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.
Registration
Article 55
1.
With exception for taxpayers subject to final withholding tax,
the following are required to register with the Department for
tax purposes:
a.
Every person subject to tax under the Law is required to
register with the Department before the end of its first fiscal
year.
b.
Every person or agency, required to withhold tax under Article
68 of the Law, including partnerships, must register with the
Department before payment of the first payment.
2.
The Department shall register governmental and public agencies
and organizations.
3.
For failure to register within the legally prescribed period,
the Department shall impose a penalty according to the following
schedule:
|
Category
|
Failure
to register
(Amount
is Saudi Riyal)
|
|
Natural
person
|
1,000
|
|
Stock
capital company
|
10,000
|
|
Other
entities
|
5,000
|
Accounting Books and Records
Article
56
1.
Other than a non-resident with no permanent establishment in the
Kingdom, and other than the exceptional cases under Article 19
of these Regulations, A taxpayer must keep in the Kingdom and in
Arabic the commercial books and records: at minimum, the general
journal, ledger, inventory book and other accounting records as
it may be necessary to accurately determine tax liability. A
taxpayer is also required to keep supporting documents and
explanatory data and remarks. A taxpayer may employ a
professional and specialized entity to comply with this
requirement but the taxpayer remains directly responsible for
such compliance and must as well comply with Commercial Books
Regulations.
2.
A taxpayer may keep books and records by computer under the
following conditions:
a.
The computer has to be in the Kingdom. A taxpayer who has
business in the Kingdom through a permanent establishment may
have its central computer abroad with a terminal at the
subsidiary in the Kingdom through which all data and entries
regarding the subsidiary’s operation can be obtained.
b.
Data entered into computer regarding the required records should
be in Arabic and should give a position identical to that of the
required books.
c.
Original supporting documents for all entries in accounting
books and records should be kept in the Kingdom.
d.
Final accounts and balance sheet shall be generated directly by
computer. In case of using a traditional method (physical books
and records) with computer assistance, all reconciliation
entries should be attached and in Arabic.
e.
Periodical (quarterly) computer print outs inclusive of all data
should be generated.
f.
The establishment shall have documentation of computer
information entry and processing (accounting entries) for
reference, if needed.
g.
The establishment should have adequate security measures and
controls that can be reviewed and examined to prevent
manipulation of data and information,.
h.
The Department has the right to review by computers the systems
and programs used by a taxpayer to prepare its computerized
accounts.
Returns
Article
57
1.
The Department issues the necessary tax declaration (return)
forms. The Department issues explanatory schedule forms to be
attached with the declaration to enable taxpayers to comply with
filing obligations. The taxpayer should use the prescribed
forms, and may use computer-generated forms if identical to the
approved ones.
2.
The taxpayer should file the return and attachments within the
legally prescribed period. The taxpayer should state all income
realized during the return period. The return is considered
filed at the date of the official receipt by the Department or
by any authorized agency.
The
provision of this paragraph applies to the information return by
a partnership, and to cessation of activity return by all
taxpayers. If the legally prescribed period for filing ends
during an official holiday, the return may be filed with payment
accordingly on the first working day after the official holiday.
3.
The burden of proof for correctness of a tax return, income,
expenses and other data, rests with the taxpayer. If a
taxpayer fails to prove its claims, the Department may, in
addition to other legal sanctions, disallow a deduction or make
an estimated assessment based on its opinion, relevant
circumstances and facts and available information.
4.
In case of activity cessation, the return should be filed and
payment accordingly be made within 60 days of the date of
cessation.
5.
A partnership must file an information return within 60 days of
the end of its fiscal year. A partnership with (a) limited
partner (s) must file a return of tax payable by the share of
limited partner (s) according to provisions applicable to
capital companies.
6.
A taxpayer whose income subject to tax, before deductions,
exceeds one million Saudi riyals must get its return certified
as correct by a Certified Public Accountant licensed to practice
in the Kingdom especially in regard to the following:
a.
The return information is extracted from and in conformity with
the taxpayer’s books and records.
b.
