ON THE BY-LAWS FOR IMPLEMENTATION OF
THE NEW WITHHOLDING TAX REGULATION
First: Withholding Tax
Responsibility
Tax withheld is the responsibility of every resident, whether he is a tax payer or not under this regulation, and the permanent entity of a non- resident in the kingdom, who makes a payment to a non-resident from a source in the Kingdom, any income resulted from the following fields are considered to be from a source in the kingdom:
Income is from a source in the Kingdom if it is:
(1) derived from an activity which occurs in the Kingdom;
(2) derived from immovable property located in the Kingdom, including gains from the disposal of an interest in such immovable property and from the disposal of shares, stocks or partnership interests in a company the property of which consists directly or indirectly principally of interests in such property;
(3) derived from the disposal of shares or a partnership interest in a resident company;
(4) derived from the rental of movable property used in the Kingdom;
(5) derived from the sale or license of intellectual or industrial property used in the Kingdom
(6) a dividend, management fee, or director's fee paid by a resident company;
(7) a payment for services made by a resident company to the company’s head office or to an affiliated company;
(8) a payment made by a resident for services performed in whole or in part in the Kingdom;
(9) amounts for exploitation of a natural resource in the Kingdom; or
(10) attributable to a permanent establishment of a nonresident located in the Kingdom, including income attributable to sales in the Kingdom of goods of the same or similar kind as those sold through such a permanent establishment, and income arising from the rendering of services or the performance of other activity in the Kingdom of the same or similar nature as activity performed via such a permanent establishment.
Taking in consideration the following:
(a) In
determining the source of income, the place of payment of the income is not
taken into account.
(b) For purposes of this article, a payment made by a
permanent establishment of a nonresident in the Kingdom is considered to be made
by a resident company.
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Second: Withholding Tax Rates:
Pursuant to the tax regulation, article No.68 and its by-laws, withholding tax is computed on the total amount paid as follows :
|
1. |
management fee |
20% |
|
2. |
Royalty, payments against services paid to the head
office or related company |
15% |
|
3. |
Rent , advisory or technical services , air tickets,
air freight and maritime freight , international telecommunications
services , dividends , loan interest , insurance or reinsurance
premiums |
5% |
|
4. |
Any other payments specified in the By-Law
|
15% |
(1) Management fees means: amount paid against management services contract such
as hotels management contracts and ship management, etc.
(2) Royalty means : payments received against the use or the right to use
intellectual rights, including, but not limited to copyright, patents,
industrial designs and secrets, trade marks and names, knowledge, trade and
business secrets or goodwill; or for the use of information related to
industrial, trade or scientific expertise, or for the rights to exploitation of
natural and mineral resources.
(3) Lease means : Amount paid against lease agreement , such as lease of
equipment or machinery or housing or media networks and
others.
(4) Consultant and technical services means : Scientific, technological and technical services,
whatever its kind is and including studies and researches in different fields,
survey works of industrial or geological or scientific nature, and
consulting or supervisory services,
or against engineering services, whatever its kind is, including the related
plans .
(5) Payments against air tickets or marine or air freight
means : Any payments against
purchase of tickets, or costs of marine or air freight paid in the kingdom to
airlines or shipping companies or to their agencies or representatives in the
kingdom .
(6) International telecommunication services
means : Any payments made to non-resident
company against services related to providing international telecommunication service in the kingdom
.
(7) Dividends means :
Any distribution made by a resident company to a non resident shareholder, and
any profits transferred from a permanent entity to related parties, taking in
consideration the following :
a - Dividends of the companies engaged in the field of
natural gas investment or in oil and hydrocarbons production are not subject to
withholding tax .
b - The partial or complete liquidation exceeding the paid
up capital is considered as distribution .
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c - The company which is subject to income tax can impose
withholding tax for the amount distributed .
* Loan interest means: Any amount paid to non-resident
against using the fund .
* Any other
payments mean: Any amount paid to non-resident from a source in the kingdom
against services other than mentioned in secondly above .
Liabilities of persons who withheld the tax
THIRD
:
Any person whether natural or legal is entitled to withheld tax as follows :
1 - To register with Zakat and income tax
department(DZIT).
2 - Withheld tax due and pay the amount to DZIT during
the first 10 days of the month following
the month of payment to the beneficiary according to the monthly
form.
3 - Provide the
annual form relating to the withheld transactions made during the year within
(120) days from the end of the fiscal year except for the partnership companies they submit
within (60) days from the end of the fiscal year .
4 - Provide the beneficiary with a certificate, stating
the name , the amount paid, amount of tax
withheld, no. and date of the
receipt .
