SAUDI ARABIAN

TAX, ZAKAT &

OTHER
REGULATORY
UPDATES

2024
 Business Consultants

PREFACE
Saudi Arabia is renowned for its rich history, vibrant culture, and strategic geographical
position. Over the years, the Kingdom has solidified its status as a global hub for business
and investment opportunities. The government has implemented various measures to
further develop the Kingdom‘s economy in light of Vision 2030.

The Annual Saudi Arabian Tax, Zakat, and Other Regulatory Updates Booklet – 2024
provides an overview of KSA's tax landscape, with a particular focus on the significant
changes in tax and zakat regulations and other regulatory developments take place during
the year 2024, that may impact KSA businesses and/or those intending to conduct
business in the KSA.

This booklet has been prepared for general informational purposes only and is not intended
to be relied upon as accounting, tax, legal, or other professional advice. For specific cases,
please get in touch with us – for details see page 48 – 49.

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 TABLE OF CONTENTS

01 Regulatory Developments
1.1 ZATCA extends the Tax Amnesty up to 30 June 2025 07

1.2 Saudi Arabia Investment Law Update 08

1.3 Regional Headquarters (RHQ) Regulations 09

1.4 Saudi Arabia Adopts eTIR System for Smoother Customs Transit 10

1.5 New Customs Service Fees and Charges 11

1.6 ZATCA Guidelines on Licensing of Non-Consumable Goods

Disposal Facilities and Excise Tax Refund Procedures 12

1.7 International Monetary Fund (IMF) KSA review report 13

02 KSA Tax Landscape

2.1 KSA current tax landscape 15-16

2.2 KSA Tax/Zakat Compliance requirements 17-18

03
Zakat New Regulations
3.1 Introduction to Zakat 20

3.2 Salient Features of Zakat Regulations (MR 1007) 20

21
3.3 Key Definitions / Considerations for Applicability of Zakat

3.4 Zakat Collection Rules 22

3.5 Zakat Collection Rules for Holding Companies 23

3.6 Zakat Base Computation 24

3.7 Zakat Base Computation – Minimum and Maximum Zakat Base 25

3.8 Zakat Base Computation – Additions & Deductions from the Zakat Base 26

3.9 Zakat Base Treatment - Current Liabilities 27

3.10 Zakat Treatment- Amount Due to Shareholders 28

3.11 Zakat Treatment- Amount Due from Shareholders 28

3.12 Zakat Treatment - Government Receivables 29

3.13 Zakat Treatment – Profits and Carried Forward Losses 29

3.14 Zakat Treatment – Treasury Stocks 30

3.15 Zakat Treatment – Leased Assets 31

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TABLE OF CONTENTS

04 TAX Developments
4.1 ZATCA Guidelines on Tax Treatment of Software Payments 33

4.2 Tax Appellate Committee Rules on Applicability of Delay Fines 34

4.3 Saudi Arabia's Expanding Network of Double Tax Treaties 35

05 VAT Updates
5.1 Amendments in KSA’s VAT Implementing Regulations 37

5.2 Proposed Amendments to KSA’s VAT Regulations 37

5.2.1 VAT Group Regime 37

5.2.2 Transfer of Going Concern (TOGC) 37

5.2.3 Zero-rating Supply of Goods to Customs Suspension Zone 38

5.2.4 Zero-rating of Services Provided to Non-GCC Residents 38

5.2.5 Persons Liable to Pay Tax in “Special Cases” 38

5.2.6 Refund of Tax to Designated Persons 38

5.2.7 Refund of Tax to Tourists 39

5.3 VAT refunds application in Saudi Arabia 40

5.4 Tax Appeal Ruling - Imposition of VAT on Long-Term Contracts Signed Prior to
2018 41- 42

5.5 Other VAT updates 43

06 RETT Updates
6.1 Saudi Arabia’s Council of Ministers Approves the RETT Law 45 - 46

6.2 Amendments to the RETT Implementing Regulations 47

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The abbreviations used in the booklet:

CIT Corporate Income Tax

CMA Capital Markets Authority

CR Commercial registration

DTT Double Tax Treaty

EOSB End of service benefits

ERAD Saudi tax administration —Electronic filing system

eTIR Electronic Transports Internationaux Routiers

GCC Gulf Cooperation Council

GOSI General Organization for Social Insurance

MR Ministerial Resolution

RETT Real Estate Transaction Tax

TVDAC Tax Violations and Dispute Appellate Committee

TVDRC Tax Violation and Dispute Resolution Committee

VAT Value Added Tax

WHT Withholding tax

ZATCA Zakat, Tax and Customs Authority

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1. Regulatory
Developments – 2024

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1.1 ZATCA extends the Tax Amnesty up to 30 June 2025

On 29th December 2024, the Zakat, Tax and Customs Authority (ZATCA) released/published the
Simplified Guidelines (https://zatca.gov.sa/en/MediaCenter/News/Pages/news_1328.aspx) for the
extension of the "Cancellation of Fines and Exemption of Penalties Initiative (the “Initiative”) for another
six (6) months starting from 1 January 2025 until 30 June 2025.

