b.
A capital gain derived from disposal of fixed and traded
assets, or from disposal of shares in a resident
company is subject to tax under general provisions of
the Law.
Article
2
Taxable
activity is all activities of any type, such as commercial,
industrial, agricultural, service, banking, and insurance
activities; investments of all types; transportation operations;
leasing movable, immovable tangible and intangible property. It
also includes professional and trade activity, or any other
similar activity that is for profit, such as agencies and
brokerage and other similar activities. Taxable activity
does not include opening bank accounts of any type (current, for
a period or saving), and trading in shares of companies listed
in the Kingdom’s Stock Market by a natural resident person.
Article
3
1.
A natural person is resident in the Kingdom during a taxable
year if he has a permanent place of abode (residence) in the
Kingdom and is present in the Kingdom during a period not less
than 30 days, continuous or in aggregate, during the tax year.
A
natural person is also resident in the Kingdom if he is present
in the Kingdom during not less than 183 days, continuous or in
aggregate, in the tax year even if he has no permanent abode in
the Kingdom.
2.
“A permanent place of abode” means an abode the taxpayer
owns or leases for long time, for not less than one year, during
the taxable year. It could also be an abode provided to the
natural person by any party during the tax year for a period not
less than one year.
3.
Nationality (citizenship) is not considered to determine place
of residence of a person. A natural or corporate person,
notwithstanding its nationality, is not resident in the Kingdom
unless the residency provisions of the Law and of these
Regulations apply.
Article
4
1.
An agent referred to in Article 4 of the Law is a dependent
agent who has any of the following authorities:
a.
negotiate on behalf of a non-resident,
b.
conclude contracts on behalf of a non-resident,
c.
has a stock of goods, owned by a non-resident, on hand in the
Kingdom to supply the clients’ demands on behalf of the
non-resident.
2.
A place from which a non-resident carries out insurance and/or
reinsurance activity in the Kingdom through an agent is
considered a permanent establishment of the non-resident even
though the agent is not authorized to negotiate and conclude
contracts on behalf of the non-resident.
Source of Income
Article
5
The
following types of income are considered derived from an
activity occurring in the Kingdom and are therefore from a
source in the Kingdom:
1.
Loan charge (proceeds) to a non-resident in any of the following
cases:
a.
the debt is secured by movable or immovable property located in
the Kingdom,
b.
the borrower is a resident of the Kingdom,
c.
the loan is related to an activity carried out in the Kingdom.
“Loan
charge (proceeds/interest)" means an amount paid for the
use of money. This includes income realized from loan
transactions of any type, whether secured by guarantees or not,
or by giving rights to participate in the profits of the debited
person or not; it also includes income realized from
governmental and non-governmental bonds.
2.
Insurance/reinsurance premiums in any of the following:
a.
insured asset is located in the Kingdom,
b.
the insurer is a resident of the Kingdom,
c.
insurance of activities or risks related to activities carried
out in the Kingdom.
3.
Income derived from technical or consulting services in any of
the following:
a.
the service is given to a person
resident in the Kingdom,
b.
the service is related to an activity carried out in the
Kingdom.
4.
Income derived by a capital company resident in the Kingdom from
its operations and of its branches inside and outside the
Kingdom.
5.
Income derived from movable or immovable property attributed or
related to activities in the Kingdom carried out by a person
resident in the Kingdom.
6.
Income derived from sale of goods or merchandises manufactured
or produced in the Kingdom.
7.
A Contract of delivery of goods to the Kingdom is not considered
to be derived from an activity in the Kingdom unless it includes
associated work performed in the Kingdom, such as
transportation, installation, training or other similar work. In
such case, only associated work is considered to be derived from
an activity in the Kingdom.
Article
6
The
following services are considered performed in the Kingdom in
any of the following:
1.
Work required for a service is carried out in full or in part in
the Kingdom even though the service is remotely executed
(performed). The physical presence of a service provider is not
required.
2.
Work performed on board of an airplane or ship that works for a
person carrying out an activity in the Kingdom.
Exempt Income
Article
7
A
Capital gain realized from disposal of securities traded in the
Stock Market in the Kingdom is exempt income if it meets the
following:
1.
