SAUDI ARABIA Law and Practice Contributed by: Dana Halwani and Leanne Farsi, Derayah LLPC
panies owned by the same partner, or holding compa - nies and their wholly owned subsidiaries both inside and outside Saudi Arabia, to submit consolidated accounts and consolidated declarations. 5.5 Thin Capitalisation Rules and Other Limitations There are no thin capitalisation rules. Deduction of interest is limited to either the loan charge accumulated during the tax year (if related to taxable income) or the sum of a taxpayer’s income from loan charges, whichever is lower, and 50% of taxable income (minus loan charge income and expenses). 5.6 Transfer Pricing Article 63 (c) of the Income Tax Regulation gives ZATCA the power to reallocate income and expenses between related parties as may be necessary to reflect the income that would have been realised if the par - ties had been independent and unrelated. While this rule has been in force since 2004, it was not widely applied until 2019. On 15 February 2019, ZATCA intro - duced transfer pricing by-laws based on the OECD’s Base Erosion and Profit Shifting Recommendations. On 24 June 2024, ZATCA issued an updated edition of its transfer pricing guidelines. These new guidelines state that the transfer pricing by-laws apply to anyone considered a taxpayer under the income tax system, Under the Income Tax Regulation, failure to pay income tax results in a fine of 1% of the unpaid tax for each 30 days of the delayed payment, plus an additional 25% of the unpaid tax if fraud is involved. 5.8 Tariffs The tariff regime employed by Saudi Arabia is based upon the Harmonised Commodity Description and Coding System (HS Code). Saudi Arabia has signed trade agreements with the Gulf Co-operation Council (GCC) allowing signatories exemptions from customs duties. As a member of the GCC, Saudi Arabia levies the GCC common external tariff of at least 5% on most goods which are imported from non-GCC countries. zakat regulations, or both. 5.7 Anti-Evasion Rules
Tariff rates vary, with the exact rate depending on the HS Code of the product in question. Saudi Arabia also imposes high excise duties on certain products, for example, cigarettes, cigars, tobacco and tobacco products are subject to an excise tax of 100%.
6. Competition Law 6.1 Merger Control Notification
Under Article 7 of the Competition Regulation (Royal Decree No M/75 of 29 Jumada Thani 1440 Hejra cor - responding to 6 March 2019), businesses that plan to engage in a transaction resulting in an economic con - centration must notify the General Authority for Com - petition (GAC) at least 90 days before the transaction is completed, if the total value of the annual sales for all the enterprises taking part in the economic concen - tration surpasses SAR100 million. On 29 March 2023, the GAC announced that this minimum threshold for reporting an economic concentration was to be raised to SAR200 million. Since then, the GAC announced additional reporting limits for economic concentra - tions, which have been subject to amendment. They are, as at the time of writing, as follows: • the total worldwide annual sales value of the par - ties to the economic concentration must exceed SAR200 million; • the total worldwide annual sales value of the target establishment must exceed SAR40 million; and • the total annual sales value in Saudi Arabia of all of the parties to the economic concentration must exceed SAR40 million. Article 1 of the Implementing Rules of the Competition Regulation issued by the GAC Board Resolution No (337) dated 25 Muharram 1441 Hejra corresponding to 24 September 2019, defines an economic concen - tration as “any action that results in a total or partial transfer of ownership of assets, rights, equity, stocks, shares or liabilities of a firm to another by way of merg - er, acquisition, takeover or the joining of two or more managements in a joint management, or any other form that leads to the control of a firm(s) including influencing its decision, the organisation of its admin - istrative structure, or its voting system”. Therefore, a full merger or acquisition is not necessary to trigger
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