SAUDI ARABIA Law and Practice Contributed by: Dana Halwani and Leanne Farsi, Derayah LLPC
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 relat - ed 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 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 parties 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 introduced trans - fer pricing by-laws based on the OECD’s Base Erosion and Profit Shifting Recommendations. On 24 June 2024, ZATCA issued an updated edi - tion 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, zakat regulations, or both. 5.7 Anti-Evasion Rules 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 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 income and expenses). 5.6 Transfer Pricing is involved. 5.8 Tariffs
tax exemption, and a 30-year withholding tax exemption in relation to approved RHQ activi - ties, subject to renewal. Aside from needing to fulfil the necessary criteria with MISA, RHQs need to fulfil the following requirements to qual - ify for the incentives: • possessing a valid Investment Registration Certificate, and carrying out only those activi - ties 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 req - uisite qualifications and skills necessary to execute their duties and fulfil their responsi - bilities. 5.4 Tax Consolidation For zakat payment purposes, Article 15 of the Implementing Regulation for Zakat Collection permits companies owned by the same partner, or holding companies and their wholly owned subsidiaries both inside and outside Saudi Ara- bia, to submit consolidated accounts and con - solidated declarations.
724 CHAMBERS.COM
Powered by FlippingBook