El Sayed El Ayouty & Co.

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:

(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;

(5) derived from the sale or license of intellectual or industrial property used in the Kingdom

(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;

(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.

(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.

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 .

c - The company which is subject to income tax can impose withholding tax for the amount distributed .

* Any other payments mean: Any amount paid to non-resident from a source in the kingdom against services other than mentioned in secondly above .

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 .

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.

FIFTH: Other provisions to be considered when tax withheld

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

SIXTH : Withholding tax forms

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:

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.

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 .

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 30^th April 2004). Pursuant to article 80, the new tax law will be effective starting on or after 30^th July 2004, and indicates that the new withholding tax requirements will be effective for all taxpayers regardless of their year-end beginning on 30^th 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:

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 .

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 30^th 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.

MEMORANDUM ON THE BY-LAWS FOR IMPLEMENTATION OF

FIFTH: Other provisions to be considered when tax withheld

SIXTH : Withholding tax forms