The sale transaction is performed in accordance with the
regulations of the Stock Market in the Kingdom.
2.
The disposed of investment did not exist before the effective
date of the Law as stipulated in Article 74 of these
Regulations.
Gains and losses on disposal
of assets
Article
8
No
gain or loss is taken into account on disposal of an asset that
is depreciable under the Law. The result of disposal of such
assets is dealt with under deprecation method stipulated by the
Law.
Deductible Expenses in
DeterminingTaxable Income
Article 9
Deductible
expenses in determining taxable income are as follows:
1.
All expenses that are necessary and normal to the business, paid
or accrued, are allowed deductions provided they meet the
following:
a.
It is an actual expense, supported by verifiable document or
other proving evidence.
b.
Related to earning taxable income.
c.
Related to the subject tax year.
d.
Of non-capital nature.
2.
Loan Charges (proceeds)) incurred during the tax year if related
to income subject to tax, or the resultant of the following
formula which ever is less: The taxpayer’s total income from
loan charges, plus 50 percent of ( a - b).
“a”
= income subject to tax other than income from loan
charges.
“b”
= expenses allowed under the Law other than loan charge
expenses.
Banks
are not subject to this formula.
3.
Bad Debts provided they meet the following conditions:
a.
Bad debt was previously declared in the proper year’s
income.
b.
Debt was resulted from sale of goods or services.
c.
Having a certificate by the taxpayer’s certified public
accountant certifying the writing off of the debt from the
taxpayer’s books and records based on a
decision by the taxpayer’s proper authority.
d. Serious efforts have been
exerted by the taxpayer to collect the debt with no success; and
inability of debtor to pay is proved based on a
judicial ruling or bankruptcy.
e.
Debt is not on a related party.
f.
Commitment by the taxpayer to reinstate as income any written
off debt whenever collected.
4.
Depreciation deduction under the following limitations as
stipulated by Article 17 of the Law:
a.
The asset is not intended for resale; it is to be used, in full
or in part, for the entity’s purposes.
b.
The asset is of depreciable nature that loses value because of
use or because of wear and tear and obsolescence and which has a
value extending beyond the end of the taxable year.
c.
The asset is owned by the business as per ownership document for
buildings, and contracts and invoices for other assets.
d.
The asset depreciation is allowed even if the asset becomes
in-operational during the tax year.
5.
Allocations and reserves formed during the year as follows:
a.
Bank allocations to a reserve fund for doubtful debts. A bank
must submit a certificate from Saudi Arabian Monetary Agency
(SAMA), stating amount of doubtful debts, amount of doubtful
debts collected during the year that should be reinstated in the
tax base of the year of collection.
b.
Insurance/reinsurance companies may deduct, based on industry
standards, a reserve for unearned premiums and for unexpired
risks provided that it is reported in the tax base of the
following year.
A
reserve for unearned premiums means part of premiums
amount collected or stated in books that covers risks related to
up-coming tax year(s). A reserve for unexpired risks means
amount of compensation claimed or reported but payment process
falls short of completion during the tax year.
6.
A taxpayer may reduce its book profit by the amount of a reserve
used during the year that had been readjusted when it had been
made to increase income/decrease expenses in the year of
formation. Examples of such reserves are end-of-service award,
doubtful debt, and drop in prices. Such amount is allowed
provided the following conditions are met:
a.
The used amount was paid or accrued during the year and it is
supported by proving documents.
b.
The reserve had been adjusted in the year of formation to
increase tax base.
7.
School fees paid by
taxpayers for their employees’ children are deductible
expenses provided they meet the following conditions:
a. They are paid to a local
licensed school.
b.
This benefit is stated in the employment contract.
8.
Employer's
contributions to employees' pension funds or saving funds
established under the Kingdom’s rules and regulations,
provided that such contribution, one payment or in aggregate, is
not in excess of 25 percent of the employee’s income before
the employer’s contributions and that the fund meets the
following:
a.
The Fund is established according to special provisions that
clearly stipulate conditions of subscription and rights of
subscribers.
b.
Such obligation is stated in the employment contract or in the
Articles of Association of the establishment.
c.
The Fund has a character independent of the establishment and
has separate accounts audited by an independent certified public
accountant.