The return is in compliance with the provisions of the Saudi
Arabian Income Tax Law.
7.
A person assigned to be responsible for liquidation of a
company, of inheritance or bankruptcy must inform the Department
in writing of commencement of liquidation procedures and must
file tax returns within legally prescribed times through
liquidation process. He must also provide the Department with a
copy of final financial statements (liquidation final accounts)
and pay tax payable to the Department within 60 days of
liquidation process completion; failure to do so will make that
person jointly liable with the taxpayer in case of proven
availability of money but there was failure to make such
payment.
Department’s right to
information
Article
58
1.
Natural and corporate persons, including public organizations
and governmental agencies are required to provide the Department
with basic information as stated in Article 61 of the Law, in
regard to construction, service and delivery contracts, and
their amendments, that they may conclude with any person from
the private sector within three months of date of contract
signature and upon any amendment thereof. They are also required
to inform the Department of any cessation due to any reason and
of subsequent rights to both parties from each other within 30
days of cessation. The Department has the right to request a
copy of the contract.
2.
A natural or corporate person who is responsible for informing
the Department of the required contract information and fails to
do so shall be jointly with the taxpayer liable for the tax
payable on the contract and for any tax penalties that may
arise.
3.
Under the Council of Ministers’ resolution No. 278 for 1391H,
finance managers and project managers of governmental agencies
and public organization are responsible for informing the
Department with information of concluded contracts within the
set time.
4.
Without prejudice to withholding tax provisions of Article 68 of
the Law, the provisions of this Article’s paragraphs apply to
all contracts with exception for a contract with a value less
SRs100.000.
Examination (Audit) and
Assessment Procedures
Article
59
1.
The Department has the right to perform field examination
(audit) to ensure fulfillment by the taxpayer of obligations
under the Income Tax Law.
2.
Subject to provisions of other Laws, field-audit of a taxpayer
may be carried out to gather information in regard to another
taxpayer.
Field-audit
shall be carried out during working hours of the person subject
to field audit. A taxpayer is obliged by Law to provide
information as requested by the Department. The Department has
the right to field-audit all books and records of a taxpayer
without prior notice.
3.
Field audit may be performed at taxpayer’s premises or the
Department’s offices based on an official notice by the
Department. If books, records and other documents are taken from
the business premises, a receipt to that effect must be given to
the taxpayer. An auditor from the Department may inspect
business premises to get familiar with the nature of business.
4.
Where books and records of an audited person are kept on an
electronic medium, that person is required to provide the
Department’s auditor(s) with a hard (paper) copy of the
requested information if the auditor(s) so request(s).
5.
Where the taxpayer subject to field audit does not cooperate in
providing the requested information, the auditor may take
measures to obtain accounts, records and other relevant
documents that have such information. The auditor may
temporarily seize them if he has reason to believe that they may
otherwise be hidden, damaged or tempered with by the taxpayer.
6.
When audit is over, the documents must be returned to the
taxpayer within 15 days of audit completion date. The Department
may keep copies of documents or entries, as needed.
7.
If the Department does not agree with the taxpayer’s return,
it will notify the taxpayer of its changes, reasons thereof,
additional liability of tax and penalties, and of the taxpayer's
rights to object. The notice to the taxpayer shall be by
registered mail or by other means that provide for receipt of
the notice by the taxpayer.
8.
Subject to Article 65(b) of the Law, the return is considered
accepted by the Department after five years of filing if the
taxpayer has not received any notice to the contrary from the
Department.
9.
Mathematical and material errors may be corrected within ten
years of the end of the filing time of the tax year the return
represents. The correction could be requested by the taxpayer,
or as a result of detection by the Department or audit agencies.
“A
Mathematical and materiel error” means an error as a result of
a mathematical transaction, such as addition, subtraction,
multiplication and division, or of posting an erroneous number
or similar errors.
10.
The Department may correct an error resulted from improper
application of the Law or of relevant instructions within five
years of the end of the filing period of the tax year the return
represents. The correction could be requested by the taxpayer,
or as a result of detection by the Department or audit agencies.
Objections and Appeals
Article
60
1.