About Amnesty
ZATCA's extended Tax Amnesty Scheme is expected to cover all taxes, including VAT, Withholding
tax, Income tax, Real Estate Transaction Tax, and Excise duty. Amnesty relieves the taxpayers from
the application of penalties associated with tax returns except for fines relating to tax evasion and fines
paid before the launch of the initiative. ZATCA further clarified that the initiative covers penalties for late
registration in all tax laws, late payment, late filing of returns in all tax laws, penalties for correcting VAT
returns, and fines for violations of VAT field control related to applying the e-invoicing regulations and
other general regulations.

In this regard, ZATCA invited taxpayers to view the above Simplified Guidelines outlining the types of
penalties covered, conditions for exemption, steps for instalments payment, and details on field control
violations. The ZATCA clarified in the Guidelines that the taxpayer shall be exempted from late filing
fines on tax returns which must be filed to ZATCA before the effective date of the Initiative’s extension
on 1 January 2025 for all tax systems (e.g., November 2024 or Q3-2024 VAT returns and November
WHT return).

Taxpayers can also apply for payment of the additional taxes due in instalments. If ZATCA approves
the instalment plan, and the taxpayer adheres to the instalment payment plan, the delay fines
calculated before the instalment plan will be cancelled at the end of the instalment plan.

Instalment due and payable after the lapse of the amnesty date i.e., 30 June 2025, will be subject to the
applicable delay penalties.

Accordingly, taxpayers are enjoined to take advantage of the Initiative within the specified period. We
shall be pleased to assist taxpayers who wish to avail of the tax amnesty benefit by reviewing their tax
filing position and how best to rectify it from a compliance perspective.

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1.2 Saudi Arabia Investment Law Update

The Council of Ministers has approved the updated Saudi Arabia Investment Law, which amends the
Foreign Investment Law. This update, which is in line with the Government's objectives and Vision 2030,
aims to develop and improve the investment climate in Saudi Arabia by restoring a fair balance between
local and foreign investors, promoting a fair competitive framework and encouraging the creation of new job
opportunities.

Law expanded to Local Enhanced investors’

investors (Article 1) rights (Article 4)

The right to transfer

National firms benefit Incentives now apply to Protection from
profits and avoid
from Saudi Investment both local and foreign intellectual property
confiscation remain
Regulations. investors. and trade secrets.
intact.

Reduced penalties for

non-serious violations
(Article 11)

Fines reduced to SAR Warnings replaces

300,000 (from penalties in some
500,000) cases

Furthermore, the penalty of withholding all or part of the incentives and privileges granted to the foreign
investor has been replaced by a warning. However, the Law does not specify what this warning will
consist of.

The investors are still exposed to the cancellation of their registration in case of non-rectification of the
non-serious violation to provisions of the Law after a formal notice from the Minister of Investment.

The updated Saudi Investment Law, which replaces the previous Foreign Investment Law, is set to take
effect in February 2025, 180 days after its publication in the official gazette. The Ministry of Investment
(MISA) is expected to release the Implementing Regulations by that time, providing detailed guidance on
the law's provisions.

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1.3 Regional Headquarters (RHQ) Regulations

The Royal Court and Ministry of Finance have confirmed the controls set out concerning RHQ guidelines.

The ruling came into effect on 19/6/1445 AH (1 January 2024), and companies obtaining their Regional
Headquarters (RHQ) license can start benefiting from the tax relief. The RHQ Program, a collaborative effort
between MISA and the Royal Commission for Riyadh City (RCRC), seeks to attract multinational
corporations (MNCs) to establish their RHQ in Saudi Arabia. This initiative aims to position the Kingdom as a
leading commercial, industrial, and investment hub in the MENA region.

Apart from tax relief, the RHQ program provides the stated advantages for participating:MNCs:

1. Flexible Saudization requirements for RHQs.

2. Issuance of work permits for the spouses of RHQ executives.

3. Access to various benefits and premium support services.

Tax Rules for KSA based Regional Headquarters [RHQ]

Key benefits

0% corporate income tax on eligible income for 30 years (renewable).

0% WHT on dividends, on payments made to non-resident service providers and or

related parties in relation to RHQ activities.

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1.4 Saudi Arabia Adopts eTIR System for Smoother Customs Transit

The Electronic Transports Internationaux Routiers [eTIR] aims to ensure the secure exchange of data
between national Customs systems related to the international transit of goods, vehicles, or containers
according to the TIR Convention and to allow Customs to manage the data on guarantees, issued by
guaranteed chains to holders authorized to use the TIR system.

What is the eTIR System: The eTIR system is an electronic version of the TIR Convention, an international
treaty facilitating the movement of goods under customs seal across borders. It replaces paper-based
documentation with a secure digital platform, simplifying processes and enhancing data exchange between
customs authorities.

How to Join the eTIR System: Businesses interested in using the eTIR system in Saudi Arabia must
access the Customs Authority portal at zatca.gov.sa, select “E-Services" then “Customs Services" and
Select “Join the Transports Internationaux Routiers (TIR) System. The applicant will then apply through
SATA tir@satsclub.com.sa and provide the following information:

❖ Application Form for joining SATA for Automobile and Tourism.

