Riyadh

Taxation in Riyadh, Saudi Arabia

What are the tax rates in Riyadh, Saudi Arabia? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Riyadh, Saudi Arabia.

Corporate taxation in Riyadh

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Basis

A resident corporation is taxed on income arising in the kingdom. A nonresident carrying out activities in the kingdom through a permanent establishment (PE) is taxed on income arising from or related to the PE.

Taxation of dividends

Dividends received are taxed as income.

Residence

A corporation is resident in Saudi Arabia if it is registered in accordance with the regulations for companies in Saudi Arabia or if it is headquartered in the kingdom.

Losses

Tax losses may be carried forward indefinitely, provided the maximum amount deducted in each tax year does not exceed 25% of the annual profits, as per the tax return. The carryforward of losses is not allowed for companies that had a change in ownership or control of 50% or more, except for losses arising following the change in ownership that meet the criteria for loss carryforwards. The carryback of losses is not permitted.

Incentives

The government grants 10-year tax incentives on investments in the following six underdeveloped provinces in Saudi Arabia: Hail, Jizan, Abha, Northern Border, Najran and Al-jouf. Investors will be granted a tax credit against the annual tax payable in respect of certain costs incurred on Saudi employees.

Rate

The rate is 20% on a non-Saudi's share in a resident corporation and on income derived by a nonresident from a PE in Saudi Arabia. The rate on taxpayers working in the exploitation of natural gas sector is 30%, and the rate on taxpayers engaged in the production of oil and hydrocarbons is 85%.

Taxable income

Income tax is levied on a non-Saudi's share in a resident corporation; zakat is levied on a Saudi's share. Citizens of Gulf Cooperation Council countries are treated as Saudis.

Capital gains

A 20% capital gains tax is imposed on the disposal of shares in a resident company. Capital gains on the disposal of shares traded on the Saudi stock exchange are tax exempt if the shares were acquired after 2004.

Holding company regime

The profits of a Saudi resident subsidiary remitted to its Saudi resident holding company will not be taxed, provided (i) there is a minimum holding of 10%; (ii) the investment is held for no less than one year; and (iii) the income of the subsidiary was subject to tax in Saudi Arabia. Limited rules also exist for groups wholly subject to zakat.

Compliance for corporations

Penalties

The penalties for failure to file a tax return are the higher of 1% of revenue (up to a maximum of SAR 20,000), or between 5% and 25% of the unsettled tax, depending on the length of the delay. In addition, there is a fine of 1% of the unsettled tax for every 30 days' delay in settlement.

Basis

There is no personal income tax (employment tax) in Saudi Arabia; however, nonresidents conducting business in the kingdom or deriving income from a PE in Saudi Arabia are taxed as described above under “Corporate taxation.”

Residence

An individual is resident in Saudi Arabia for a tax year if he/she has a permanent residence in the kingdom and is present in the kingdom for a period that, in total, is not less than 30 days in the tax year, or is present in the kingdom for a period that is not less than 183 days in the tax year.

Filing status

Only individuals that carry on a business or profession are required to file a tax return.

Filing requirements

Tax returns for a corporation must be filed with the tax authorities within 120 days from the fiscal year-end. A taxpayer whose taxable income exceeds SAR 1 million before the deduction of expenses must have the accuracy of the return certified by a licensed certified accountant. Additionally, audited financial statements must be filed with the Ministry of Commerce within six months of the year-end.

Consolidated returns

Consolidated returns may be filed only for zakat and only in the case of wholly owned subsidiaries. Consolidated returns are not permitted for income tax purposes.

Rates

Individuals carrying on a business or profession are taxed at the same rate as companies, i.e. 20%.

Tax year

The tax year is the state’s fiscal year. The taxable year of a taxpayer starts from the date it obtains a commercial registration or license, unless other documents support a different date.

Taxable income

No, except for individuals that carry on a business or profession, who are subject to the same rules as companies.

Capital gains

A 20% capital gains tax is imposed on the disposal of shares in a resident company. Capital gains on the disposal of shares traded on the Saudi stock exchange are tax exempt if the shares were acquired after 2004.

Deductions and allowances

No, except for individuals that carry on a business or profession.

Other taxation in Riyadh

• Estimate the appropriate tax base and impose penalties. The general anti-avoidance measures provide for the following

Other

There are general anti-avoidance provisions in the tax law; see above under “Transfer pricing.”

Thin capitalization

The deduction of interest expense is limited to the lesser of the actual expense or interest income, plus 50% of taxable income before interest income and interest expense. Additionally, in accordance with the companies regulations, if the accumulated losses of a company exceed 50% of its share capital, a shareholders' meeting must be called to determine whether to continue the business, and such resolution must be published in the official gazette.

Anti-avoidance rules

Transfer pricing

Saudi tax law does not contain any detailed transfer pricing regulations or guidelines. However, related party transactions and the applicability of the arm’s length principle are covered under certain general anti-avoidance provisions, and the Saudi tax authorities may challenge any transaction as follows:

Investment basics

Accounting principles/financial statements

Saudi Organization of Certified Public Accountants (SOCPA) standards. If an issue is not covered by SOCPA standards, IFRS is the standard (and is used by banks). Saudi Arabia is transitioning to IFRS. Listed companies (other than banks and insurance companies) are required to adopt IFRS as from 31 December 2017, with 1 January 2016 being the transition date for IFRS convergence (the beginning of the earliest comparative year); other entities are required to adopt IFRS as from 31 December 2018, with 1 January 2017 being the transition date for IFRS convergence.

Principal business entities

These are the limited liability company, joint stock company and branch of a foreign entity.

Withholding tax

Dividends

A 5% withholding tax is levied on dividends paid to a nonresident, unless the rate is reduced under a tax treaty.

Branch remittance tax

A 5% withholding tax is imposed on the remittance of profits abroad.

Technical service fees

A 5% withholding tax is levied on technical service fees paid to a nonresident, unless the rate is reduced under a tax treaty; a 15% withholding rate applies to technical service fees paid to related parties.

Interest

A 5% withholding tax is levied on interest paid to a nonresident, unless the rate is reduced under a tax treaty.

Royalties

A 15% withholding tax is levied on royalties paid to a nonresident, unless the rate is reduced under a tax treaty.