5 - Maintain the records that are acquired to ascertain
the correctness of withheld tax .
FOURTH :
Responsibilities of Tax
Withholders
a - If a
person who is required to withhold tax but did not withheld as required by the rule , or if
tax withheld but not paid to the DZIT , or fails to report the withholding
schedule to the DZIT, this person is considered to be personally liable for the payment
of the amount of tax outstanding and not paid in the due time, in addition to
impose delay penalties @1% of the amount of unpaid tax for every 30 days delay,
counted from the due date of the tax until
the date of payment as stipulated
in Article 77 paragraph (a) of this Law.
b - If a person who is required to withhold tax has concealed information from theDZIT , or misrepresentation with the intention to evade taxes, this person is considered to be personally liable for payment of penalties @25% of the difference of unpaid tax as stipulated in Article 77 paragraph (a) of this Law.
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a - Withholding tax is imposed as per the rates as
determined in second above on total amount paid to
non-resident effective from 13/6/1425H corresponding to
30/7/2004.
b - If amount paid to non-resident and tax withheld from him , is a final tax and no further tax shall be imposed in respect of the income to which the tax withheld relates; refund of tax withheld shall be made in respect of the
payment.
c - If the amount paid to non-resident who runs business
in the Kingdom through a permanent entity, and that payment is directly
connected with the business of the permanent entity, that
payment shall be taxed as part of the tax base of the non-
resident.
d - If tax is withheld from a payment that is included in the tax base of a taxpayer, the tax withheld shall be credited against the taxpayer's liability in respect of the tax base..
e - If tax is not withheld and paid in due time, the recipient (tax payer) remains liable to the DZIT for the tax amount and the Department have the right to collect the tax from him, his agent or sponsor
The Department of Zakat and Income tax has prepared a special forms , to implement the rules stated in the article of withholding tax, to facilitate for the taxpayer to pay his liabilities, this forms are:
1 - Monthly Withholding Tax
Form
This form is considered as a declaration for monthly withholding tax, the tax payer must submit to the DZIT during the first 10 days of the month following the month of payment to the beneficiary.
2 - Yearly Withholding Tax
Form
Every withholding tax payer must fill this form and provide to the DZIT within (120) days from the end of the financial year, except for the partnership companies must submit within (60) days from the financial year end .
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25th September, 2004
Messrs KHD Humboldt Wedag AG.
Saudi Arabia
Branch.
Dear
Sirs,
We have the pleasure to introduce this memorandum to
our esteemed clients which contains the brief and summarized new withholding tax
regulation in Saudi Arabia .
The new Income tax law was published in the Um Al
Qura (Official Gazette) No. 3990 on 11/3/1425H (corresponding to 30th
April 2004). Pursuant to article 80, the new tax law will be effective starting
on or after 30th July 2004, and indicates that the new withholding
tax requirements will be effective for all taxpayers regardless of their
year-end beginning on 30th July 2004.
The new law introduced significant changes to the
withholding tax requirements and advance payment of withheld amounts.
The main features of the new withholding tax
regulation stated in “Article 68” are as follows :-
1. Withholding taxes should be computed on payments
made to non-resident parties according to the following
rates:
1.
Rent (lease)
5%
2.
Royalty
15%
3.
Management fees
20%
4.
Payments for air tickets or air freight and
shipping 5%
5.
Payments for international telecommunication
services 5%
6.
Any payments specified by the by-laws
15%
2. In the case of payments by a natural person, the
withholding tax requirements under this article apply only to payments made in
the course of the person’s business activity .
Continued
…….. Page 2
2
3. The amount of the tax withheld shall be paid to
the department of Zakat & income tax (DZIT) during the first ten days of the
month following the month of payment to the beneficiary. This means any payments
made to non-resident on or after 30th July 2004 are subject to
withholding tax of advance payment requirement.
4. The taxpayer should provide the beneficiary with a
certificate stating the amount of the payment and the amount of tax
withheld.
5. The tax payer should provide the DZIT at the end
of the year, the name, address, finance No. and the amount paid as per the
prescribed form.
To comply with the new withholding tax regulation,
you can access the memorandum on the by-laws and the prescribed forms for the
monthly and yearly tax withheld on our web site http://www.elayouty.com/ under link news
& events for implementing the withholding tax regulation stated in Article
63 in detail
Should you
require to make any payment to non-resident party, please don’t hesitate to
contact us for additional information in this regard.
Best
Regards
EL SAYED EL
AYOUTY
&CO.
CERTIFIED PUBLIC
ACCOUNTANT