A taxpayer has the right to object to an assessment or
reassessment made by the Department within the legally
prescribed period of 60 days of receipt of the assessment or
reassessment letter. The objection must be in a memorandum
stating reasons for objection and be addressed to the notifying
Department. If the end of the objection period falls within an
official holiday, the objection shall be accepted if filed
during the first working day immediately after such a holiday.
2.
The Department shall consider the objection. If reasons and
documents presented are satisfying, the Department may accept
the objection, in full or in part, and notify the taxpayer of
the reassessment accordingly. If dispute continues between the
Department and the taxpayer, the Department shall refer the
objection to the Preliminary Committee.
3.
The objection is not considered accepted in form unless the
taxpayer has paid due amounts for undisputed items or unless an
agreement has been made to make payment in installments. Making
payment, and requesting installment arrangement and obtaining
approval on it, should be done within the legally prescribed
period for objection.
4.
The Department and the taxpayer may appeal to the Appeal
Committee the Preliminary Committee resolution within 60 days of
notice of such resolution. If the end of the appeal period
falls within an official holiday, the appeal shall be accepted
if filed during the first working day immediately after such a
holiday. Both parties may also appeal the resolution by the
Appeal Committee to the Board of Grievances within 60 days of
notice of such resolution.
Article
61
1.
Preliminary Committees shall be formed for settlement of tax
disputes between the Department and taxpayers. Each Preliminary
Committee shall consist of a chairman and at least three members
specialized in accounting, law and taxation; one member shall be
from the Department. The grades of members will not be less than
grade 10 or equivalent grade in accordance with Civil Service
Regulations.
2.
A Preliminary Committee shall be changed every four years
provided that one member or more is (are) retained for one more
term or longer.
3.
The Committee’s Chairman shall inform the Department and the
taxpayer of the date of the Committee’s hearing session where
the two parties can present their positions, reasons and
documents; a copy of the Department’s memorandum presented to
the Committee on the taxpayer’s objection shall be attached
with the notice to the taxpayer. If the objecting taxpayer is a
foreign entity with no representative in the Kingdom, the
taxpayer shall be informed of the date of the session at least
90 days before that date through the Kingdom’s Ministry of
Foreign Affairs.
4.
If either party or both parties fail to attend the session, the
Preliminary Committee may issue its resolution based on
circumstances and documents presented to it. The session could
be postponed for compelling reasons satisfying to the Committee
but no more than twice.
5.
Presence of majority of the Preliminary Committee members,
including the Chairman or Deputy, is required to convene a
session.
6.
Before examining the substance of the objection, the Committee
shall examine the objection if proper formalities are met:
submission of the objection during the legally prescribed time,
proper legal representation by the two parties, and payment of
due amounts by the taxpayer on agreed upon items.
7.
The Preliminary Committee issues its resolution by majority
after hearing the two parties and considering their reasons. If
the vote is in tie, the Chairman’s vote shall win.
8.
The tax payable per the resolution should be neither less than
the amount declared by the taxpayer/ representative nor more
than the tax assessed by the Department.
9.
The Committee shall inform the Department and the taxpayer of
its resolution by a registered official letter or by other means
that provide receipt of delivery. The Preliminary Committee
resolution is final unless either party appeals it within 60
days of receipt.
10.
The Department must implement the Preliminary Committee
resolution, reassess accordingly and inform the taxpayer of the
new reassessment, even if the resolution has been appealed.
11.
If the taxpayer wants to appeal the Preliminary Committee
resolution, the taxpayer has to comply with the following:
a.
Payment of tax liability due to the Department as per the
Preliminary Committee resolution, or submittal of a bank
guarantee of the full payable amount, valid for at least one
year, automatically renewable, cashable after the final
resolution at the exclusive discretion of the Department and
compatible with the format approved by the Saudi Arabian
Monetary Agency. This is a condition to accept the appeal in
form.
b.
Submittal to the Appeal Committee of a memorandum stating
grounds for appeal, any additional documents, payment receipt or
a copy of the bank guarantee in order to register the appeal in
the Appeal Committee’s record within the legally
prescribed period.
c.
