SAUDI ARABIA Law and Practice Contributed by: Zain Satardien, Chadi Hourani and Hayel Hourani, Hourani & Partners
porate income tax (regardless of the GCC/non-GCC profile of their parent company). Zakat Zakat is an Islamic religious levy imposed on wealth and is calculated at 2.5% of the zakat base. Where a Saudi Arabian resident company is fully owned by Saudi Arabian or GCC nationals, it will be subject to zakat at approximately 2.5%. The net assessable funds for zakat purposes generally and broadly comprise the Saudi Arabian/GCC share - holder’s share of equity components such as share capital, retained earnings, reserves, etc, provisions and long-term financing, less fixed assets, long-term eligible investments, and accumulated losses, plus/ minus adjusted net income for the year. Corporate Income Tax Corporate income tax is levied at a rate of 20% on the tax-adjusted profits of a resident capital company that are attributable to the percentage of shares held by non-Saudi Arabian/non-GCC shareholders. The tax- adjusted profits that are subject to corporate income tax are calculated based on the accounting result of the relevant financial year as per the financial state - ments and subject to certain adjustments for non- deductible expenses and/or exempt income. In addi - tion, under Saudi Arabian regulations, certain income items are deemed exempt for corporate income tax purposes. For example, capital gains arising from the disposal of securities available on the stock market in Saudi Arabia are exempt from corporate income tax, while dividends received by a resident company from a Saudi Arabian resident entity are exempt from corporate income tax provided that: • the entity holds at least a 10% stake in the distrib - uting entity; and • the entity has held the participation for a period exceeding one year. Value-Added Tax The Unified VAT Agreement for the Cooperation Coun - cil for the Unified Arab States of the Gulf (the “Unified VAT Agreement”) was approved by Royal Decree No M/51, dated 03/04/1438 H. Under the provisions of the Unified VAT Agreement, Saudi Arabia issued the
VAT Law under Royal Decree No M/113, and its cor - responding Implementing Regulations were subse - quently issued by the board of directors of the ZATCA by Resolution No 3839 (the “VAT Implementing Regu - lations”). To determine whether a person is required or eligible to register, the person must first establish whether they carry on an economic activity. It will be presumed by the ZATCA that a legal person that regularly makes supplies of goods or services carries on an economic activity. RETT Saudi Arabia introduced a 5% RETT in Saudi Ara - bia upon disposal of real estate or fixtures on land. According to the RETT Law, RETT is applicable on the total value of any real estate disposal transaction. This includes sale, trade-off, gifts, wills, exchange, lease, financial lease, transferring shares in real estate companies, and acknowledging right of use/transfer of usufruct for a period of more than 50 years. The legislation also allows for exemptions on RETT. Transfer Pricing Requirements On 15 February 2019, the ZATCA published the Trans - fer Pricing By-Laws (“the TP By-Laws”). The TP By- Laws introduced requirements for the Organisation for Economic Cooperation and Development’s three tiers of documentation, namely master file, local file, and country-by-country report, as well as an annual disclosure form for controlled transactions. The TP By-Laws should apply to companies that are subject to corporate income tax (ie, to companies that are wholly or partly owned by non-GCC investors). The TP By-Laws also apply to permanent establishments of Saudi Arabian non-residents. The TP By-Laws apply prospectively to controlled transactions during the financial year ending 31 December 2018. Transfer pricing requirements now also apply to zakat payers. While there are no specified transfer pricing penalties, non-compliance with the TP By-Laws could expose the companies to penalties and fines under the Cor - porate Income Tax Law or zakat provisions.
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