9.
A deduction is allowed for research and development expenditures
incurred during the tax year and connected with the earning of
income subject to tax. These expenditures mean research and
development, experiments on technical, scientific and
engineering aspects, computer systems or similar aspects. This
provision does not allow for acquisition of land and facilities
on it, or of equipment used for research, such facilities and
equipment being subject to depreciation under Article 17 of the
Law.
Non-deductible Expenses
Article
10
The
following expenses are non-deductible:
1.
Wages, salaries and whatever deemed so, in cash or in kind, paid
to an owner, partner or shareholder, or to a member of their
families: a parent, spouse, sons/daughters and brothers/sisters.
This provision does not apply to stockholders in a stock
company.
2.
Compensation in cash or in kind paid to a partner, shareholder,
or to a member of their families: a parent, spouse,
sons/daughters and brothers/sisters for a property or service to
the extent that the compensation is higher than the fair
market value of such property or service at time of transaction.
3.
Entertainment expenses incurred for events such as parties,
sport competitions, entertainment trips and activities, etc.
4.
Expenses of a natural person for personal consumption, such as
personal withdrawals, dependents’ cost of living or education.
5.
Income tax and related fines and penalties paid or payable to
the Kingdom or to other countries.
6.
Financial fines or penalties paid or payable to any party
in the Kingdom, such as traffic fines, or fines for causing
damage to public utilities.
This
does not include fines or penalties paid for breach of
contractual obligations, such as fines on delayed or defaulted
completion of contracts, such fines are deductible provided they
are documented by the contracting party and the income from such
penalties reported in the year of recovery.
7.
Any bribe or similar payment that is considered an illegal
practice in the Kingdom, even if paid abroad.
8.
Insurance Commission in excess of 3 percent of total premiums
collected in the Kingdom through the agent or others and whether
the agent is a partner or not.
9.
Payments by employers of their employees contributions to a
legal pension fund, social insurance or saving funds.
10.
Payments made to head-offices abroad by fully owned local
subsidiaries for:
a.
royalties or commissions;
b.
loan charges ( proceeds) or any other financial fees;
c.
indirect administrative and general expenses allocated on
estimated basis.
11.
Value of goods or services delivered to the taxpayer by
related parties to the extent that it is in excess of an arm's
length value.
Loss Carry-Forward
Article
11
1.
A taxpayer may carry forward operational losses as adjusted, in
accordance with controls as stipulated in the Law and these
Regulations, to the years following the loss year until the
cumulative loss is fully offset. The maximum profit percentage
of any year that could be used to offset cumulative losses
should not exceed 25 percent of the year’s profit as reported
in the taxpayer’s return.
2.
The provision of paragraph (1) above shall not apply to (the
taxpayer can not carry forward) operational losses incurred
before the entry into force of the Council of Minister’s
resolution Number 3, dated 5/01/1421 H., corresponding to
10/04/2000, operational losses incurred during a tax holiday, or
operational losses incurred from an exempt activity under the
Income Tax Law- in case the taxpayer has both taxable and exempt
activities.
3.
Losses not determined based on legal accounts audited by a
certified public accountant licensed in the Kingdom can not be
carried forward.
4.
Losses that meet the provisions of loss carry-forward but
incurred by a capital company that has been a subject of change
of 50 percent or more in its underlying ownership or control can
not be carried over to tax years following the year of change.
5.
A natural person’s operational loss is the difference between
business income and related deductions only.
Currency Conversion
Article
12
Subject
to currency conversion provisions of Article 30 of the Law,
currency conversion profits or losses resulted from reevaluation
for tax purposes are not taken into account.
Compensation Receipts
Article
13
Compensation
payments received take the character of the thing that is
compensated as far as being subject to tax or not.
Compensation receipts for damage in goods (trading stock) are
deemed to be income subject to tax, but compensation receipts
for assets are dealt with in accordance with Article 9 of the
Law.
Financial Leasing
Article
14
1.
If a lessee leases an asset from a lessor under a financial
leasing contract, the lessee is considered, for tax purposes,
the owner of the asset and the lease payments represent loan
repayments by the lessee.
2.
A lease of an asset is considered financial leasing if any of
the following conditions is met:
a.
The lease provides for transfer of
ownership at the end of the lease period.
b.
The lease period exceeds 75 percent of the leased asset’s
production life.
c.
The asset’s remaining value at the end of the lease period is
less than 20 percent of the asset’s fair market value at the
beginning of the lease period.
d.
The current value of the minimum lease payments is equal to or
exceeds 90 percent of the asset’s market value at the
beginning of the lease period. This provision does not apply to
a lease that commences during the last quarter of the asset’s
production life.
e.
The asset was custom-made for the lessee, which will be of no
value or of little value to others at the end of the lease
period.
3.
For the purpose of this Article, the discount rate used to
determine the current value of lease payment is in accordance
with Saudi Arabian Monetary Agency’s rate.
4.
For the purpose of this Article, the lease period includes any
additional period that is renewable.
5.
Where the lessor was the owner of the asset before commencement
of the financial lease, then in addition to the loan treatment
specified under paragraph (1) of this Article, the transaction
is treated as a sale by the lessor and a purchase by the lessee.
6.
A financial lease transaction is considered a purchase by the
lessee with a loan from the lessor. Therefore, and since lease
payments represent repayments of the loan, they shall not be
considered book expenses for the tax year.
7.
Since the lessee will be treated for tax purposes as the owner
of the leased asset, the following should be observed:
a.
The lessee, not the lessor, is
entitled a deduction for depreciation for that asset.
b.
A lease payment is divided into two components: Principal and
loan charge. The principal at the commencement of the lease is
the present value of the minimum payments to be made under the
lease.
c.
The principal component of each payment is treated as a
repayment of the loan, and for tax purposes is not an expense
deduction for the lessee. The loan charge (proceeds) component
is treated as income to the lessor and expense to the lessee.
d.
If the lessor owns the asset before the commencement of
financial lease, and subject to the provisions of this Article,
the financial lease transaction is considered a sale by the
lessor and a purchase by the lessee and taking into account tax
consequences of sale and purchase transactions by the lessor and
lessee.
Insurance Companies
Article
15
1.
The tax base of a resident or non-resident insurance company
that is engaged in general insurance business in the Kingdom is
determined in accordance with provisions of the Income Tax Law.
2.
The tax base of a non-resident insurance company that is engaged
in general insurance business in the Kingdom through a permanent
establishment is determined as follows:
a.
Gross income consists of the following:
1.
Gross premiums received or receivable from contracts for
insurance risks in the Kingdom, less any premiums returned
(cancelled) and less any premiums paid for reinsurance.
2.
Reserve for unearned premiums and unexpired risks formed at the
end of the previous fiscal year as allowed under Article 9 (5/b)
of these Regulations.
3.
Investment income attributable to contracts for insurance risks
in the Kingdom, and it is determined as follows: The proportion
of worldwide investment income, which the total local premiums
bear to the total worldwide premiums.
4.
Any other income attributable to the permanent establishment.
b.
Total expenses are as follows:
1.
Payments paid under property and risks insurance policies in the
Kingdom, less any such amounts that were covered by
re-insurance.
2.
A reserve for unearned and for unexpired risks formed at the end
of the current fiscal year as allowed under 9(5/b) of these
Regulations.
3.
Allowed expenses incurred by the permanent establishment in the
Kingdom.
4.
A subsidiary’s share in the general administrative expenses of
the head-office of the company determined as follows: The
proportion of the Gross Head-Office general and administrative
expenses, which the total local premiums bear to the total
worldwide premiums.
c.
The tax-base of the insurance company under this Article(2)
should not be less than the proportion of worldwide pre-tax net
income from general insurance, which the income from local
premiums bears to income from worldwide premiums (in accordance
with consolidated worldwide financial statements).
3.
The tax base of an insurance company that is engaged in life
(saving) insurance in the Kingdom is determined as follows:
a.
Resident insurance company: Income
from investment, minus administrative expenses related to
investment income.
b.
