Ultimate guide on GCC Taxation

Ultimate guide on GCC Taxation
Pavel Gerasimov

About the author:

Pavel I. Gerasimov is an Honoured lawyer of the Russian Federation, PhD, the expert in the international, civil, criminal, tax and immigration law, the founder of the crypto law in Russia.

– Graduate of the Law Faculty of the Peoples' Friendship University of Russia, Fairleigh Dickinson University (USA), University of Pennsylvania Carey Law School (USA).

– Has attorney license in the Russian Federation, Ukraine, Canada and UAE.

– The expert of the International Civil Aviation Organization (ICAO).

– Defended the rights of victims in air crashes (Tu-154 in Sochi, A-321 in Egypt, SSJ-100 at Moscow Sheremetyevo Airport, Boeing-737 Max in Addis Ababa, Boeing-737 in Rostov).

– Vice-President of the Union of Lawyers of Russia.

– The Arabic writer, the author of a number books and publications, published in more than 40 countries.

– Compensation for the clients – more than 4 000 000 000 USD.

– Included in the Legal 500 list, which is a ranking of a leading private practice lawyers of the World.

В формате PDF A4 сохранен издательский макет книги.

Pavel I. Gerasimov

Ultimate guide on GCC Taxation

© Pavel I. Gerasimov 2023

SAUDI ARABIA

OVERVIEW

Saudi Arabia, located in the Middle East between the Arabian Gulf and the Red Sea, is the birthplace of Islam and home to Islam’s two holiest shrines, in Makkah and Madinah. The modern Saudi state was founded in 1932 after a 30-year campaign to unify most of the Arabian Peninsula. Saudi Arabia is divided into 13 provinces, with Riyadh as the capital. The official language of Saudi Arabia is Arabic, and the currency is the Saudi riyal (SAR).

The country is a leading producer of oil and natural gas. The government continues to pursue economic reform and diversification, particularly since Saudi Arabia’s accession to the World Trade Organization (WTO) in December 2005, and promote foreign investment. A burgeoning population, aquifer depletion, and an economy largely dependent on petroleum output and prices are all ongoing governmental concerns.

Saudi Arabia possesses about 20 % of the world’s proven petroleum reserves, ranks as the largest exporter of petroleum, and plays a leading role in the Organization of Petroleum Exporting Countries (OPEC).

In April 2016, Saudi Arabia introduced the Vision 2030 plan to reduce its dependence on oil, diversify the economy, and develop service sectors, such as health, education, infrastructure construction, recreation and tourism, and many more. The sweeping reforms outlined in the Vision 2030 and National Transformation Plan affect vast areas of the government, the economy, and citizens. Tax policy will play a significant role in these reforms as part of the government’s efforts to diversify revenues away from oil and address broader social and economic objectives while maintaining a fertile business environment and continuing to attract foreign direct investment (FDI).

One of the key targets of Vision 2030 is to increase FDI to 5.7 % of gross domestic product (GDP) by 2030, from 3.8 %. There is a large pool of research demonstrating the positive impact that double taxation treaties (DTTs) can have on FDI flows. Saudi Arabia should consider DTTs as a keyway of attracting foreign firms into the Kingdom by offering them the reassurance that income will not be taxed twice. DTTs already prevail over domestic tax rules, and over 50 have been signed with countries including the United Kingdom, China, Switzerland, and Japan. The next step should be to focus on other key trading partners, particularly the United States, but also Germany and Australia.

Furthermore, Saudi Arabia is encouraging the growth of the private sector in order to diversify its economy and to employ more Saudi nationals. Diversification efforts are focusing on power generation, telecommunications, natural gas exploration, and petrochemical sectors. Roughly 10 million foreign workers play an important role in the Saudi economy, particularly in the oil and service sectors.

CORPORATE – TAXES ON CORPORATE INCOME

Generally, non-Saudi investors are liable for income tax in Saudi Arabia. In most cases, Saudi citizen investors (and citizens of the GCC countries, who are considered to be Saudi citizens for Saudi tax purposes) are liable for Zakat, an Islamic assessment. Where a company is owned by both Saudi and non-Saudi interests, the portion of taxable income attributable to the non-Saudi interest is subject to income tax, and the Saudi share goes into the basis on which Zakat is assessed.

According to the income tax law, the following persons are subject to income tax:

● A resident capital company with respect to shares owned either directly or indirectly by non-Saudi / non-GCC persons and persons operating in oil and hydrocarbon production, except for the following (in which case the underlying resident company would be subject to Zakat:

● Shares owned in a resident capital company listed in the Saudi stock market acquired for the purpose of speculation through trading in the Saudi capital market.

○ Shares owned either directly or indirectly by persons working in the field of oil and hydrocarbons production in a resident capital company listed in the Saudi stock market, and the shares owned either directly or indirectly by these companies in capital companies.

● A resident non-Saudi natural person who carries on activities in Saudi Arabia.

● A non-resident person who carries out activities in Saudi Arabia through a PE.

● A non-resident person who has other income subject to tax from sources within Saudi Arabia without having a PE.

● A person engaged in natural gas investment fields.

● A person engaged in oil and other hydrocarbon production.

The rate of income tax is 20 % of the net adjusted profits. WHT rates are between 5 % and 20 %. Zakat is charged on the company’s Zakat base at 2.5 %. Zakat base represents the net worth of the entity as calculated for Zakat purposes.

It should be noted that, although the income tax rate is 20 %, income from the following two activities is subject to different rates:

● Income from oil and hydrocarbon production is subject to tax at a rate ranging from 50 % to 85 %.

● The tax base of a person who works in natural gas investment should be independent of the tax base relating to other activities of this person.

Effective 1 January 2018, the income tax legislation was amended to repeal the Natural Gas Investment Tax (NGIT) provisions; natural gas investment should be taxed under the general provisions of the income tax legislation (including being subject to the general income tax rate of 20 %).

CORPORATE – CORPORATE RESIDENCE

A company is considered a resident company if it is formed under the Saudi Arabian Regulations for Companies or if its central management is located in Saudi Arabia.

PERMANENT ESTABLISHMENT (PE)

According to the Saudi tax regulations, the following are the requirements for considering a non-resident party to have a PE:

● A PE of a non-resident in Saudi Arabia, unless otherwise provided below, consists of the permanent place of activity of the non-resident through which one carries out business, in full or in part, including business carried out through an agent.

● The following are considered a PE:

● Construction sites, assembly facilities, and the exercise of related supervisory activities.

○ Installations or sites used for surveying for natural resources, drilling equipment, or ships used for surveying for natural resources, and the exercise of related supervisory activities.

○ A fixed location where a non-resident natural person carries out business.

○ A branch of a non-resident company that is licensed to carry out business in Saudi Arabia.

● A place is not considered a PE of a non-resident in Saudi Arabia if it is used in Saudi Arabia only to do the following: