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Saudi Arabia: Income Tax Rules Amended

(Apr. 30, 2014) On March 19, 2014, Saudi Arabia’s Minister of Finance amended several articles of a regulation issued under the country’s Income Tax Law, through Ministerial Resolution No. 1776. (Salah Gueydi, Saudi Arabia: Income Tax Executive Regulations Amended, TAX NEWS SERVICE (Apr. 25, 2014), International Bureau of Fiscal Documentation, online subscription database; Income Tax Law, 2004, Royal Embassy of Saudi Arabia Washington DC website.)

The major changes in the amended articles came into effect on March 19 and will apply to pending tax dispute cases. The revisions include the following:

• Returns on loans derived from interbank deposits will not be taxed as Saudi-sourced income for non-resident banks under certain conditions, including that the funds remain in the resident bank for no longer than 90 days.

• Branches of foreign banks located in the country that pay loan charges to their head offices can deduct them from taxes.

• The Saudi tax authority, the Department of Zakat and Income Tax (DZIT), will issue guidelines on transfer pricing for transactions between related parties that meet international standards (zakat refers to a tax based on Islamic law, that constitutes giving to charity).

• Foreign airlines and sea or land transportation companies that operate in the country will have their profits estimated at 5% of gross income earned in Saudi Arabia, including revenue from ticket sales, baggage fees, freight charges, and courier and other charges from travel that begins in the country, regardless of where the tickets were issued.

• Companies are no longer jointly liable for taxes due on the capital gains that accrue to a seller of shares in the company.

• The DZIT will be able to request information from taxpayers both in its actions to apply domestic tax law and to apply international tax treaties ratified by Saudi Arabia

• A withholding tax rate of 15% will apply to fees earned through technical, consulting, or international telecom services. (Gueydi, supra.; Introduction, 2013 – THINKING BEYOND BORDERS: SAUDI ARABIA (last visited Apr. 28, 2014).)