SAUDI ARABIA Law and Practice Contributed by: Dana Halwani and Leanne Farsi, Derayah LLPC
calculation of zakat excludes fixed assets, long-term investments and deferred costs from total capital resources, but includes profits from foreign invest - ments that do not consist of investment in real prop - erty. Under the Income Tax Regulation (Royal Decree No M/1 of 15 Muharram 1425 Hejra corresponding to 7 March 2004), most foreign interests that conduct busi - ness in Saudi Arabia pay income tax at a flat rate of 20% of the profits. Oil and hydrocarbon production income are taxed at a rate of 50% to 85%. When a company has Saudi and non-Saudi shareholders, the Saudi shareholders pay zakat, and the non-Saudi shareholders pay income tax. Withholding Tax Payments made from a resident party or a permanent establishment to a non-resident party for services ren - dered are subject to withholding tax, at rates which may, depending on which type of service was per - formed, vary between 5%, 15% and 20%, VAT Since 1 July 2020, value-added tax (VAT) has been payable at a rate of 15%. Real Estate Transaction Tax The sale of real estate is exempted from VAT. Instead of imposing VAT at a rate of 15%, a real estate trans - actions tax is imposed on the sale of real estate at a rate of 5% of the value of the property. The real estate transactions tax is imposed on all real estate transac - tions, including: • sale; • bequest; • financial leasing; • lease-to-own processes; and • long-term usufruct contracts where the duration exceeds 50 years. 5.3 Available Tax Credits/Incentives Net operating losses may be carried forward by non- Saudi investors from one year to the next. Any loss that has been carried forward may be deducted from the tax base of future taxable years until the cumula - tive loss is fully offset.
In March 2020, ZATCA launched an initiative granting amnesty in relation to tax filing and payment penal - ties for excise tax, VAT, withholding tax, income tax and zakat. The initiative was initially set to run for the period of 18 March 2020 to 30 June 2020, but has been extended multiple times since its launch. The lat - est extension was until 30 June 2026. The tax amnesty extension is applicable to penalties relating to corpo - rate income tax, withholding tax, VAT, excise tax and real estate transaction tax. The Regional Headquarters Tax Rules (issued by reso - lution of the Board of Directors of the Zakat, Tax and Customs Authority No (24-1-9) dated 23 Rajab 1445 Hejra corresponding to 4 February 2024), allows quali - fying multinational companies which relocate their regional headquarters (RHQ) to Saudi Arabia to benefit from a 30-year income tax exemption, and a 30-year withholding tax exemption in relation to approved RHQ activities, subject to renewal. Aside from need - ing to fulfil the necessary criteria with MISA, RHQs need to fulfil the following requirements to qualify for the incentives: • possessing a valid Investment Registration Certifi - cate, and carrying out only those activities which are within the scope of the licence; • having adequate premises in the Kingdom suitable for the business activities of the RHQ; • managing and directing their activities in the Kingdom, including holding board meetings for the RHQ where strategic decisions will be made; • incurring operational expenditures in the Kingdom, commensurate with the RHQ’s activities; • generating revenue from eligible activities in the Kingdom; • having at least one director that is resident in the Kingdom; • employing an adequate number of full-time employees in a tax year that is proportionate to the level of activity carried out by the RHQ; and • employees of the RHQ possessing the requisite qualifications and skills necessary to execute their duties and fulfil their responsibilities. 5.4 Tax Consolidation For zakat payment purposes, Article 15 of the Imple - menting Regulation for Zakat Collection permits com -
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