Development of Tax Concepts and

Tax History in KSA

Overview

Expected developments
> With the new developments expected to take place in
the country EY tax team is set to grow and double its tax
practice

New Tax Law (Current)

> when new tax law came in to existance in 2004 EY
had 80 professionals in KSA
> As of today EY’s tax team has grown to 216 tax
professional in the contry

Old Tax Law

> Until 1975 no specialized tax department in
the country
> 1975 – First Tax law was introducred and EY
estabished tax team wiith 8-10 professionals
in KSA

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Purpose of tax and zakat collection

► Saudi Arabia is the only country which has established regulation for the collection and utilization of Tax and Zakat
► Zakat is collected from Saudi citizens and which was later extended to GCC nationals
► Tax was collected from ‘Non Saudi’ Individuals and companies owned by non Saudi Nationals.

• Governed by Islamic Is used to run

Shayari government affairs
• The collected such as -
amount is utilized to • Infrastructure
support needy
ZAKAT people as defined
TAX • Medical
under Shayari • Utilities
• Educations
• Defence

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Old Tax Law

 Regulation for Tax, Zakat was first introduced in Saudi Arabia in 1370H (1951).
 Income tax include
 Corporate Tax on the non-Saudi shareholders of Saudi companies
 Tax on salaries and wages of expatriates (was abolished in 1975)

 Zakat –
 Zakat was applicable on Saudi citizens and Companies in accordance with Sharia of Islam
 Extended to the GCC nationals and companied owned by GCC nationals
 Road Tax -
 Road Tax was introduced in 1964
 Applicable to employees, workers or similar persons provided that the monthly income amounts to 400
riyals or more (it was abolished in 1394).
 General Organization for Social Insurance (GOSI)
 Social insurance were collected from –
• Companies –
• Saudi Nationals
• Expatriates ( was abolished in 1989)

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Old Tax Rates

Category Rate
2.5% of Zakat base ( 50% collected by Gov. and 50% dispersed
directly by Zakat payer) – Up to 19xx
Zakat
2.5% (full amount) completely collected by Government from
19xx onwards
45% on Taxable Income–
Up to 2000
Companies
30% on Income Adjusted from 2000 onwards

Individuals (Professionals and employees) Expatriates 30%

Oil and hydrocarbons. 55% originally Increased to 85%

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Old Tax Law - Evolution

► The first book was published 1978

► 2nd book was in published in 2000

► Tax regulations was very simple Tax excessed on territorial concept

► Tax regulatory implications evolved during the 50years to enable specialization towards specific industries like – Financial
Institution , Insurance, Power and Water, Contracting etc.

► The old tax law which prevailed for 54 years was replaced in July 2004 with new tax law

Page 6 Presentation title

New Tax Law (Current)

► The new Tax Law was put into effect on 30 July 2004. By-laws (implementing regulations) to it were issued on the

15 August 2004.

► The new tax law was more aligned to international tax concepts

► It had specific clauses now on permeant establishments, source income which breaks the territorial focus on

taxation and become more global

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New Tax Law – Rates

Category
Category Rate
Rate

Zakat
On a non-Saudi's share in a resident company and on income derived by a non-resident from 2.5% (No Change)
20% on Income adjusted for Tax
a permanent establishment in Saudi Arabia.
Non-Saudi's share in a resident company
20% on Income adjusted for Tax
Non-resident from Permanent Establishment in KSA
In case of a Saudi Shareholder 2.5%

Non Resident
The tax rate onderiving income
tax payers (bothfrom Saudi
Saudi andSource
non-Saudi) working in the exploitation of the 5-15%
30%
natural gas sector.

Tax payers (both Saudi and non-Saudi) working in the exploitation of the natural gas sector. 30%
The tax rate on tax payers (both Saudi and non-Saudi) involved in production of oil and
85%
hydrocarbons.
The tax rate on tax payers (both Saudi and non-Saudi) involved in production of oil and
85%
hydrocarbons.

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Who is Taxable?

Person Subject to Tax:

► A resident capital company (LLC,JSC) on the non-Saudi share of tax base
► A resident non-Saudi natural person who carries out an activity in the Kingdom.
► A non-resident person carrying on an activity in the Kingdom through a Permanent Establishment (PE)
► A non-resident person who does not have a PE on income subject to tax from an in-Kingdom source (withholding tax
by the paying entity)

Activity Subject to Tax:

► A commercial activity in all its forms, or any vocational, professional or other similar activity for profit. This includes
the use of movable and immovable property.

Person Subject to Zakat:

► Zakat is assessed on the Saudi and GCC national shareholder’s share of the Saudi resident company’s zakat base.
► GCC nationals includes nationals of Saudi Arabia, Bahrain, Oman, Qatar, Kuwait and United Arab Emirates

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Recent & Expected Developments in Tax

1 International Tax Regulations

2 Tax Treaties with various countries

3 Transfer Pricing

4 Foreign Account Tax Compliance Act (FATCA)

5 BEPS

6 Value-added tax (VAT)

Page 10 Presentation title

Questions

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