28 February 2018 Saudi Arabia amends Tax Bylaws Saudi Arabia's Minister of Finance issued Ministerial Resolution (MR) No. 1727 dated 10 February 2018 (25/05/1439H), amending the corresponding provisions of the Bylaws to the Income Tax Law (BITL). The BITL provisions were amended in compliance with Royal Decree No M/131 dated 20 September 2017 (29-12-1438H). The Royal Decree amended certain provisions of the Saudi Arabian Income Tax Law (ITL).1 This Alert summarizes the amendments to the Articles of the BITL. Persons subject to tax - Article 1 [1] The provisions of the ITL shall apply to: - A non-Saudi person's share, owned, directly or indirectly, in a resident capital company
- Persons engaged in oil and hydrocarbon businesses, resident or nonresident
However, the definition excludes shares of a non-Saudi person in listed Joint Stock Companies (JSC) as well as the shares held by them for speculative purposes [trading of JSC shares in the Saudi Stock Exchange – Tadawul) Indirect ownership has been defined as "ownership up to the second level," i.e., direct investing company and its parent. The tax base (taxable profit) of resident capital companies shall be calculated independent from the tax base of its shareholders, partners or affiliates even if they are consolidated for financial reporting purposes. A Capital Company's share of profits or losses arising from investments accounted for under the equity method shall not be included as part of the tax base. Subsidiary companies are defined as companies in which the parent has 50% equity shareholding or control over the formation of the Board of Directors. Saudi source of income – Article 5 (4) Income earned by a capital company resident in Saudi Arabia from its operations and the operations of its branches, inside or outside of Saudi Arabia, shall be considered as Saudi source income. Tax-exempt income – Article 7 - Capital gains earned on the sale of securities listed and traded on the Saudi Stock Exchange [Tadawul] are tax-exempt, so far as the disposal is in compliance with Capital Market Laws [CMA] and the sold securities were purchased after issuance of the ITL in July 2004.
- The enacted change in law now extends the tax exemption to securities traded on stock markets outside Saudi Arabia provided such securities are also traded on the Saudi stock market, and the disposed securities were acquired after issuance of the ITL in July 2004.
- Tax-exempt income also includes dividend income in cash or kind (bonus shares) from investments in a Saudi Arabia resident company or a nonresident company provided that:
- The ownership in the investee company is 10% or more
- The period of ownership is one year or more
Gains or losses on disposal of assets – Article 8 - No gain or loss should be computed on the transfer of assets between group companies, provided:
- The companies are wholly owned, directly or indirectly, by one capital company
- The transferred asset is not transferred to a company outside the group prior to two years from the date of transfer
- The "cost base" for computing gain or loss is determined as follows:
- For the assets transferred: Net Book value of the asset, provided the cost base does not exceed the market value of the asset at the time of transfer
- For the shares issued against the transfer of assets shall be determined as equal to the net book value of that transferred asset
- "Asset" is defined as cash, shares, financial securities and others including tangible and intangible assets
Contributions to authorized retirement funds – Article 9 (8) A capital company may claim their contributions to retirement funds, social insurance funds and any other fund established to provide for End-of-Service Benefits (EOSB) or compensate for the medical expenditures of the beneficiaries provided: - The Fund shall have an independent legal status (whether established in or outside of Saudi Arabia), and separate books of accounts, audited by an independent certified accountant.
- The deduction does not exceed the unfunded liabilities2 relating to these funds, which were not paid from the beginning of the fiscal year in which deduction is made.
- Employment contracts recognize such contributions by employers as employees' right. The taxpayer should provide the General Authority of Zakat and Tax (GAZT) with information relating to those funds including the Articles of Association of the fund, audited financial statements, and the names of the beneficiaries of the fund.
- Contributions on behalf of employees' to such a fund are not tax deductible.
GAZT's right to information – Article 58 - GAZT has the right to carry out a field inspection to examine the taxpayer's books and records and to seek additional information.
A fine of SR3,000 (US$800) will be imposed on any taxpayer who does not cooperate with the concerned GAZT's employee to perform his assigned task. In the case of non-cooperation by a taxpayer, GAZT has the right to request other competent authorities to oblige the natural or corporate persons to provide the required information. If GAZT is not able to obtain the required information, GAZT has right to raise a tax assessment on that taxpayer at its discretion and as it deems appropriate based on the information available. All persons, natural or corporate, taxpayers or non-taxpayers, including charity and endowment organizations, public corporations and associations and government agencies, shall provide GAZT with the following:- The requested information concerning the implementation of the provisions of the ITL and the tax treaties in effect.
- Information on the contracts entered with the private sector (excluding contracts with a value of less than SR100,000) and any amendments thereto within three months of the date of signing.
- Notify GAZT within 30 days of the date of ceasing execution of a contract.
- GAZT may request a copy of the contract.
- Penalty: Each party breaching its obligations with respect to the above requirements shall be jointly liable with the taxpayer for any tax claim or fines arising therefrom. In addition, penalties mentioned in the Regulations for Treatment of Non-Disclosure of Information for Tax Purposes issued under Cabinet Resolution No 706 dated 30.11.1438H may apply.
2 The "unfunded liabilities" are the employer's liabilities for its contribution to these funds due for the year of deduction which are not paid until the end of the fiscal year, and disclosed in their audited financial statements. For additional information with respect to this Alert, please contact the following: Ernst & Young & Co (Public Accountants), Riyadh - Asim Sheikh
asim.sheikh@sa.ey.com - Ahmed Abdullah
ahmed.abdullah@sa.ey.com - Amr Farouk
amr.farouk@sa.ey.com - Altaf Sarangi
altaf.sarangi@sa.ey.com - Craig McAree
craig.mcaree@sa.ey.com - Hosam Abdulkareem
hosam.abdulkareem@sa.ey.com - Imran Iqbal
imran.iqbal@sa.ey.com - Michael Hendroff
michael.hendroff@ae.ey.com - Nitesh Jain
nitesh.jain@sa.ey.com - Parvez Maqbool
parvez.maqbool@sa.ey.com - Sohail Nini
sohail.nini@sa.ey.com - Stuart Halstead
stuart.halstead@sa.ey.com - Vladimir A. Gidirim
vladimir.gidirim@sa.ey.com - Yousef Eldaw
yousef.eldaw@sa.ey.com
Ernst & Young & Co (Public Accountants), Al-Khobar - Syed Farhan Zubair
farhan.zubair@sa.ey.com - Ali Sainudheen
ali.sainudheen@sa.ey.com - Hatem Ghobara
hatem.ghobara@sa.ey.com - Javed Aziz Khan
javed.aziz@sa.ey.com - Jude deSequeira
jude.desequeira@sa.ey.com
Ernst & Young & Co (Public Accountants), Jeddah - Franz-Josef Epping
franz-josef.epping@sa.ey.com - Ayman Abu El Izz
ayman.abueIzz@sa.ey.com - Hanif Khatri
hanif.khatri@sa.ey.com - Hussain Asiri
hussain.asiri@sa.ey.com - Imran Ahmed
imran.ahmed@sa.ey.com - Irfan Alladin
irfan.alladin@sa.ey.com - Mohammed Desin
mohammed.desin@sa.ey.com
Ernst & Young LLP, Middle East Desk, Houston - Gareth Lewis
gareth.lewis1@ey.com
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ATTACHMENT PDF version of this Tax Alert Document ID: 2018-5353 | 