The bank guarantee shall not be released nor cash payment
refunded unless final resolution is issued on the dispute.
Article
62
1.
It should be considered in the proposal for forming the Appeal
Committee stated in Article 67(b) of the Law that the Committee
should consist of a chairman and at least four members
specialized in law, accounting and taxation.
2.
Presence of majority of the Appeal Committee members, including
the Chairman or Deputy, is required to convene a session.
3.
Before examining the substance of the appeal, the Committee
shall examine the appeal if proper formalities are met:
submission of the appeal during the legally prescribed time,
proper legal representation by the two parties, payment of due
tax amounts by the taxpayer on items not appealed and submittal
of a bank guarantee on disputed items in a format compatible
with the format approved by the Saudi Arabian Monetary Agency.
4.
The Appeal Committee issues its resolution after hearing the two
parties and after considering their documents and reasons. In
the absence of consensus, the resolution shall be issued by
majority. The resolution should be neither less than the amount
declared by the taxpayer/ representative nor more than the tax
assessed by the Department.
5.
The Appeal Committee may seek the advice of experts or
consultants at a fee to be determined on case-by-case basis and
should be specified in the assignment letter.
6.
The Appeal Committee shall provide the Department and the
taxpayer with a copy of its resolution by a registered official
letter or by other means that provide for receipt of delivery.
7.
The Appeal Committee resolution is final and binding to the two
parties unless appealed to the Board of Grievances.
8.
A Ministerial Resolution will be issued to determine awards to
chairmen, members and assistants of Preliminary and Appeal
Committees.
Withholding Tax
Article
63
1.
A
non-resident with no permanent establishment in the Kingdom is
subject to tax for any amount realized from a source in the
Kingdom and the tax is withheld at the following rates
of gross amount:
|
Type
of payment
|
Rate
|
|
|
20%
|
|
-
Royalties or proceeds; payments
for services to a head-office or related company
|
15%
|
|
-
Payments for rent; payments for
technical and consulting services;
payments for air tickets, air freight and maritime
freight; payments for international telecommunications
services; dividends; loan charges; insurance
or reinsurance premiums
|
5%
|
|
-
Other payments
|
15%
|
2.
“Management fees” means payments for management services
contracts, such as hotel management contracts, ship management
contracts, etc.
3.
“Technical and consulting services’ means any type of
technical, technological and scientific services, including
studies and research on different fields, surveying work of
scientific, geological and industrial nature, consulting or
supervisory services, or any type of engineering services
including relevant designs.
4.
“Payments
for air tickets, air freight and maritime freight” means any
payment for air tickets, air freight and maritime freight paid
in the Kingdom to air and maritime transport companies, their
agents or representatives in the Kingdom.
5.
“Payments
for international telecommunications services” means any
amounts paid to a non-resident party in return for services
related to provision of international telecommunications
services from the Kingdom.
6.
“Dividends”
means any distribution by a resident company to a non-resident
shareholder, and any profits transferred by a permanent
establishment to related parties; the following should be
considered:
a.
Dividends by companies engaged in natural gas investment, oil
and hydrocarbons are not subject to withholding tax.
b.
Partial or full liquidation of a company is deemed to be
dividends
for payments
in excess of paid-in capital.
c.
Subjection of a distributing company to income tax shall not
preclude imposition of withholding tax on its dividends.
7.
“Other payments” means payments from a source in the Kingdom
to a non-resident for services other than services mentioned in
this Article (1) above.
8.
The withholding tax as of
rates stated
in this Article (1) shall be imposed on total amount paid to the
non-resident notwithstanding expenses incurred to make the
income,
and notwithstanding full
or partial allowance/disallowance, as a deduction,
of such payment; it shall
also
be even
imposed on
payments
attributed to contracts concluded before the effective date of
the Law.
9.
The
withholding person must comply with the following:
a.
Submittal of a monthly
withholding statement on the form prescribed by the Department
during the first 10 days of the month following the month of
payment to the recipient.
b.