Nonresident insurance company that carries out its activities
through a permanent establishment in the Kingdom: The proportion
of worldwide gross income from investment, which the total local
premiums bear to total worldwide premiums,
Minus:
1.
the subsidiary’s share in worldwide management expenses
related to investment income which is the proportion of
worldwide management expenses related to investment, which
the total local premiums bear to total worldwide premiums;
2.
a proportion of head-office general and administrative expenses
according to the following formula: the proportion of total
head-office administrative and general expenses, which the total
local premiums bear to total worldwide premiums.
4.
The term “life insurance” means issuance of insurance
policies whose proceeds become due at the end of the contract or
upon death of the insured person.
Estimated Tax
Article
16
1.
In addition to estimated taxation provisions stipulated under
Article 34(a) of the Law, the Department may apply estimated
taxation to some other activities related to world-wide
expenses; this is when the world-wide expenses and local
expenses are so interrelated that it is difficult to separate
local expenses and so to file separate accounts for local
activities.
2.
The Department may apply estimated taxation to small activities
of limited income that are not required to keep books and
records at a rate of 15 percent net profit of gross income.
3.
In order to enforce compliance with statutory requirements and
fight tax evasion, the Department may use estimated taxation
based on taxpayer’s relevant facts and circumstances in the
following cases:
a.
Non-filing of the return during the legally prescribed time. In
case of late filing of a return based on statutory books and
records before the Department has issued its estimated
assessment, the Department has the right to accept and consider
it according to standing procedures and being subject to legal
penalties.
b.
Failure to keep in the Kingdom accurate books and records that
truly reflect the taxpayer’s financial position.
c.
Subject to Article 57(3) of these Regulations, taxpayer's
failure to prove correctness of the return by supporting
documents.
d.
Failure to comply with format, form and manner of books and
records as required by the Commercial Books Regulations.
e.
Failure to translate books and records kept in a language other
than Arabic into Arabic within a set time after being notified
to do so by the Department.
4.
Estimated net profit rate shall be determined based on facts,
evidences and indicators relevant to taxpayer’s activity, its
nature and circumstances. It shall be, under no circumstances,
less than the following rates of the taxpayer's income:
|
Category
|
Activity/Profession
|
Profit
Rate (%)
|
|
1.
|
Royalties
and Proceeds
|
75
|
|
2.
|
Management
Fees
|
80
|
|
3.
|
Technical
and Consulting Services
|
20
|
|
4.
|
Professionals
such as doctors, attorneys, accountants and engineers
|
20
|
|
5.
|
General
Services Offices
|
20
|
|
6.
|
Stores
that sell vegetables and fruit, meat, fish, birds and
livestock.
|
10
|
|
7.
|
Gas
Stations
|
10
|
|
8.
|
Construction
Contractors
|
10
|
|
9.
|
Other
activities
|
15
|
5.
Under estimated assessment, no deduction from gross income, such
as for sub-contractors, Shall be allowed.
6.
In case of delivery contracts from abroad with in-the-Kingdom
associated work whose value is not separately specified in the
contract, each associated work income shall be estimated at 10
percent of the total gross value of the contract.
7.
Capital gains from disposal of an asset in the absence of
taxpayer's (seller's) legal accounts shall be determined as
follows:
b.
In case of disposal of an interest in a capital company, the
sale value of such assets shall be the contract value, the
market value or the book value in the company's books, which
ever is higher. The sale value is compared with the cost base to
determine the capital gain.
c.
In case of disposal of an interest in a partnership, the sale
value of such assets shall be the contract value or the market
value, which ever is higher. The sale value is compared with the
cost base to determine the capital gain.
d.
In other cases, the sale value shall be the contract value or
the market value, which ever is higher. The sale value is
compared with the cost base to determine the capital gain, which
should not be less than 15 percent of cost base.
e.
The disposing partner should inform the Department of the
sale and pay due tax on the pre-sale period profits and on the
resulted capital gains within 60 days of sale transaction. The
company and the purchaser are jointly liable with the seller to
pay any amounts that become due to the Department as a result of
this transaction.
Principles of Taxation for
Partnerships
Article
17
1.
Failure of a partnership to file its required information return
within the legally prescribed time, or to comply with the
required return form, will make it subject to the non-filing
penalty. This penalty shall be calculated at 1 percent of the
company’s gross income, but not to exceed SR. 20.000 in
accordance with 76(a) of the Law.
