

   The ECZA, responsible for regulating the Kingdom’s Economic Cities (ECs) and SEZs, released a brochure detailing the tax and non-tax incentives available in these newly established zones.

   These incentives are designed to make the SEZs highly competitive on a global scale, providing substantial benefits to businesses operating within them.

   Tax Incentives Offered in the SEZs

   Corporate Income Tax

   A reduced rate of 5% for up to 20 years, significantly lower than the standard rate, to boost profitability and encourage long-term investment.

   Withholding Tax

   A 0% rate on the repatriation of profits from the SEZs to foreign countries, facilitating free movement of capital and enhancing the attractiveness of the SEZs to international investors.

   Customs Duties

   A deferral of customs duties for goods within the SEZs, with specific exemptions for capital equipment and inputs in Jazan, reducing operational costs for businesses.

   Value-Added Tax (VAT)

   A 0% VAT rate on all intra-SEZ goods exchanges, both within and between zones, to encourage trade and manufacturing activities without the burden of additional tax costs.

   Value-Added Tax Reliefs

   Imports

   Goods imported into SEZs from outside KSA are treated as outside the scope of VAT, simplifying the import process and reducing the cost of bringing goods into the SEZs.

   Intra-SEZ Transactions

   Zero-rated VAT is applicable on all goods exchanged within the SEZs and between zones, promoting internal trade and collaboration between businesses within the SEZs.

   Non-Tax Incentives

   The brochure also highlights several non-tax incentives, including flexible and supportive regulations regarding the employment of expatriates during the initial five years.

   This approach aims to attract global talent and ease the process of setting up and staffing operations within the SEZs.

   KSA Introduces New Special Economic Zones – Conclusion

   The establishment of these new Special Economic Zones is poised to significantly impact both the conduct of business within Saudi Arabia and the broader KSA tax regime.

   It represents a clear commitment by the Kingdom to create a more diversified and investor-friendly economic environment.

   Final thoughts

   As the SEZs begin to take shape, further guidance and regulations detailing the specific incentives and reliefs are anticipated in the coming months.

   This forthcoming information will be crucial for businesses looking to capitalize on the opportunities presented by these new economic zones, marking an exciting chapter in Saudi Arabia’s economic development journey.

   If you have any queries on this article, KSA Introduces New Special Economic Zones, or GCC tax matters in more general, then please get in touch.

3. Saudi Arabia’s Draft Income Tax Law

   15 November 2023 6:06 am Leave a Comment

   Saudi Arabia’s Draft Income Tax Law – Introduction

   On 25 October 2023, the Zakat, Tax and Customs Authority (ZATCA) of Saudi Arabia unveiled a draft Income Tax Law (ITL) for public consultation, aiming to modernize and align the tax system with international standards.

   This draft proposes significant changes, focusing on international and cross-border tax elements.

   Here’s some more detail on the proposals.

   Saudi Sourced Income

   The draft ITL introduces provisions targeting indirect share disposals, categorizing resulting gains as Saudi sourced income.

   Additionally, income generated from remote services offered to Saudi residents through electronic means falls under Saudi sourced income, signaling a move towards taxing foreign service providers with Saudi clientele.

   Permanent Establishment

   Beyond conventional Permanent Establishment (PE) rules, the draft ITL introduces a Services PE concept for non-resident entities rendering services in Saudi Arabia for over 30 days within a 12-month period.

   However, these taxing rights under the proposed law may be subject to limitations outlined in Double Tax Treaties (DTTs) signed by Saudi Arabia.

   Anti-avoidance Measures The draft ITL incorporates anti-tax avoidance measures, including a Principal Purpose Test (PPT) to deny tax benefits from arrangements designed primarily to attain tax advantages.

   It also introduces special tax treatment for transactions involving jurisdictions with Preferential Tax Regimes (PTR), potentially impacting expense deductibility and withholding tax rates.

   Participation Exemption

   An encouraging provision is the proposed Participation Exemption, aiming to exempt qualifying dividends, capital gains, and liquidation proceeds from taxation for KSA shareholders meeting specific criteria.

   Notably, exemptions won’t apply if the income is tax-exempt in the shareholder’s jurisdiction or benefits from a PTR.

   Interest Deductibility

   Aligning with OECD BEPS Action 4, the draft ITL limits tax deductions for net interest expenses to 30% of the taxpayer’s adjusted earnings, aiming to curb excessive interest deductions.

   Reinvestment Reserve and Anti-hybrid Rules

   A novel reinvestment reserve allows postponing taxation on asset disposal gains if reinvested within two years.

   Anti-hybrid rules address tax discrepancies in cross-border financial instruments between related parties, potentially impacting tax deductions.

   Withholding Tax

   The draft ITL maintains various withholding tax rates, including 5% for dividends and interest payments.

   Notably, it proposes a 10% rate for service payments, and a potential 20% rate for payments to jurisdictions with PTRs, highlighting the impact of the recipient’s location on withholding tax rates.

   Conclusion

   Saudi Arabia’s proposed ITL represents a significant shift towards tax reform and international alignment.

   Its implications for local and international businesses necessitate careful consideration and monitoring of forthcoming changes.

   As the consultation progresses, stakeholders must navigate this evolving landscape to capitalize on opportunities while mitigating challenges in the revised tax framework.

    

   If you have any queries about Saudi Arabia’s Draft Income Tax Law, or Saudi tax matters more generally, then please get in touch.