❖ Transport General Authority License for transporting goods by land or as a representative.
❖ Valid commercial registration.
❖ List of Owners and Shareholders.
❖ One-year financial statements.

Benefits for Customs Benefits for Transport

Aspect
Administrations Operators
Reduced physical inspections Faster border crossings
Time and Cost and elimination of national with streamlined
Efficiency guarantees, lowering procedures, leading to cost
administrative costs. savings.
Simplified guarantee
Enhanced data integrity and
access through an
Security risk management, enabling
international guaranteed
focus on targeted inspections.
chain.
Single electronic TIR Carnet Paperwork eliminated,
Documentation replaces multiple documents, reducing the administrative
reducing paperwork and errors. burden and delays.
Improved efficiency in
Operational Faster clearance times due to
transit, ensuring quicker
Efficiency minimized physical checks.
delivery times.

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1.5 New Customs Service Fees and Charges

The Zakat Tax and Customs Authority (“ZATCA”) Board of Directors has issued a new decision regarding
the Fee Rules on Customs Services, which includes updates on the fees applicable to services provided
by ZATCA for import and export transactions.

In particular, the updates on customs’ service fees include:

➢ The elimination of all fees for exports, including customs declaration processing fees, x-ray inspection,
laboratory sample processing, and other applicable export fees.

➢ The introduction of a new structure to calculate the import fees, by charging 0.15% of the value of
imported goods, including insurance and shipping, with a minimum amount of SAR 15 and a maximum
of SAR 500. A special cap of SAR 130 will apply for exempt shipments.

➢ The limitation of the fees for low-value individual shipments via online stores (up to SAR 1,000) to SAR
15.

The removal of export fees aims to support exporters and boost the competitiveness of Saudi exports,
especially benefiting small and medium-sized enterprises. The new import fees system is designed to
reduce costs, ensure predictability, and standardize fee calculation across all ports, aligning with
ZATCA’s goals to improve logistics services and support Saudi Vision 2030. These updates were
implemented on 6 October.

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1.6 ZATCA Guidelines on Licensing of Non-Consumable Goods Disposal Facilities and

Excise Tax Refund Procedures

The Zakat, Tax and Customs Authority (ZATCA) has issued a Guide to clarify the mechanisms,
requirements, and obligations for licensing places designated for the destruction of non-consumable excise
goods and for recovering excise tax paid on such goods. This aligns with the Unified Excise Tax Agreement
of the Gulf Cooperation Council (GCC) States, allowing tax recovery when excise goods become unfit for
consumption and are destroyed in an approved location.

This circular does not amend existing laws but provides explanatory guidance for their application. The key
points include:

➢ Registrants can apply for a tax refund on non-consumable excise goods, provided these goods are
destroyed in licensed places.

➢ Licensees must notify the Authority of any changes in information within 30 days. Licenses can be
renewed by applying 90 days before expiration.

➢ Destruction requests must be submitted within 12 months of the goods being offered for consumption.

➢ The excise tax paid on the goods must be at least 3,000 Saudi Riyals.

➢ If there is an excess tax payable for the refund period, the refund amount is deducted from the payable
tax.

For more details, please refer to our Alert- ZATCA Bulletin for the Refund of Excise Tax - Alert

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1.7 International Monetary Fund (IMF) KSA review report

The IMF published its concluding statement of the 2024 Article IV Mission on 14 June 2024. The statement
represents a very positive assessment of Saudi Arabia’s unprecedented economic transformation,
highlighting prudent macroeconomic policies, transformative change, and strong domestic demand.

The following are the key points covered in the IMF's findings on Saudi Arabia:

➢ Saudi Arabia's economic reforms and macroeconomic policies have successfully promoted non-oil
growth and diversification efforts.

➢ The unemployment rate has reached historic lows, and inflation is under control despite some areas of
pressure.

➢ IMF emphasizes the importance of sustaining non-oil growth, ensuring financial stability, and
maintaining fiscal and external sustainability to support Saudi Arabia's economic transformation.

➢ IMF appreciates the Kingdom’s vision to achieve net zero emissions by 2060. Investments are being
made in renewable energy, energy efficiency, clean hydrogen, and carbon capture technologies.

➢ The financial sector is strong, with banks showing high capital adequacy and low nonperforming loans.
The Saudi Central Bank (SAMA) modernization of regulatory frameworks and use of macroprudential
tools are crucial for financial stability.

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2. KSA
Tax Landscape

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2.1 KSA current tax landscape

In summary, the non-Saudis share of profit from carrying out or deemed to be carrying out business in KSA
is assessed to CIT at 20%. Non-Saudis do not include citizens (nationals) of countries that are members of
the GCC. Members of the GCC are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab
Emirates.

The share of profits attributable to GCC nationals in a KSA resident company is subject to Zakat.
Companies engaged in oil production and other hydrocarbons are subject to tax on their net profit at rates
ranging from 50% to 85%. In addition, a Saudi resident entity, including a permanent establishment of a
non-resident, is required to withhold tax from payments made to non-residents for income earned by them
from a source in Saudi Arabia.

Corporate Income Customs duty Excise Tax Real Estate Transaction

Tax (“CIT”) Tax (“RETT”)

Value Added White Land Tax Withholding Zakat

Tax (“VAT”) (“WLT”) Tax (“WHT”) [a religious levy]

Saudi Arabia currently does not impose personal income tax on an individual's earnings if they are derived
only from employment in Saudi Arabia. However, self-employment income is taxed like a corporate entity
or permanent establishment (PE). A non-resident person with no PE who derives income from a source in
Saudi Arabia is taxed based on the withholding tax (WHT) regulations.

Who is considered a Resident of Saudi Arabia?

Individuals are considered residents of Saudi Arabia if they meet one of the following conditions:

• Present in Saudi for 183 days or more during any taxable year, or

• Present in Saudi for 30 days or more and has a place of abode in Saudi Arabia.

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Overview of Zakat and different taxes in KSA

The different types of taxes and their respective rates are as follows:

Item Type of tax Rate Basis

Zakat On the higher of net adjusted annual profit or
A religious levy [akin to 2.5% -
Zakat base
wealth tax] c.2.578%
CIT: Business Profit tax
CIT / CGT CIT: 20% ** CIT: Applied on the net annual taxable income
CGT: Capital Gains Tax
CGT: 20% CGT: 20% On gain realized or deemed to have
realized on disposal of equity

WHT Tax on service-related

payments made to non- 5% - 20% Applied on the gross payments made
resident’s

VAT Consumption tax on

the supply of goods 0% - 15% Applied on transaction value.
or services
Custom Import tariffs on the
s duty 0% - 20% Applied on import value.
import of goods or
equipment

RETT Tax on supply of Real 5% Applied on the value of the real estate
Estate Transaction transaction value
WLT White land
2.5% Applied on land value.
[unused/undeveloped
land]
Excise Tax
“Sin” tax 50% - 100% Applied on qualifying goods value.

**Hydrocarbon businesses are assessed at 50% to 85%

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2.2 KSA Tax/Zakat Compliance Requirements

• Taxpayers are required to register with the Tax Authorities to file their tax returns.

• Taxpayers are required to file annual income tax returns within 120 days from the end of the financial
year.

• Taxpayers may be required (upon request by the Tax Authorities) to submit financial statements
audited by a Certified Public Accountant licensed in Saudi Arabia of their activities in Saudi Arabia.

• Taxpayers are required to maintain their accounting books and records in KSA, and certain books
have to be maintained [Statutory books] in the Arabic language as well.

• As an alternative for filing tax returns based on regular accounts, taxpayers may request approval to
file tax returns on a deemed profit basis. The deemed profit rate ranges from 10% to 85% depending
on the nature of the activities, subject to ZATCA’s approval.

To ensure compliance with the tax/fiscal reporting requirements in the KSA, we set out below a
checklist of key compliance requirements and their deadlines. We believe this should help you monitor
your filing requirements with the Saudi Arabian Zakat, Tax and Customs Authority (ZATCA) for the fiscal
year ending 31 December 2024. The Checklist addresses:

What are the Important filing deadlines ? How often do these tasks to be performed?
Checklist

The Checklist

What tasks are to be performed? Which Law is applicable?

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2.2 KSA Tax/Zakat Compliance Checklist

Task Deadline Frequency Comments Law Ref.
Registration with tax
Before the first year-end Once - 57(a) of ITL
authority
Within 120 (60 for Including controlled 60(b) of ITL
Corporate income
Partnership/UJV) days Annually transaction disclosure form For UJV 57(4)
tax / zakat return and attestation report of TBL
from the year-end

Same as above Applicable only to entity with

Certification of tax return Annually non- Saudi shareholder and 60(e) of ITL
having gross revenue of SR 1m
or more
Submission of financial
Within 120 days from the Not applicable to PE or UJV
statements Annually -
year-end
Monthly withholding Not applicable if no taxable
Within 10 days from 63(9-a) of
tax return Monthly payment is made to non-
TBL
the respective month- residents
end

Annual withholding tax Within 120 (60 for Annually 63(9-b) of

return Partnership/UJV) days TBL
from the year-end -
Applicable only if the annual
Before the end of 6th, 9th
Advance tax tax liability of the preceding
and 12th month of the Quarterly 64(1-c) of
Payment year is SR 2m or more
financial year TBL

Applicable on Contract 58 (2-b) of

Contract information form As and when
Within 3 months of signing (including PO) value is or TBL
filing of new contract or 30 days contract signed
expected to be SR 100k or
of cancellation of contract more

Transfer pricing (TP) DF is due within 120 days Annually

from the end of the fiscal At the time of filing the DF, 63(9-a) of
documentation:
year, filed together with the the Company should confirm TBL
*Disclosure form (DF) annual income tax return that TP documentation is
*Local/Master file maintained. TP
documentation is submitted
upon request by Tax
Authorities (within 30 days
from date of request).