Filing withholding information for each
fiscal year on
the form prescribed by the Department not later than 120 days of
the end of the fiscal year, and not later than 60 days of the
end of the fiscal year for partnerships.
c.
Maintenance of relevant records to prove compliance with
withholding provisions. Such records shall at least include name
and address of a recipient, type and amount of payment and
amount withheld. These records shall be kept for at least ten
years after payment unless the case is still under consideration
by the Department or by any other competent Committees in which
case the records should be kept until the consideration is over
or a final resolution is issued.
Advance Payments of Tax
Article
64
1.
“Advance payments of tax” as stipulated by Article 70 of the
Law means, notwithstanding Article 60(b) and Article (69)
of the Law, advance payments of tax by the taxpayer for the tax
year at the legally prescribed early dates under the following
controls:
a.
The taxpayer has earned income during the year.
b.
An advance payment is 25 percent of the resultant of the
taxpayer’s tax liability based on the previous year return
minus withheld tax on the taxpayer for the previous year.
“Tax
liability for the previous year” means tax liability under the
provisions of the Law and these Regulations.
“Withheld
tax,” means tax withheld at source on the taxpayer’s
activity under Article 68 of the Law.
c.
Three equal advance payments of tax on the last day of the
sixth, ninth and twelfth months of the tax year.
d.
Late payment of an advance payment is subject to a delay penalty
of 1 percent of payment amount for every 30 days of delay.
e.
Collection and recovery provisions of the Law apply to late
payment of advance payment of tax.
2.
The Department may reduce advance payments in proportion with
the drop in income if it is satisfied that the taxpayer’s
income for the tax year will be at least 30 percent less than
the amount of income for the preceding tax year.
3.
A taxpayer may request reduction of advance payments in a
written request to the Department showing reasons thereof and
attaching supporting documents provided that the taxpayer has
made the first advance payment in full and on time. The
Department has to make a decision in regard to the request
within 30 working days of the date of receipt of such request.
4.
The provisions of this Article are without prejudice to
respective effective arrangements with companies engaged in
production of oil and hydrocarbons.
Payment of Tax in Installments
Article
65
1.
A taxpayer may request payment of payable amounts of tax and
penalties in installments according to the following:
a.
A taxpayer should submit a written request for installments
showing: amount of tax liability, the respective financial
period(s), reasons for inability to pay on time, supporting
documents thereof, and a specific installment plan proposal (
number of installments, installment amount, and advance payment
(if any)). The Department should consider the taxpayer’s
request and respond to it within 30 days.
b.
The installment period should not exceed the year(s) for which
the accumulated tax is due.
c.
The installments should not include any taxes and penalties
withheld at source by the taxpayer to transfer to public
treasury under Article (68) of the Law.
d.
The installment approval shall be revoked if a taxpayer fails to
make timely payment of two consecutive installments, or if it
becomes clear that public treasury is vulnerable to loss. The
taxpayer shall be notified in an official letter from the
Department of the revoke of installment approval, in which case
the taxpayer shall be required to make immediate full payment of
remaining balance of amount payable by the taxpayer.
2.
A delay penalty shall be imposed on installed tax from the due
date according to Article 77(a) at 1 percent of underpayment of
tax.
3.
Collected amount shall first offset tax payable, then penalties.
This provision also applies to other payments on accounts.
4.
The Department’s Director General has the authority to approve
payment in installments of payable taxes and penalties up to one
million Saudi Riyals.
Refund of overpayment
Article
66
1.
The taxpayer is entitled to request refund of any overpayment
made under the provisions of the Law within five years of the
year for which the overpayment was made. The refund request
should be submitted by the taxpayer or by a duly authorized
representative.
2.
The Department should consider the refund request, verify
overpayment and conclude refund procedures within 30 days of
date of receipt of the refund request.
3.
A refund request shall not be considered if there are due
returns not filed with the Department by the taxpayer.
4.
A refund request for overpayment in regard to objection or
appeal cases shall not be considered unless a final resolution
confirming the entitlement of the taxpayer to the amount has
been issued and the taxpayer has submitted a request.
