Павел Герасимов – Ultimate guide on GCC Taxation (страница 2)
To encourage joint ventures in manufacturing, the government grants tariff protection from competing imports to locally produced, quality goods. Rates can be as high as 25 %.
Penalties on smuggling goods vary from confiscation to collections of customs duties and penalties to imprisonment.
PAYROLL TAXES
Since there is no individual income tax regime in Saudi Arabia, earnings from employment are not subject to income tax. Only the social insurance tax is applied on the payroll.
SOCIAL INSURANCE TAX
Social insurance tax is paid monthly based on (i) basic wage, (ii) cash or in-kind housing allowance, and (iii) commissions, with an upper limit of 45,000 Saudi riyals (SAR), is computed at 2 % for non-Saudi employees, and is paid by the employer. For Saudi employees, the rate is 21.5 % and is paid by both the employee (9.75 %) and the employer (11.75 %).
REAL ESTATE TRANSACTION TAX (RETT)
RETT is imposed at a rate of 5 % of the total real estate disposal value regardless of its condition, shape, or use at the time of the disposal.
This includes the land and what is being constructed or built on it, whether the disposal occurred on this land at its current state or after an establishment was built on it, irrespective of whether the entire property was disposed of or only a part of it such as a detachment, a communal, a residential unit, or any other types of real estate, and whether the disposal was authenticated or not.
RETT also applies on transfer of real estate rich entities (as defined for RETT purposes).
The rules provide for certain exemptions that could be available in certain cases.
OTHER TAXES
There is no form of stamp duty, transfer, sales, turnover, or production taxation, except in so far as they may fall within the scope of Zakat, which is applicable only to Saudi nationals.
CORPORATE – BRANCH INCOME
Taxable income from a branch of a non-Saudi based corporation is taxed at 20 %. Certain charges incurred by the headquarters are not deductible in the branch tax return.
CORPORATE – INCOME DETERMINATION
INVENTORY VALUATION
The weighted average-cost method is used for valuing inventory under Saudi tax law.
CAPITAL GAINS
Capital gains are subject to income tax or
DIVIDEND INCOME
Dividend income that is received by a resident party is subject to income tax at the normal income tax rate unless exempt. Dividends can be exempt from income tax in Saudi Arabia if the following conditions are met, generally:
● The percentage of ownership in the company invested in is not less than 10 %.
● The period of ownership of shares is not less than one year.
Dividends paid by resident entities to a non-resident party are subject to WHT at 5 %.
INTEREST INCOME
Interest income is subject to income tax at the normal income tax rate. Interest paid to a non-resident party is subject to WHT at 5 %.
ROYALTY INCOME
Royalty income is subject to tax at the normal income tax rate. Royalties paid to a non-resident party are subject to WHT at 15 %.
Royalty is defined as per article one of the Saudi income tax law as follows:
“Payments received for use of or the right to use intellectual rights, including, but not limited to, copyright, patents, designs, industrial secrets, trademarks and trade names, know-how, trade secrets, business, goodwill, and payments received against the use of information related to industrial, commercial, or scientific expertise, or against granting the right to exploit natural and mineral resources.”
IMPORTS AND SUPPLY CONTRACTS
Saudi tax law provides that no profit will be considered to arise from a contract for the supply of goods to Saudi Arabia, provided delivery of the goods is either free on board (FOB) or cost, insurance, and freight (CIF) to a Saudi port. However, should the contract provide for the delivery and/or installation of materials at a point inside Saudi Arabia, the supplier may be considered to be carrying on business within Saudi Arabia, and, as a consequence, the contract may be subject to Saudi income taxation as follows:
● If the material cost was identified in the supply contract separately from the cost of work performed in Saudi Arabia, then, in the absence of a PE, a WHT on the work that will be performed in Saudi Arabia may be assessed, based on the type of services. However, if the contract qualifies the supplier to have a PE in Saudi Arabia, then income tax will be applied according to the Saudi tax regulations as for a normal taxpayer.
● If the supply contract indicates a total cost without segregation in the value of supply and the value of the other activities in Saudi Arabia, then the work performed in Saudi Arabia will be assigned a value equal to 10 % of the contract value for each type of activity.
FOREIGN INCOME
The gross income derived by a capital company resident in Saudi Arabia from its operations and of its branches inside and outside Saudi Arabia is subject to tax in Saudi Arabia. However, in order to avoid double taxation on the same income, the following exceptions and clarifications are to be considered:
● With respect to the income realised from investments in other resident capital companies and foreign capital companies (foreign dividends applicable from 1 January 2018) and in order to avoid double taxation, such income is to be excluded from being subject to tax under the following conditions:
○ The percentage of ownership in the company invested in is not less than 10 %.
○ The period of ownership of shares is not less than one year.
Previously (up to 31 December 2017), foreign dividends were taxable unless a DTT provided relief.
There are no restrictions on repatriation of profits, fees, capital, salaries, or other monies.
CORPORATE – DEDUCTIONS
All expenses that are necessary and normal to the business, paid or accrued, are allowable deductions, provided the expense meets the following conditions:
● It is an actual expense, supported by a verifiable document or other qualifying evidence.
● It is related to the generation of taxable income.
● It is related to the subject tax year.
● It is of a non-capital nature.
DEPRECIATION
A depreciation deduction is allowed under the following limitations as stipulated by the law:
● The asset is not intended for resale and is to be used, in full or in part, for the entity’s purposes.
● The asset is of a depreciable nature that loses value because of use or because of wear and tear and obsolescence and has a value extending beyond the end of the taxable year.
● The asset is owned by the business, as per the ownership document for buildings and contracts and invoices for other assets.
● The asset depreciation is allowed even if the asset becomes inactive during the tax year.
Depreciation for tax purposes is calculated as follows, based on the following five categories of depreciable tangible or intangible assets, other than land:
The declining-balance method of depreciation, according to the above rates, should be followed for tax purposes. However, straight-line depreciation is allowed for
There are also rules for depreciation relating to assets either acquired or disposed of. Essentially, 50 % of the allowable acquisition price or disposal proceeds is added to or subtracted from the asset pool in the first year, and the remaining 50 % in the following year.
From 1 January 2018, the cost base of assets transferred or distributed between companies that are part of the same group should be set at the net book value.
Assets under build, own, and transfer (BOT) and build, own, operate, and transfer (BOOT) are allowed to be depreciated over the contract period. This presumes, although it is not clear, that assets under the BOT and BOOT schemes actually will have a separate grouping in addition to the above prescribed groups.
START-UP EXPENSES
Tax treatment of start-up expenses depend on how they were treated under Saudi generally accepted accounting principles (GAAP). Generally, they can be fully expensed in the first financial year or can be capitalised and amortised.
LOAN CHARGES (INTEREST EXPENSES)
An interest deduction is limited to the lower of the loan charge incurred during the tax year, if related to income that is subject to tax, or the result of the following formula, whichever is less.
The taxpayer’s total income from loan charges, plus 50 % of (A minus B) as below:
A = income subject to tax other than income from loan charges.