Monthly if annual revenue

Within 30 days from the end Monthly or
VAT return is SR 40m or more
of the month / Quarterly -
quarter

Social security tax Within 15 days from the end of

Monthly
(GOSI) the month
-
-
Maintenance of books At the end of each quarter / Quarterly /
and records in Arabic fiscal year Annually
- 58 (a) of ITL
Reporting of transfer ofshares Within 60 days from the As and
date of transfer when Capital gain tax on 16 (7) of TBL
applicable disposal of shares by non-
resident are required to
be settled

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3. Zakat
New Regulations

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3.1 Introduction to Zakat

Zakat, a religious levy; payable annually. The state is entrusted with administering and supervising the
collection of Zakat on declared funds and its distribution. It is a mandatory 2.5% charitable contribution
levied on specific assets Muslims possess above a certain threshold (nisab) for a specified period (a lunar
year“haul”). It purifies wealth and fosters social responsibility by supporting the underprivileged.

Zakat is vital in promoting social welfare and financial purification, while income tax primarily contributes to
state revenues.

The latest Zakat Regulations were issued via Ministerial Resolution No. 1007.

3.2 Salient features of Zakat Regulations (MR 1007)

The Ministerial Resolution (MR) No.1007 was published in the Official Gazette (Umm Al-Qura) on 21 March
2024. The new Zakat regulations replace all the previously issued regulations including those issued under
MR No. 2216 dated 14 March 2019. These regulations apply to fiscal years starting on or after 1 January
2024. However, they can also be applied to fiscal years that began before 1 January 2024, provided that a
zakat payer submits an application within 60 days from the date of publishing the Regulations or 60 days
from the date of receiving a tax audit notice.

• The Regulations clarify key zakat concepts such as criteria for residency, deduction for trading
investments, and development properties.

• The Regulations introduce certain changes in the computation of the zakat base.

• Alternative methods for calculating zakat on foreign investments and funds are provided.

• The Zakat assessment will be based on shareholders and their shareholding percentages at the end
of the fiscal year, regardless of ownership changes during the year.

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3.3 Key Definitions / Considerations for Applicability of Zakat

The regulations define the following terms:

➢ Saudi National:
• The person who holds Saudi Arabian nationality and whoever is treated similarly such as nationals of the
Gulf Cooperation Council [GCC] States that are Bahrain, Oman, Qatar, Kuwait, Saudi Arabia and UAE.
In summary, for Zakat purposes, include citizens (nationals) of countries that are the members of the
GCC. Members of the GCC are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab
Emirates. The share of profits attributable to interests owned by GCC nationals in a company is subject
to Zakat.

➢ Persons Subject to Zakat:

• Businesses owned and registered in the name of KSA resident citizens and alike.
• Non-Saudi shareholders in a KSA resident publicly listed company.
➢ Residency:
• A natural person is considered resident of KSA for zakat purposes, if;
a. Present in Saudi for 183 days or more during any taxable year, or
b. Present in Saudi for a total of 30 days or more and has a place of abode in Saudi Arabia.
On the other hand, a corporate entity is deemed to be resident if [a] incorporated in KSA or [b] if its principal
place of management is in the KSA.
➢ Principal Place of Management:
• If 2 of the 3 conditions are met:
a. Holding board meetings in KSA.
b. Important executive decisions made in KSA.
c. Most of its revenues are generated from KSA.
Entities meeting two of the three conditions are required to comply with KSA zakat regulations and report
their income earned from KSA as well as from outside of KSA.

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3.4 Zakat Collection Rules

• Zakat is assessed annually at 2.5% [at 2.578% in case of Gregorian fiscal year basis].

• For zakat computation purposes, ZATCA requires audited financial statements by a Saudi Arabian
licensed accountant.

• The fiscal year is considered to commence, for zakat computation purposes, from:
a. Date of the commercial registration, or
b. Date of the license issued to practice commercial activities, or
c. Date of depositing the capital in a bank account; whichever is earlier.

• Zakat is computed based on the ownership percentage at the end of the year, regardless of any
changes during the fiscal year.

• The first fiscal year, even if of less than the 354 days [Hijri or Lunar year], is considered zakat able.
Conversely on cessation of business, the last fiscal period of less than 354 days will not be subject to
zakat.

• In case of cessation of commercial activities, ZATCA must be informed within 60 days from the date of
cessation or else zakat payer will be liable to pay zakat for the full year.

• Cessation of activities would lead to liquidation process as per the company’s regulations. Until the time
the liquidation process is completed, and the commercial registration has been cancelled, the liquidator
is required to file the annual zakat return up to and include the completion of the liquidation process
and its publication in the official gazette.

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3.5 Zakat Collection Rules for Holding Companies

• A holding company is a company that owns a controlling interest in other companies, also known as
subsidiaries. Holding companies are also known as parent companies, financial holding companies, or
management companies.

• A subsidiary company is a company that is owned or controlled by another company, known as the
parent company or holding company. Subsidiaries are independent legal entities with their own tax
liabilities and regulations.

A holding company may file a consolidated annual zakat return or If a holding company wants to stop
filing a consolidated zakat return, it must seek prior approval from the Saudi Tax Administration.

Consolidated Annual
Zakat Return

Holding Subsidiary
Company Company

Holding Company Subsidiary Company

A holding company may file a Even though subsidiaries’ results are

consolidated annual zakat return included in the holding company's
inclusive of its wholly owned [directly consolidated return, the subsidiaries
or indirectly] subsidiaries; in KSA and must file their own "Information annual
abroad. Zakat will be due and payable zakat return" based on their own
based on the consolidated zakat base audited financial statements.
per return.

