TAX FRAMEWORK IN KSA Presented by: Franz-Josef Epping KSA
Topics covered Background of Taxation System in Saudi Arabia 03 Corporate Income tax/zakat 04 Withholding Taxation (WHT) 08 Double Taxation Agreements 11 Value added Taxation (VAT) 14 Page 2
Background of Taxation System in Saudi Arabia Direct Taxes Tax Category Effective Date Administrative Authority Corporate tax 2005 GAZT Zakat 1950 / 2017 GAZT Withholding Tax 2004 GAZT Indirect Taxes Excise Tax 2017 GAZT Value Added Tax 2018 GAZT Page 3
Concept of Corporate Tax and Zakat in KSA Page 4
Company Structure in KSA There the primarily three type of Companies Saudi/GCC Companies (paying 2.5% Zakat on wealth) Foreign Companies (paying 20% Corporate tax on profit) Mixed Companies (Saudi Zakat Foreign Corp. Tax) Page 5
Concept of zakat in KSA Zakat is a religious levy It is calculated at 2.5% of Saudi / GCC shareholder s share of zakat base which includes adjusted profit zakat base calculation: Opening equity (capital + reserves + retained earnings) + Opening balance of provisions + Closing balance of loans used to finance fixed assets + Loans obtained in prior years on which complete one year is elapsed i.e. lower of opening / closing balance - Adjusted NBV of fixed assets - Other long term assets Page 6
Concept of corporate tax Tax is calculated @ 20% on foreign shareholder s share of adjusted profit (book profit which is adjusted for tax purpose based on tax law) Adjusted profit is calculated as below : Accounting net profit + Provisions made during the year + Accounting depreciation / amortisation for the year + Interest in excess of the allowable limit + Loss* on sale of fixed assets + Contribution to foreign social insurance, pension fund or employee s share of Saudi social insurance (GOSI) + Income tax, fines, penalties, etc. +/(-) Unrealised exchange loss / (gain) + Other disallowances - Provisions paid / written-off / utilised during the year - Tax depreciation - Exempt income Page 7
Withholding Tax (WHT) Page 8
Withholding tax (WHT) Who is subject to WHT? Non-residents (including GCC parties) in Saudi Arabia in respect of income earned from a source in the Kingdom Who is responsible to withhold? A Saudi Arabian resident entity whether or not a taxpayer A permanent establishment of a non-resident in the Kingdom A natural person on payments related to business activity Other rules relating to WHT WHT is on gross amount to be paid to the non-resident (i.e. before deducting any related costs). WHT is full and final settlement of the tax liability of non-resident. (no further taxation, no refund and possible deduction from corporate tax liability, if any). WHT is due irrespective of whether the related cost is deductible for tax or zakat purposes or not. Page 9
Withholding tax rates/nature Tax Rate 5% Payments for technical and consulting services Loan fees (Interest) Insurance or reinsurance premiums Payments for air tickets, air freight or marine shipping Dividends Payment Payments for international telecommunications Rent Tax Rate 15% Royalty or license fees Payments for services provided by the head office or related companies Any other payments Tax Rate 20% Management Fees Page 10
Double Taxation Agreement Page 11
Global View of Double tax treaty of KSA with other Countries Sweden Netherlands Belarus Russia Ireland Czech UK Republic Poland Hungary Ukraine Kazakhstan France Austria Luxembourg Romania Macedonia Portugal Italy Kyrgyzstan Spain Turkey Azerbaijan Tajikistan Malta Greece Uzbekistan Syria Tunisia Pakistan China Korea (South) Japan Algeria India Bangladesh Vietnam Ethiopia Malaysia Singapore South Africa Page 12
Double tax treaties Mainly established after 2007 Dividends (%) Interest (%) Royalties (%) Dividends (%) Interest (%) Royalties (%) Algeria 0 0 7 Netherlands 5 5 7 Austria Azerbaijan 5 5 10 7 7 10 Pakistan Poland 5 10 10 5 5 10 Bangladesh Belarus 10 7.5 10 5 5 10 Portugal Romania 5/10 10 8 5 5 10 China Czech Republic Ethiopia 5 5 10 5 0 10 5 5 7.5 Russian Federation Singapore 5 5 10 5 5 8 France Greece Hungary India Ireland Italy Japan Kazakhstan Kyrgyzstan Korea (South) Luxembourg Macedonia Malaysia 0/5 0/5 0/15 5 5 10 5 0 5/8 5 10 10 5 0 5/8 5 5 10 5 10 5/10 5 10 10 0 0 7.5 5 5 5/10 5 0 5/7 5 0/5 10 5 5 8 South Africa Spain Sweden Syria Tajikistan Tunisia Turkey Ukraine United Kingdom Uzbekistan Vietnam Non-treaty countries 5 5 10 0/5 5 8 5/10 0 5 0 7.5 15 5/10 8 8 5 2.5/5 5 5 10 10 5 10 10 5/15 0 5/8 7 7 10 5/12 10 7.5/10 5 5 15 Malta 5 0 5/7 Page 13
Value Added Tax (VAT Page 14
Supplies within the scope of VAT VAT Rate Output Tax Areas of Application Standard Rate 5% Majority of goods and services Zero Rate 0% Supply of any qualifying medicine or qualifying medical equipment Intra-GCC and international transport Supplies of investment gold, silver, and platinum that are at least 99% pure and tradable in international bar market Exports outside the GCC Exempt Out of Scope Nil NA Rental of residential real estate Financial services with no explicit fee, commission or commercial discount Government services (e.g. public healthcare, public education etc.) Supply of real estate that was used or intended for use as a permanent dwelling by the Person, or by a related person Page 15
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Interesting Fact VAT violations published by GAZT Sector/Business Number of audits Percentage of violations Percentage of VAT compliant Car showrooms 151 19.86% 80.14% Car spare parts workshops 140 15.71% 84.29% Women's supplies stores 178 62.92% 37.08% Various businesses (food supply, vegetables and fruit shops, dates, sweets, restaurants) 800 16.88% 83.12% Entertainment sector 1,000 Education sector 1,577 19.80% 11.86% 80.20% 88.14% Telecommunications and electronic appliances 1,876 17.22% 82.78% Hotels and furnished apartments 2,000 25% 75% Various businesses (tourism agencies, restaurants, cafes and shopping centers) 2,363 27.21% 72.79% In addition to the above statistics the GAZT has reported around 10006 cases of VAT violations in various business (malls, car maintenance centres, electrical shops and food markets) Page 17
Questions Page 18
Thank you
Your contact point Franz-Josef Epping Tax Partner MENA Leader for Global Compliance Reporting +966 59 3722 290 franz-josef.epping@sa.ey.com Page 20