5.
If the Department is late in making refund of verified
overpayment, the taxpayer shall be compensated at 1 percent of
the overpayment for every 30 days of the delay starting 30 days
from the receipt date of the refund request to the date of
refund. A period less than 30 days shall not be considered for
compensation.
Penalties
Article
67
1.
Penalty for failure to file shall apply in the following cases:
a.
Failure to file the return within 120 days of the end of the
fiscal year.
b.
Failure to use the legally prescribed return form
notwithstanding timely filing of return.
c.
Failure to pay payable tax per return notwithstanding timely
filing of the legally prescribed return form.
d.
Failure to notify the Department of cessation of activity and to
file the return and pay accordingly within 60 days of cessation.
e.
Failure to file the information return by a partnership within
60 days of the end of its fiscal year.
2.
In case of failure to file the return within the legally
prescribed period, the higher penalty of the following two
penalties shall apply:
a.
An amount equal to 1 percent of the taxpayer’s gross receipts
and not to exceed 20.000 Saudi riyals.
b.
According to the following schedule:
-
5% of the underpayment of tax if the delay is for up to 30 days
after the due date;
-
10% of the underpayment of tax if the delay is more than 30 and
no more than 90 days after the due date;
-
20% of the underpayment of tax if the delay is more than 90 and
no more than 365 days after the due date;
-
25% of the underpayment of tax if the delay is more than 365
days after the due date.
3.
The underpayment of tax is the difference between the amount of
tax determined to be due under this Law, inclusive of any
adjustments made by the Department that have become final as
stated in Article 71(2) of these Regulations, and inclusive of
objection cases; penalty is calculated from the legally
prescribed date for filing and payment.
Article
68
1.
In addition to the penalties mentioned in the previous Article,
1 percent of underpayment of tax for each 30 days of the delay
shall be added in the following cases:
a.
Delay in payment of tax payable per the return.
b.
Delay in payment of tax payable per the Department’s
assessment.
c.
Delay in payment of advance payments due at the end of the 6th,
9th and 12th months of the taxpayer's
fiscal year.
d.
Delay in payment of tax approved to be paid in installments from
due date as stipulated under Article 71 of the Law.
e.
Delay in paying over of tax, required to be withheld, after the
first ten days of the month following the month during which
payment subject to withholding provisions under Article 68 of
the Law was made to a recipient and whose payment ( to the
Department) is the obligation of the withholder.
2.
The delay penalty of 1 percent of underpayment shall not apply
if the delay period is less than 30 days of the due date.
3.
Making an estimated assessment on a taxpayer shall not preclude
application of the non-filing penalty and the delay penalty if
application conditions exist.
Article
69
The
provisions of fraud penalty as stipulated under Article 77(b) of
the Law shall apply to a withholding taxpayer who conceals
information or presents incorrect information and who is
obligated to make payment of withheld tax.
Writing off tax liability and
penalties
Article
70
For
purposes of Article 79(d) of the Law, tax liability and
penalties shall be written off per a resolution by the Minister
in the following cases:
1-
Bankruptcy of a taxpayer per a judicial ruling.
2-
Death of a natural person with a proof that no property left to
recover debt.
3-
No movable or immovable property of a liquidated capital company
to recover debt.
4-
Debt amounts with which all recovery actions were taken with no
success.
Levy and Recovery Procedures
Article 71
1.
A taxpayer owing final payable amounts shall be required to make
payment of such amounts within 30 days of the date of the
demand, being the first official demand letter, followed by a
second official demand letter and another 30 days.
2.
Payable amounts are considered final in the following:
a.
The taxpayer has agreed with the assessment.
b.
The legally prescribed period for payment has passed and the
taxpayer has failed to make payment of payable amount according
to the taxpayer’s return.
c.
The legally prescribed period for objection to a reassessment
made by the Department has passed.
d.
A final resolution has been issued by the Preliminary Committee,
Appeal Committee or the Board of Grievances.
3.