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3.6 Zakat Base Computation:

The newly enacted Executive Regulations for Zakat Collection (Regulations) introduce certain changes and
modifications in the computation of the Zakat base. These changes aim to clarify and streamline the Zakat
calculation process by determining the Zakat base calculations i.e., the additions and deductions from the
Zakat base, and the applicable calculation methods. Additionally, the regulations consolidate various
sector-specific zakat regulations, including those pertaining to finance, insurance, and investment funds.
Some Zakat base considerations are as follows:

For zakat payers who maintain proper books of accounts and file returns based on audited financial
statements:

▪ Unlike previous law where certain balances like capital were considered at the beginning of the year and
others like long-term investments at year-end, the zakat base now uses “closing balances” for all
components.
▪ For zakat computation purposes, amounts reassessed at fair value for the financial reporting purposes
are to be considered.
▪ Businesses engaged in “Financial Services” may also be able to claim investments not intended for
trading, if the investment duration exceeds 365 days.
▪ Assets and liabilities must be matched accordingly: non-current liabilities are deemed to finance long-
Going them.
term assets, and current liabilities finance current assets, with equity covering the gap between Concern
Principle

Transfer pricing bylaws

Transfer Pricing regulations issued from 15 February 2019

also apply to Zakat payers in their transactions with the
related parties.

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3.7 Zakat Base Computation – Minimum and Maximum Zakat Base:

The Zakat regulations outline the rules to determine the Minimum and Maximum Zakat Base and the
circumstances under which either will become applicable.

The minimum zakat base will be an alternate base and is unaffected by any additions or deductions to the
zakat base.

The minimum zakat base is the book profit of the zakat payer which shall also include the results of their
subsidiaries, if any and the net adjustments as defined below.

➢ Minimum Zakat Base:

When the Zakat base is less than the adjusted net profit [book profit + disallowable costs], below conditions
shall apply :

If Adjusted Net Profit is Greater If Adjusted Net Profit is Less than

than the sum of (Non-deductible the sum of (Non-deductible Negative Adjusted Net Profit Negative Adjusted Net Profit
Assets and Net Adjustments) Assets and Net Adjustments) (Loss) & Negative Zakat Base (Loss) & Positive Zakat Base

Non-deductible Assets
[current assets] + Net Adjusted Net Profit Nil Zakat Base Zakat Base
Adjustments

➢ Maximum Zakat Base:

The Maximum Zakat Base is the total of Equity (property rights) and similar items plus Net Adjustments.

Maximum Zakat Base = Total of Equity (Property Rights) and Similar Items Net Adjustments

▪ Non-deductible Asset = Total Assets – Deductible Assets

▪ Net Adjustment =Disallowable costs (Adjusted Net Profit – Net Book Profit)

▪ Similar Items = Profits under distribution classified as liabilities, Partners’ Loan, and allocations.

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3.8 Zakat Base Computation – Additions & Deductions from the Zakat Base:

Specific Deductions – Year end balances Additions to the Zakat base – Year
end balances
• Investment made within KSA
• Investment made outside KSA* • Total adjustments to profit
• Investment in funds of FVOCI • Share capital
• Net fixed assets and the • Statutory Reserve
equivalents • Retained earnings
• Right-of- use assets • Shareholders’ contributions
• Intangible assets • Provisions
• Raw materials - Spare parts - Zakat Base • Shareholders credit loan
current assets • Non-current liabilities
• Direct and indirect investment in • Deferred tax liability
funds registered with ZATCA • Contract liabilities
• Investment in sukuks and bonds • Lease liabilities (Current and Non-
Current)
• Cash guarantees and similar items
[Article (56)] • Negative derived financial instruments
• Current liabilities related to deductible
• Advances to suppliers and
current asset
contractors
• Current liabilities in excess of current
• Deferred tax asset
assets
• Real estate assets

*Investment Outside Kingdom:

To deduct an investment outside Saudi Arabia (KSA) from the zakat base, the following criteria
must be met:

o Investment Classification: The investment must be categorized as a non-current asset in the

taxpayer's financial statements.

o Investment Purpose: The investment must be made for non-trading purposes.

o Zakat Payment: The taxpayer must pay zakat on the investment directly to ZATCA, calculated
independently based on a chartered accountant's certificate.

o Minimum Zakat Base: The investment's zakat base must adhere to the regulations outlined in
Article 27, regardless of profit distribution.

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3.9 Zakat Base Treatment - Current Liabilities:

Understanding current liabilities impact:

Proportionate current liability

In case of renewed or rollover
will be added to the zakat liabilities i.e. in nature long-
base if the corresponding term debt but due to rollover
current asset is being claimed classified as current,
as a deduction in the zakat
base.

Proportionate Current Liabilities Renewed/Rollover Liabilities

For example, the value of the spare Such liabilities are to be

parts likely to be shown as part of added to the zakat base
the inventory as “current assets” is [Art 29 [2-c] and subject to
capping.
considered one of the deductible
items while computing the zakat
base [Art 29[2] and Art [25].

