Saudi Arabia Tax March 2017 Salient features of the new Zakat regulations We consider the issuance of the long awaited zakat regulations by the Minister of Finance a further step in realizing the Kingdom s Vision 2030, as contribution of non-oil revenues would rise with expected increase in the number of zakat payers and reforms to the taxation structure. The regulations are effective from February 28, 2017 and will replace all previous pronouncements relating to zakat collection. Some of the salient features of the regulations are listed under: Applicability - All Saudi nationals resident in the Kingdom; - GCC nationals shall be treated similar to resident Saudi nationals; and
- Saudi resident companies, on the shareholdings of Saudi and GCC nationals and government entities and agencies. Coverage - Activities conducted to result in gain from money used (capital) or business activity (works) subject to zakat including: Commercial; Investment; Industrial; Service; and Financial activity in its all forms. Time barred - No time limit on GAZT to make an assessment or adjustment under certain conditions and can make arbitrary assessment even if the zakat payer did not submit its zakat return; - Mathematical and material errors can be corrected within 10 years of the end of the filing time of the zakat year; and - Errors from improper application of regulations and of relevant instructions can be corrected within 5 years of the end of filing period of zakat year. Holding companies and their fully owned subsidiaries, must submit consolidated accounts and consolidated zakat return subject to specified conditions. Fixed assets to be deducted from zakat base only if owned by the zakat payer. Increased depreciation rate maximum to 50% of rates prescribed under the regulations can be used with the prior approval of GAZT. Lower depreciation rates may be used directly. Lease transactions will be considered as sale by lessor to lessee who would be the owner and can claim depreciation and deduction of assets from zakat base. There is no reference to zakat calculation for a lessor. Salaries and benefits of owner and bonus payment to
president, vice president and members of board of directors who are also shareholders allowed as deductible expense, if subject to GOSI. Small taxpayers with limited scale of activities are not required to keep regular books and records to be assessed on deemed profit basis ranging from 3.5% to 20%. The objection procedures are similar to tax regulations and allow 60 days to file appeal upon receiving of assessment and objection committee resolution. However, the regulations are silent on further appeal to the Board of Grievance. GAZT given enhanced powers to collect zakat. Overpayment of zakat will automatically be carried forward to next year unless requested by the zakat payer to refund the amount within 5 years from date of payment. GAZT has 30 days time from the refund request to conclude refund procedures. Financial year for zakat payer is Hijri year with an option to select Gregorian year. Profit and loss on revaluation of financial securities based on market value to be considered for zakat purpose. Statutory deposits for banks and insurance companies with Saudi Arabian Monetary Authority and any other statutory deposits are not allowed to be deducted from the zakat base. Value of materials or services provided by related parties in excess of prices used by independent parties is not a zakat allowable expense. Zakat payers are required to submit Contract Information Form (CIF) similar to tax regulations subject to fulfillment of certain conditions.
Deloitte s view The introduction of these regulations is a welcome event. With the passage of time, similar to the time of introduction of the tax law, we expect further clarifications and interpretations to be forthcoming from GAZT. Notice The above is only a brief summary of the Zakat regulations and has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte & Touche Bakr Abulkhair & Co. (Deloitte) would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication. The regulations still require clarity on the interpretation of certain articles of the regulations and we will try to update you on any further developments in this regard. How can Deloitte help? Deloitte will continue to support you in your understanding and application of the Law on both current and future investments. If you have any further questions, please get in touch with one of the team members below. Nauman Ahmed Senior Director, Tax - KSA Middle East Tax Leader +966 (0) 13 668 5701 nahmed@deloitte.com Nasser AlSagga Partner, Tax - Al Khobar +966 (0) 13 668 5700 nsagga@deloitte.com
Farhan Farouk Senior Director, Tax - Jeddah +966 (0) 12 657 2725 ffarouk@deloitte.com Issa Ayash Director, Tax - Al Khobar +966 (0) 13 668 5708 iayash@deloitte.com Aamir Majeed Director, Tax - Al Khobar +966 (0) 13 668 5725 aamajeed@deloitte.com Wissam Merhej Senior Director, Tax - Riyadh +966 (0) 11 282 8400 wmerhej@deloitte.com Mubeen Khadir Director, Tax - Bahrain +973 17 214 490 mkhadir@deloitte.com Syed M. Naqvi Director, Tax - Jeddah +966 (0) 12 657 2725 smnaqvi@deloitte.com Please note that this memo is for information purposes only and should not be construed as an advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances. 2017 Deloitte & Touche (M.E.) Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is a leading professional services firm established in the Middle East region with uninterrupted presence since 1926. Deloitte provides audit, tax, consulting, and financial advisory services through 26 offices in 15 countries with more than 3,300 partners, directors and staff. It is a Tier 1 Tax advisor in the GCC region since 2010 (according to the International Tax Review World Tax Rankings). It has also received numerous awards in the last few years which include best employer in the Middle East, best consulting firm, the Middle East Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW), as well as the best CSR integrated organization. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.