If a taxpayer has failed to comply with the first and second
demand letters, the taxpayer shall be notified in an official
notice of the intention to place a levy on the taxpayer’s
movable and immovable property as allowed by Shari'ah
(Jurisprudence) unless the payment is made within 20 days of the
date of the notice.
4.
The Saudi Arabian Monetary Agency (SAMA) shall be provided with
a copy of the intention to place a levy to stop any withdrawals
from the taxpayer’s bank accounts.
5.
To place a levy on the taxpayer’s movable and immovable
property, the Department shall do the following:
a.
Write to SAMA to place a levy on the taxpayer’s money in local
banks to the extent of payable amount of tax and penalties in
order to transfer to the Department upon request.
b.
Write to Customs Department to place a levy on the taxpayer’s
imports to the extent of payable amount of tax and penalties.
c.
Write to Ministry of Finance to seize payments (payment orders)
due to the taxpayer to the extent of payable amount of tax and
penalties.
d.
Write to Ministry of Justice to stop any disposal of the
taxpayer’s immovable property.
6.
A person who has placed a levy as requested must surrender the
property in its possession to the Department when it so demands.
This provision also applies to a third party who owes any amount
to the taxpayer on or after the date of receipt of the notice of
levy.
7.
If the taxpayer in debt is a natural person, the levy shall be
placed on the taxpayer’s personal movable and immovable
property related to the taxpayer’s activity to the extent of
the taxpayer’s liability. This provision also applies to a
taxpayer who is a general partner in a partnership or in a
company limited by shares. A taxpayer in debt who is a partner
in a capital company shall be liable to the extent of his share
in the capital of the company.
8.
Once the levy procedures are complete and the notice period
expires, the taxpayer’s movable and immovable property shall
be sold to the extent of the taxpayer’s liability in
accordance with legally effective procedures.
9.
The sales proceeds are applied first against the expenses of the
levy and sale, then against the tax liability and penalties. Any
excess is returned to the taxpayer.
10.
Furthermore, the Department has the right to coordinate with
other competent agencies to stop the taxpayer from bidding for
governmental work, bringing labors into the country, obtaining
or renewing licenses to carry out business.
11.
Dues to the Department on a sole proprietor who dies before
payment of such dues shall be collected from the deceased sole
proprietor’s property before disposal of such property.
Otherwise, heirs shall be required to pay such dues in
proportionate with their shares in the heritage.
12.
A taxpayer shall be provided with a copy of document related to
any action taken against him.
13.
Upon collection of all its dues, the Department shall
immediately notify all concerned agencies to stop all actions
against the taxpayer.
Incentives
Article
72
The
Department’s employees of outstanding performance shall be
granted awards as incentives based on recommendations by the
Department’s Director General according to the following
criterion:
1-
An exceptional performance in the review and audit of
taxpayers’ returns and accounts that results in detection or
saving to public treasury of final and confirmed amounts.
2-
Detection, collection, and making final delivery to public
treasury, of a tax liability that was previously written off,
lost or unknown.
3-
The award will be up to a three-month salary in proportionate
with performance and realized saving as follows:
-
One-month-salary award for amounts saved from SR. 50.000 to
250.000.
-
Two-month-salary award for amounts saved from SR. 250.001 to
1.000.000.
-
Three-month-salary award for amounts saved of more than one
million SR.
Article
73
A
committee shall be formed at the Department to review cases
referred for awards to evaluate performance involved and propose
proper awards based on presented reasons and documents.
Law and Regulations’
effectiveness Date
Article
74
The
provisions of the Income Tax Law issued by Royal Decree no. M/1,
dated 15/01/1425 H come into effect as of 13/06/1425 H,
corresponding to 30/07/2004 as stipulated in Article 80 of the
Income Tax Law published in the Official Gazette, issue no.
3990, dated 11/03/1425 H, corresponding to 30/04/2004.
These Regulations are effective as of the effectiveness date of
the Law.
The
provisions of the Law and Regulations apply to tax years that
start after 13/6/1425H, corresponding to 30/07/2004.
Withholding
tax provisions of Article 68 of the Law apply to payments made
on or after 13/6/1425 H, corresponding to 30/7/2004.