Current liabilities in excess of the current assets to be added to the zakat base [Art 29 [2-b].

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3.10 Zakat Treatment- Amount Due to Shareholders

➢ Listed companies: Treated based on their classification in the balance sheet, the debt will be treated
as a loan or equity depending on its characterization in the published financial statements.
➢ Non-listed companies:
1. Amounts due to shareholders to qualify as a loan and not as an “equity,” regardless of the
classification in the financial statements, if the following conditions are met:
a. Disclosed as a liability in the audited financial statements.
b. The rate of return is consistent with the market rate and the repayment period is disclosed.
c. One person should not control the company, i.e., should not be a sole proprietorship [one
person-owned company].
In summary, current debts are not added to the zakat base. Long-term are added to the zakat
base up to the value of the deductible assets. If these conditions are not met, the owed amount will
be treated as equity.

2. Shareholders’ loans in a one-person-owned company will be treated as equity and thus added to the
zakat base, regardless of usage, etc.

3.11 Zakat Treatment- Amount Due from Shareholders

Listed companies: Amounts due from shareholders [loans and the like] cannot be deducted from the
zakat base.
➢ Non-listed companies:
1. Deduction may be allowed if the borrowing entity is registered with the ZATCA and subjected to zakat
and subject to more conditions as follows:
a. No agreed debt repayment date, the rate of return is not in line with the market rates.
b. Audited financial statements.
c. The zakat payer controls the company, such as a sole proprietorship or one-person-owned
entity.
In effect, while the borrower will be subjected to zakat on the borrowed amounts, the lender may be
allowed its deduction subject to the above.
2. Amounts due from a Shareholder in a one-person-owned company will be allowed as a deduction if
the borrower is registered with ZATCA and subjected to zakat.
3. The regulations do not allow offsetting of the due to and due from - for zakat computation purposes.

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3.12 Zakat Treatment - Government Receivables:

Debts owed by a government entity [receivables] are not allowed as a deduction from the zakat base unless:

1. The delay in payment is attributable to the government authority, with proper proof.

2. The debt is classified as “current asset” in the issued financial statements.

3. Corresponding current liabilities to be added to the zakat base to the extent of the value of the debt being
deducted.

3.13 Zakat Treatment – Profits and Carried Forward Losses:

➢ Zakat treatment – Profits

1. Dividends declared but not deposited/paid to the shareholders shall be added to the zakat base as part
of the equity.

2. Profit for the year distributed and paid to the shareholders as an interim dividend is not subjected to
zakat, except where zakat is computed on a “minimum zakat base” basis.

3. ZATCA may however seek to assess zakat on the profit for the year distributed as an interim dividend if it
is determined by them that the interim distribution was distributed with the intention to reduce the zakat
liability for the year.

4. Both realized and unrealized profits are added to the zakat base.

➢ Zakat Treatment - Carried forward losses

Unlike the previous regulations, equity as per the published financial statements should be reduced by the
accumulated losses. Previously, zakat payers were allowed for a deduction of the accumulated losses as
per ZATCA’s assessment of losses and not per the books of the accounts.

Also, the accumulated losses are to be set off against equity only, and not the zakat base as was the case
under the previous regulations.

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3.14 Zakat Treatment -Treasury stocks

To attract and retain human wealth, large businesses devise policies that grant employees equity shares in
publicly listed companies. For this purpose, the listed companies buy back their own shares [classified as
Treasury Stocks in the published financial statements] from the open market, which consequently results in
the reduction of their paid-in capital.

The New Zakat Regulations have addressed this issue to lessen the Zakat burden on the listed companies,
as follows:

1. Treasury stocks appearing within the equity section of a balance sheet as a debit item are considered a
reduction of the paid-in capital.

2. The value of treasury stocks held for distribution to the company’s employees is allowed as a reduction
in the capital for zakat purposes, provided the following conditions are met:

➢ An extraordinary shareholders general meeting authorizing the purchase of the company’s

shares and its purpose i.e., for distribution among the company’s employees.

➢ The Ministry of Human Resources has approved the company’s employment policies regarding
payment of bonuses and stocks purchase option programs etc.

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3.15 Zakat Treatment – Leased Assets

This summary outlines the zakat treatment of leased assets and related investments, specifying general
rules and exceptions for deductions based on the nature and classification of the assets and transactions
involved.

1. As a general rule [see point 2 below] assets leased on financial lease basis are not allowed as a
deduction from the zakat base, regardless of their classification in the financial statements.

2. As an exception to point 1 above, companies engaged in financial activities such as banks are
allowed to claim a deduction for the amounts invested in the financial lease transactions.

3. Also, amounts invested on BOOT, BOT, BOO or POT** basis are considered zakat deductible subject
to certain conditions stipulated in Article 74 and more importantly so far as:

➢ The contract is for the purpose of producing and selling the benefits, goods, or services and
not to finance the assets.

➢ It is classified as non-current in the reporting entities’ financial statements.