2.
The partnership income is not subject to tax. It is distributed
to partners who are individually subject to tax and each partner
is personally required to file its returns within the legally
prescribed periods stating all its income subject to tax
including income from the partnership.
3.
In determining the tax base of a partner in a partnership, the
partnership's income from sources outside the Kingdom and its
exempt income under the Law shall retain its character, and that
includes gains, deductions, losses or debts.
4.
A loss in excess of the partner’s cost base is not taken into
account (is suspended) until the partner acquires sufficient
cost base to offset the loss or until the partner’s interest
is terminated.
5.
Partnership obligations apply to consortiums of companies,
particularly in regard to registration with the Department,
filing information return, and relevant penalties.
Taxable Year
Article
18
1.
The taxable year of a taxpayer for all activities is the
state’s fiscal year. A taxpayer’s fiscal year shall start as
of the date of its commercial register or license unless
evidences prove otherwise. A taxpayer may use a different
fiscal year under the following conditions:
-
the taxpayer has been using a different fiscal year approved by
the Department prior to enacting of the Law;
-
the taxpayer is using a Gregorian fiscal year;
-
a company is a member in a group of companies or is a subsidiary
of a foreign company using a different fiscal year.
When
using a different fiscal year, the following should be met:
a.
The Taxpayer shall comply with effects by submitting a
separate tax return for the short period separating the last tax
year before the change and the beginning of the new tax year and
shall pay tax according to the return within the legally
prescribed time.
b.
The first year of a new taxpayer or the last year in case of
cessation or liquidation may be a short fiscal year unless the
company's articles of association require a long fiscal year.
c.
The application of above provisions is without prejudice to
provisions of Article 70 of the Law in regard to advance payment
of tax by a taxpayer who changes its fiscal year.
2.
A taxpayer whose first year is a long fiscal year under the
company's articles of association shall file a tax return for
the first 12 months within 120 days of the end of the first 12
months. After the end of the long fiscal period, the taxpayer
shall file one consolidated return for the long fiscal period
and pay tax accordingly with a credit of the amount paid for the
first period.
3.
In case of a short fiscal period, shorter than 12 months, the
due date for payment of tax and filing of return is within 120
days of closure of accounts.
Accounting Method
Article
19
Subject
to provisions of Article 23 of the Law in regard to accounting
method, a natural person my account for tax purposes on cash or
accrual basis, but if his gross income from business for a
taxable year exceeds five million Saudi riyals, he must account
for business income on accrual basis in all succeeding taxable
years even if such income falls later below the five million
Saudi riyals.
Long-Term Contracts
Article
20
1.
An accrual-basis taxpayer should account for income and
deductions (income to the contractor and expenses to the
contracting party-the main contractor-) relating to a long-term
contract on the basis of the percentage of the contract
completed during the taxable year. The following formula should
be applied: The portion of Costs incurred during the taxable
year, which the total value of contract bears to the estimated
total cost of the long-term contract.
Costs
incurred during the taxable year multiplied by total value of
contract divided by estimated total cost of the long term
contract
2.
The term “long-term contract” means a contract for
manufacture, installation, construction, turn-key contract, or
performance of related services (such as a contract with an
engineer for provision of engineering supervision on the
project), that has commenced during the taxable year but not
completed within the same year, other than a contract estimated
to be completed within 6 months of the actual start date.
3.
If a taxpayer fails to comply with the prescribed method in
paragraph (1) of this Article to account for income from
long-term contracts, the Department has the right to determine
such income as it deems appropriate based on available
information and evidences.
Natural Gas Investment Tax
Article
21
Any
person, natural or corporate, Saudi or non-Saudi, engaged in the
natural gas, natural gas liquids and gas condensates investment
activity within the Kingdom of Saudi Arabia, its dedicated
economic zone or continental shelf shall be subject to the
Natural Gas Investment Tax (NGIT) .
Article
22
“Natural
Gas” shall have one of the following meaning as per its rank
within the chain of the gas industry activities:
a.
“Natural Gas” as defined in the Upstream Rules for
Non-associated Gas Activities in the Kingdom of Saudi Arabia.
b.
