Faq’s

Income Tax FAQ’S

• What is meant by the Certified Public Accountant's statement on the validity of the return for the establishment whose taxable income exceeds one million Saudi riyals? What standards should the accountant take into account to execute such a responsibility?

  - Certified Public Accountant's statement on the validity of the return means that the accountant confirms the validity of the tax return, especially that the return information is derived from the books and records of the establishment and verify its compatibility, and that the return was prepared as per the provisions of the Saudi Income Tax Law. This will be complied with if the taxable income exceeds one million Saudi riyals. The taxable income in question is the total income before deduction of expenses. The standards to be followed by the accountant are the standards set out in the Income Tax Law and its Regulations in addition to the standards issued by the Saudi Organization for Certified Public Accountants.

• Are establishments obligated to file audited financial statements along with their tax returns?

  - Establishments are not obligated to file financial statements along with tax returns. However, GAZT may request them whenever it is deemed necessary.

• if the taxpayer submits the tax return on the due date, and the financial statements later on reveal that there is a diƯerence in the return that may result in an increase or reduction, is the taxpayer entitled to submit an emended tax return? Subsequently, will the establishment be subject to a penalty for the failure of filing the tax return?

  - Taxpayers can file an amended tax return after ZATCA’S approval. ZATCA is entitled to either accept or reject the amended return or, in case of acceptance, amend it and impose fines as stipulated in the Tax Law, as appropriate.

• Does the Authority suƯice for the resident holding company to submit a unified tax return for all its subsidiaries or wholly owned companies, or does each company have to submit a separate tax return and pay the taxes due thereunder?

  - Each of the subsidiaries or wholly owned companies of the holding company shall submit a separate tax return and pay the tax due thereunder, and the holding company's declaration shall not be suƯicient.

• What are maintenance expenses and asset developments that can be deducted under the Income Tax Law?

  - Article 18 of the Law stipulates that all expenses of enhancements and improvements of each Group of assets incurred during the year will be regarded as expenses, provided that the total amount of such expenses do not exceed 4% of the rest of the value of the Group (ie, after calculating the depreciation at the end of the year in which the expense was incurred ). If these expenses exceed 4% of the rest of the Group, the excess amount will be added to the rest of the value of the Group to be consumed in the following years.

• At what tax rate is the income tax imposed with respect to the tax base?

  A. The tax rate imposed on the tax base is 20% for: - Resident capital company. - Natural non-Saudi residents who conduct business in Saudi Arabia. - Non-resident persons who conduct business in Saudi Arabia through a permanent establishment. B. The Income Tax imposed on the income base of a taxpayer working in natural gas investment sector is 20% only. C. The Income Tax imposed on the income base of a taxpayer working on oil and hydrocarbons production is as follows: - 50% imposed on a taxpayer whose total capital investment in Saudi Arabia exceeds three hundred and seventy-five billion Saudi Riyals. - 65% imposed on a taxpayer whose capital investment in Saudi Arabia exceeds three hundred billion Saudi Riyals and up to three hundred seventy-five billion Saudi Riyals. - 75% imposed on a taxpayer whose capital investment in Saudi Arabia exceeds two hundred and twenty-five billion Saudi Riyals and less than three hundred billion Saudi Riyals. - 85% imposed on a taxpayer whose capital investment in Saudi Arabia is no more than two hundred and twenty-five billion Saudi Riyals. D. The Income Tax imposed to a person working in Saudi Arabia in both oil and hydrocarbons production sector, and natural gas investment sector is the total tax payable of the tax base of such person under paragraphs (B) and (C) of this article.

• Are board directors’ wages of resident companies covered in the deductible expenses for Income Tax purposes?

  - Directors' wages paid to the owner, partner or shareholder will not be considered as deductible expenses (except for the wages paid to the shareholder in the joint-stock companies) as stipulated in the provisions of paragraph (1) of Article ten of the Implementing Regulations of Income Tax Law.

• If a non-resident partner in a company resident in Saudi Arabia represents a GCC government, is such partner subject to Income Tax or Zakat?

  - In this case, the non-resident partner is subject to Zakat, while any distributed profits are subject to Withholding tax.

• A GCC company contracted with a resident company in Saudi Arabia to establish a plastic factory. Does its contract fall under the Income Tax or Withholding Tax?

  - Paragraph (b / 1) of Article Four of the Tax Law considers the following cases as permanent establishment for non-residents: construction sites, assembly facilities and its supervisory operation. Therefore, the GCC company that will execute such contract will be considered as a permanent establishment and will be subject to Income Tax, not Withholding Tax.