Ultimate guide on GCC Taxation

● Store, display, or deliver goods or products belonging to the non-resident.

○ Keep an inventory of goods or products belonging to the non-resident only for the purposes of processing by another person.

○ Purchase goods or products only for the collection of information for the non-resident.

○ Perform any other activities that are preparatory or auxiliary in nature for the interests of the non-resident.

○ Prepare contracts relating to loans, supply of products, or perform technical services for signature.

○ Execute any group of the activities mentioned above.

● A non-resident partner in a resident personal company is considered an owner to a PE in Saudi Arabia in the form of a share in a personal company.

Furthermore, the agent mentioned in the above article is identified as a dependent agent who has any of the following authorities:

● Negotiate on behalf of a non-resident.

● Conclude contracts on behalf of a non-resident.

● Has a stock of goods, owned by a non-resident, on hand in Saudi Arabia to supply the clients’ demands regularly on behalf of the non-resident.

A place from which a non-resident carries out insurance and/or reinsurance activity in Saudi Arabia through an agent is considered a PE of the non-resident even though the agent is not authorised to negotiate and conclude contracts on behalf of the non-resident.

CORPORATE – OTHER TAXES

VALUE-ADDED TAX (VAT) AND EXCISE TAX

VAT Law and implementing regulations have been published and are applicable from 1 January 2018.

VAT is imposed at a rate of 5 % for most goods and services, with certain exceptions applicable. Effective 1 July 2020, the standard VAT rate was increased by the government to 15 %.

The Excise Tax Law became effective on 11 June 2017 in Saudi Arabia, with only tobacco products (at 100 %), soft drinks (at 50 %), and energy drinks (at 100 %) selected as goods subject to the excise tax in Saudi Arabia.

In order to comply with the Saudi Arabian Excise Tax Law, manufacturers and importers of excisable goods are required to register with the GAZT. Businesses that qualify to be under the scope of the Excise Tax Law that fail to register and comply with the guidance issued by the GAZT will be considered as tax evaders and will be imposed penalties.

CUSTOMS DUTIES

Customs duties are imposed on imports according to tariff rates that are effective on the payment date in accordance with the Saudi Customs regulations. Customs duties are imposed on the price of the imported goods. This price is assessed based on the actual cost paid or on the agreed upon cost denominated in the currency of the exporting country. The price consists of the price of the imported goods as packed for shipping from the port of export plus freight and insurance cost to the Saudi port, which is converted to Saudi riyals at the exchange rates published by the Saudi Central Bank (SAMA) on the date of the declaration. In case this procedure is not achievable, the imported goods will be priced based on the most proximate comparable value that could be ascertained. Imported goods that are subject to customs duties based on weight are assessed based on the gross weight or the net weight as shown in the tariff schedules. The gross weight of the goods includes the goods weight, including all internal and external packing materials. Net weight of the goods excludes all internal and external packing materials, including the items used for separating and arranging the goods.

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 Zakat, as appropriate, at the normal income tax or Zakat rate. However, capital gains realised from the disposal of shares in Saudi stock companies listed in the Saudi market are tax exempt, subject to certain conditions.

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: