KSA Income Tax Law

This is the KSA Income Tax Law established by Royal Decree No. M/1 of 15/1/1425H (corresponding to 21/02/2004)
In Effect From 30 Jul 2004

CHAPTER ONE DEFINITIONS

 

ARTICLE 1 DEFINITIONS

 

The following words and phrases, wherever mentioned in this Law, shall have the meanings next to them unless the context requires otherwise:

The Minister: Minister of Finance
The Department: Department of Zakat and Income.
Tax: Income tax imposed in accordance with this Law.
Person: Any natural or corporate person.
Taxpayer: Any person subject to tax in accordance with this Law.

Activity: 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.

Royalties: Payments received for use of or the right to use intellectual rights, including, but not limited to, copyright, patents, designs, industrial secrets, trademarks and trade names, know-how, trade and business secrets, goodwill, and payments received against the use of information related to industrial, commercial or scientific expertise, or against granting the right to exploit natural and mineral resources.

The Kingdom: Lands and territorial waters of the Kingdom of Saudi Arabia, its air space and its rights in the zone divided between it and the State of Kuwait. This includes marine or semi-marine areas that are under the sovereignty, sovereignty rights or jurisdiction of the Kingdom in accordance with International Law.

Capital company: A joint stock company, a limited liability company, or a company limited by shares. For purposes of this Law, investment funds shall be considered capital companies.

Partnership: A general partnership, a silent partnership, or a limited partnership.

Resident: A natural person, a company that satisfies the residency conditions stipulated in Article Three of this Law, any governmental department or ministry, or public entity, or any other corporate person or entity formed in the Kingdom.

Natural gas investment: Exploration and production of non-accompanying natural gas and related condensates, as well as collection, treatment, processing, fractionation and transmission of accompanying and non- accompanying natural gas related liquids, gas condensates and other accompanying elements. 

Non-resident: Any person who does not satisfy the requirements of the status of a resident.

Saudi citizen: A person holding Saudi nationality or who is treated as such.

Commercial books: Set of commercial books kept by the taxpayer in which all commercial transactions are recorded as described by Royal Decree No. (M/61) dated 17 / 12 / 1409 H and its implementing regulations issued by Ministerial Decision No. (699) dated 29 / 7 / 1410H, amended by Ministerial Decision No. (1110) dated 24 / 12 / 1410H or any subsequent amendments.

Regulations: Implementing regulations (Bylaws) of this Law.

Transmission of natural gas: shall mean transmitting natural accompanying and non-accompanying gas from treatment plants to processing and fractionation plants or transmitting the same from such plants to end user facilities. Transmission also shall mean transmission gas of condensates and liquids thereof, nevertheless the definition shall not cover local distribution networks and pipelines constructed by other than gas producer out of official sale points limits.

Gas condensates: shall mean condensates in their natural form, which are hydrocarbons that exist in a single gaseous phase in reservoirs with original temperatures in the range between the critical and maximum temperature, where it is possible for the substance to have two phases side by side and which are extracted from wells completed in gas condensate reservoirs and become liquid at standard conditions of temperature and pressure. 1A

Any word or phrase with no specific definition in this Chapter shall have the same definition it has in other Laws applicable in the Kingdom provided that such definition is not inconsistent with the provisions of this Law.

 

CHAPTER TWO TAXPAYERS

ARTICLE 2
PERSONS SUBJECT TO TAXATION

(a) A resident capital company for shares owned directly or indirectly by non-Saudi person as well as for the shares owned directly or indirectly by persons engaged in oil and hydrocarbons production.1

(b) A resident non-Saudi natural person who conducts business in the Kingdom.

(c) A non-resident who conducts business in the Kingdom through a permanent establishment.

(d) A nonresident having taxable income from sources in the Kingdom without having a permanent establishment therein.

(e) A person engaged in the field of natural gas investment.(f) A person engaged in the field of oil and hydrocarbons production.

(f) A person engaged in the field of oil and hydrocarbons production.

ARTICLE 3

CONCEPT OF RESIDENCY

(a) A natural person is considered a resident in the Kingdom for a taxable year if he meets any of the two following conditions:

(1) He has a permanent place of residence in the Kingdom and resides in the Kingdom for a total period of not less than thirty (30) days in the taxable year.

(2) He resides in the Kingdom for a period of not less than one hundred eighty three (183) days in the taxable year.

For purposes of this paragraph, residence in the Kingdom for part of a day is considered residence for the whole day, except in case of a person in transit between two points outside the Kingdom.

(b) A company is considered resident in the Kingdom during the taxable year if it meets any of the following conditions:

(1) It is formed in accordance with the Companies Law.

(2) Its central management is located in the Kingdom.

ARTICLE 4

PERMANENT ESTABLISHMENT

(a) A permanent establishment of a non-resident in the Kingdom, unless otherwise stated in this Article, consists of the permanent place of the non-resident’s activity through which it carries out business, in full or in part, including business carried out through its agent.

(b) The following are considered a permanent establishment:

(1) Construction sites, assembly facilities, and the exercise of supervisory activities connected therewith.

(2) Installations, sites used for surveying natural resources, drilling equipment, ships used for surveying for natural resources as well as the exercise of supervisory activities connected therewith.

(3) A fixed base where a non-resident natural person carries out business.

(4) A branch of a non-resident company licensed to carry out business in the Kingdom.

(c) A place is not considered a permanent establishment of a non-resident in the Kingdom if used in the Kingdom only for the following purposes:

(1) Storing, displaying or delivering goods or products belonging to the non- resident.

(2) Keeping a stock of goods or products belonging to the non-resident for the purpose of processing by another person.

(3) Purchasing goods or products for the sole purpose of collection of information for the non-resident.

(4) Carrying out other activities of preparatory or auxiliary nature for the interests of the non-resident.

(5) Drafting contracts for signature in connection with loans, delivery of goods or activities of technical services.

(6) Performing any series of activities stated in subparagraphs (1) to (5) of this paragraph.

(d) A non-resident partner in a resident partnership is considered an owner of a permanent establishment in the Kingdom, in the form of an interest in a partnership.

ARTICLE 5

SOURCE OF INCOME

(a) Income is considered accrued in the Kingdom in any of the following cases:

  1. If it is derived from an activity which occurs in the Kingdom.

  2. If it is derived from immovable property located in the Kingdom, including gains from the disposal of a share in such immovable properties and from the disposal of shares, stocks or partnership in a company the property of which consists mainly, directly or indirectly of shares in immovable properties in the Kingdom.

  3. If it is derived from the disposal of shares or a partnership in a resident company
  4. if it is derived from lease of movable properties used in the Kingdom.
  5. If it is derived from the sale or license for use of industrial or intellectual properties used in the Kingdom.
  6. Dividends, management or director's fees paid by a resident company.
  7. Amounts paid against services rendered by a resident company to the company's head office or to an affiliated company.
  8. Amounts paid by a resident against services performed in whole or in part in the Kingdom.
  9. Amounts for exploitation of a natural resource in the Kingdom.
  10. If the income is attributable to a permanent establishment of a non-resident located in the Kingdom, including income from sales in the Kingdom of goods of the same or similar kind as those sold through such a permanent establishment, and income from rendering services or carrying out another activity in the Kingdom of the same or similar nature as an activity performed by a non-resident through a permanent establishment.

(b) Place of payment of the income shall not be taken into account in determining its source.

(c) For purposes of this Article, a payment made by a permanent establishment of a non-resident in the Kingdom is considered as if paid by a resident company.

CHAPTER THREE

TAX BASE AND TAX RATES

ARTICLE 6

TAX BASE

(a) The tax base of a resident capital company is the shares of non-Saudis and the shares of shareholders engaged in the production of oil and hydrocarbons from their taxable income from any activity from sources in the Kingdom less allowable expenses under these regulations.

(b)  The tax base of a resident non-Saudi natural person is his taxable income from any activity from sources within the Kingdom minus expenses permitted under this Law.

(c)  The tax base of a non-resident who performs an activity within the Kingdom through a permanent establishment is his taxable income arising from or related to the activity of such establishment minus expenses permitted under this Law.

(d)  The tax base of each natural person is determined separately.

(e)  The tax base of a capital company is computed separate from that the tax base of stockholders, shareholders or their affiliates regardless of whether the company's accounts are consolidated with the accounts of another person for accounting purposes.

(f)  Tax base of a person engaged in the production of oil and hydrocarbons shall mean such person’s taxable income less valid deductible expenses under the regulations hereof, excluding respective person’s tax base of natural gas investment.

(g) Tax base of a person engaged in natural gas investment less valid deductible expenses under the regulations hereof. Such tax base shall be treated separately from tax base of taxpayer’s other activities.

ARTICLE 7

TAX RATES

  1. The tax rate of the tax base is twenty percent (20%) for each of the following:
    1. A resident capital company.
    2. A non-Saudi resident natural person who conducts business.
    3. A non-resident person who conducts business in the Kingdom through a permanent establishment.
  2. The rate of tax in respect of tax base of a taxpayer engaged in natural gas investment shall be calculated at 20%. 
  3. The tax rate on the tax base of the taxpayer engaged in oil and hydrocarbons products is as follows:
    1. Fifty percent (50%) for the taxpayer which its total capital investments in the Kingdom exceed 375 billion riyals
    2. Sixty-five percent (65%) for the taxpayer which its total capital investments in the Kingdom exceed 300 billion riyals up to 375 billion riyals
    3. Seventy-five percent (75%) for the taxpayer which its total capital investments in the Kingdom exceed 225 billion riyals up to 300 billion riyals.
    4. Eighty-five percent (85%) for the taxpayer which its total capital investments in the Kingdom do not exceed 225 billion riyals
  4. Withholding tax rates are those specified under Article Sixty Eight of this Law.
  5. Tax payable by a person engaged in oil, hydrocarbons production and natural gas investment collectively shall be the total tax due in respect of such person's tax base under paragraphs b and c of the article thereof.

TAXABLE INCOME

CHAPTER FOUR

ARTICLE 8

TAXABLE INCOME

  1. Taxable income is total income, including all revenues, profits and gains, arising from taxpayer’s engagement in activities irrespective of the type and manner of payment thereof, including capital gains and any incidental revenue, less tax exempt income.

  2. Income arising from engagement in natural gas investment shall equal the total income earned from the sale, exchange or transfer of natural gas, liquids thereof and gas condensates including sulfur, other products, and any other income received by tax payer from an incidental or non-operating income related to principal activity of whatever type and source, including such income earned from the utilization of surplus capacity of a natural gas investment facility.

ARTICLE 9

GAINS OR LOSSES RESULTING FROM DISPOSAL OF ASSETS

 

 

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