Global Tax Alert | 17 April 2014

Saudi Arabia issues new Ministerial Resolution amending tax by-laws

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On 19 March 2014, the Saudi Arabian Minister of Finance issued Ministerial Resolution [MR] No 1776 to amend certain provisions of the tax by-laws (implementing tax regulations) to the Saudi Arabia income tax law.

This Alert summarizes the amended provisions.

Loan fees and interest on interbank deposits

Loan fees and interest on interbank deposits paid to a nonresident bank will be exempt from Saudi withholding tax if such deposits remain with the Saudi resident borrower bank for a maximum period of ninety days. The resident borrower bank will be required to submit an annual statement attested by SAMA (Saudi Arabian Monitory Agency) listing the names of the nonresident lending banks, their addresses, period of lending, and the amount of loan fees paid.

Loan fees paid to head office of foreign bank

Loan fees paid by Saudi branches of foreign banks to their head offices will now be a deductible expense for tax purposes.

Transfer pricing rules

The Department of Zakat and Income Tax (DZIT) will issue rules for determining the “fair value” or “arms-length value” of related party transactions in accordance with agreed international standards.

Taxable income of airlines and shipping companies

The taxable income of branches of foreign airlines, land transportation companies, and sea freight companies will be estimated at 5% of the total income realized from operations in Saudi Arabia. Total income derived in the Kingdom will include the gross revenues from passenger ticket sales, passenger excess baggage, freight, courier, and any other income generated from journeys originating in the Kingdom and ending at a final destination even if the journey stops includes transit stops, regardless of the place of sale or issuance of the tickets.

Taxable income of small businesses

Small businesses with limited income that do not maintain accounting records, may be taxed on a deemed profit basis according to the nature of their activities as stipulated in Article 16 instead of the fixed rate of 15%.

Liability for the settlement of taxes on disposal of shares

On a disposal of shares, both the buyers and the sellers are jointly liable for the settlement of any taxes due on the disposal. Companies have been excluded from this responsibility.

Withholding tax rate on technical services and international telecommunication services paid to nonresident related parties

Payments for technical and consulting services and international telecommunication services made to the nonresident head office or a non-resident related party will be subject to 15% withholding tax.  The same payments to non-related parties will be subject to 5% withholding tax.

DZIT’s right to information

Every natural or legal person is obliged to fulfil the requirements of Article 61 of the income tax law (DZIT’s right to information) whether such person is a tax or zakat payer or not. In addition, every natural or legal person is obliged to provide any information that may be requested by the DZIT in connection with the application of the tax law or a double tax treaty to which the Kingdom is party to.

The DZIT may seek assistance from concerned executive authorities to oblige a natural or a legal person to provide the information required by the DZIT under Article 61 of the income tax law.

Tax audits

In case of non-cooperation by the tax payer during a field audit, the DZIT may coordinate with the concerned executive authorities to oblige the taxpayer to cooperate and provide the required information. The DZIT can also retain the documents if it believes that these may be destroyed or tampered with by a tax payer.

Effective date

Ministerial Resolution [MR] No 1776 is effective from 19 March 2014 and will be applicable to all cases under appeal and cases where an assessment has not been finalized.

For additional information with respect to this Alert, please contact the following:

Ernst & Young & Co (Public Accountants), Al-Khobar
  • Naveed Ahmed Jeddy
    +966 3 8499500
    naveed.jeddy@sa.ey.com
Ernst & Young & Co (Public Accountants), Riyadh
  • Asim Sheikh
    +966 1 2159898
    asim.sheikh@sa.ey.com
Ernst & Young & Co (Public Accountants), Jeddah
  • Mohammed Desin
    +966 2 6108400
    mohammed.desin@sa.ey.com

EYG no. CM4362