“Gas” as defined in the Gas Supplies and Pricing
Regulations.
c.
“Dry Gas” as defined in the Gas Supplies and Pricing
Regulations.
Article
23
“Exploration,
Production, Gathering and Treatment Activities” means all
exploration and production activities, including geological
survey, engineering, prospecting, exploration, evaluation,
development, drilling, production, gathering of production and
treatment and initial preparation of gas.
Article
24
A
party shall be considered a gas producer if it is engaged in the
production, gathering, treatment and processing of natural gas
and the fractionation of natural gas liquids.
Article
25
“End
User Facilities” means those facilities that receive amounts
of Natural Gas and/or Natural Gas Liquids for use as fuel or
feedstock or for onward distribution via a local distribution
system or for storage.
Article
26
The
distribution of gas and its liquids through licensed local
distribution systems pursuant to the Gas Supplies and Pricing
Regulations shall be regarded as part of the natural gas
investment activities.
Article
27
The
storage of gas and its liquids, licensed as an independent
activity under the Gas Supplies and Pricing Regulations, shall
be regarded as part of the natural gas investment activities.
Article
28
The
natural gas investment taxable income is the gross income
derived from the sale, exchange or transfer of natural gas,
natural gas liquids, and gas condensates, including sulfur and
other products, as well as any income derived from all aspects
of natural gas investment activities mentioned in Article 45 of
the Law, which include revenues derived from the transportation
of natural gas, natural gas liquids and gas condensates, income
derived from processing and fractionation activities and other
related services and any incidental or non-operational income
associated with the taxpayer’s primary activity regardless of
its type or source, including income derived from third-party
utilization of excess capacity in any facility that is subject
to the natural gas investment tax. The said income shall be
determined on accrual basis.
Article
29
“Exchanges
or Transfers” occur when Natural Gas, Natural Gas Liquids, Gas
Condensate or other products or services move between
tax-independent activities of one taxpayer or of related
parties.
Article 30
“Third
Party” means any corporate or natural person that deals with
the taxpayer. A NGIT taxpayer under any other Gas Exploration
and Production Contract or Agreement is considered a third
party.
Article
31
“NGIT
Taxpayer’s Primary Activity” means the activity (ies)
authorized by the natural gas exploration and production
agreement or contract or licensed under the Gas Supplies and
Pricing Regulations in the natural gas investment activities,
including permitted independent activities.
Article
32
“Gas
Exploration and Production Agreement or Contract” means the
legal instrument or instruments through which the Government of
Saudi Arabia awards the investor rights to operate in the field
of Natural Gas Investment Activities and specifies the acreage
in the Kingdom for conducting these activities.
Article
33
“Facility
that is Subject to the Natural Gas Investment Tax” means any
facility or other property used by a NGIT taxpayer to carry out
natural gas investment activities.
Article
34
Prices
to be used for calculating total realized income shall be
determined according to the Gas Supplies and Pricing Regulations
and their Rules for Implementation, and in cases where there are
no specific provisions included in these regualtions and rules,
prices shall be determined on commercial bases, provided that
such pricing is approved by the Ministry of Petroleum and
Mineral Resources.
Article
35
Quantities
associated with income recognition shall be measured according
to technical standards specified by the Ministry of Petreleum
and Mineral Resources.
Article
36
A
natural gas investor’s capital gains resulting from partial or
total transfer of his share in the company licensed to operate
in the natural gas investment activities shall not be in the
income subject to NGIT; it is income subject to income tax at a
rate of 20 percent.
Article
37
Expenses
deductible from income which is subject to NGIT are the expenses
deductible under Article 12 of the Law. Royalty and surface
rental amounts shall be considered as deductible expenses on
accrual basis.
Article
38
Cumulative
annual cash shall be calculated from the first year for which
the taxpayer files a tax declaration, as of the start of his
activity, which is subject to NGIT.
Article
39
For
the purpose of calculating the internal rate of return (IRR),
annual cash flows for each year shall be considered to have
occurred at the end of the year.
Article
40
IRR
calculations shall be based on actual annual cash flows,
regardless of the effects of annual inflation rate or of any
other factors. The taxpayer’s certified public accountant
shall accordingly certify.