**BOT - Build, Operate, and Transfer Contracts

**BOOT - Build, Own, Operate, and Transfer Contracts
**BOO - Build, Own, and Operate Contracts
**POT - Purchase, Operate, and Transfer Contracts

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4. TAX
Developments

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4.1 ZATCA Guidelines on Tax Treatment of Software Payments:

In February 2024, the Zakat, Tax and Customs Authority (ZATCA) issued a Tax Guide on the tax of software
and to clarify the related payments under KSA domestic Income Tax Law. The Guide provides ZATCA’s
views on a wide range of transactions including software distribution arrangements, software development,
online database access, and alienation of copyright rights. Practical examples are given for various
scenarios like time-limited agreements etc.

The Guide discusses topics such as subscription fees for accessing databases with private data, lump sum
payments for software usage rights, and tax categorizations for different transactions. It also delves into
specific transactions like the sale of full ownership rights, transfer of non-exclusive rights, and transfer of
exclusive rights for reproduction and modification of software.

While the Guide discusses the international interpretation of software payments as royalties under the
OECD and UN models, tax treatment of such payments in the context of Double Tax Treaties will be
assessed on a case-by-case basis.

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4.2 Tax Appellate Committee Rules on Applicability of Delay Fines

The Case:

ZATCA imposed a delay fine on the additional assessed tax from the due date of filing the return. The
taxpayer appealed to the Tax Violation and Dispute Resolution Committee [TVDRC - preliminary
committee] against the imposition of the delay fine because as far as they were concerned, they
discharged their tax liability within the given time period. Therefore, they cannot be held responsible for
payment of delay fine on the additional tax arising from ZATCA’s review after several years of filing the
return.

However, TVDRC also supported ZATCA’s imposition of the delay fine from the due date of filing the
return.

Taxpayer appealed against the TVDRC’s decision to the Tax Violations and Dispute Appellate Committee
[TVDAC – higher committee] on the grounds cited above i.e. having discharged their tax payment
obligation within the given statutory time limit, they cannot be held responsible for paying delay fine on the
additional tax assessed by ZATCA after several years of the filing the return.

TVDAC ruling:

In its ruling, the TVDAC maintained that:

➢ The taxpayer cannot be held liable for a delay fine until he is notified of the assessment.

➢ This is based on and consistent with the relevant regulations.

Thus, the TVDRC’s decision stands cancelled and so do the delay fine.

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4.3 Saudi Arabia's Expanding Network of Double Tax Treaties:

Saudi Arabia recently expanded the network of Double Taxation Treaties (DTTs) with multiple countries
including Qatar, Kuwait, Croatia and a customs cooperation agreement with Hong Kong and Kosovo to
promote economic cooperation and reduce tax-related barriers. DTTs prevail over domestic tax rules, and
over 60 have been signed with countries including the United Kingdom, Bahrain, India, China,
Switzerland, and Japan. These treaties align with Saudi Arabia’s Vision 2030 goals to attract foreign
investment and enhance international economic ties.

In 2024, Saudi Arabia Actively Expanded Its Network of Double tax Treaties (DTTs) with the Following
Countries to Foster International Economic Cooperation.

KUWAIT

CROATIA QATAR

SAUDI
ARABIA
SLOVAK
KOSOVO
REPUBLIC

HONG
GAMBIA
KONG

Benefits of Double tax Treaties (DTTs):

These treaties help increase foreign direct investment, facilitate smoother economic cooperation, and
prevent tax evasion by establishing clear rules for taxing cross-border income.

➢ Attracting foreign direct investment

➢ Prevention of Double Taxation​
➢ Lower Withholding tax rates (Following OECD Treaty Model and may provide certain relief, including
WHT on dividends, interest, and royalties).

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5. VAT Updates

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5.1 Amendments in KSA’s VAT Implementing Regulations

As the year 2024 ended, it is important to reflect on the significant changes and proposed amendments to
Saudi Arabia's Value Added Tax (VAT) laws and regulations during 2024. These updates aim to refine
and clarify various aspects of the existing framework, impacting several key areas of compliance and
administration.

On 28 August 2024, Saudi Arabia's Zakat, Tax and Customs Authority (ZATCA) released a public
consultation document on the Istitlaa platform (i.e., a public consultation platform), proposing
certain amendments to the Value Added Tax (VAT) Implementing Regulations.

These proposed amendments cover changes relating to more than 25 Articles of the VAT Implementing
Regulations and provide further clarifications on the respective articles.

Below is a snapshot of the year that was from a VAT legislation’s perspective.

5.2 Proposed Amendments to KSA’s VAT Regulations:

Among the significant and notable changes as per the proposed amendments, are as follows:

5.2.1 VAT Group Regime:

a) Conditions for registering a VAT group include the following:

o Ownership requirements; and

o Restrictions on certain persons

b) Application process requires the documented agreement among the members.

c) The VAT group is treated as an independent taxable entity.

d) ZATCA is empowered to cancel VAT group registration or exclude specific members from the VAT
group from a past or future date.

5.2.2 Transfer of Going Concern (TOGC):

To qualify as TOGC, which is outside the scope of VAT, additional condition and requirements are required,
as follows:

a) Both the supplier and the recipient must notify the Authority of the transfer no later than the end of
the month following the month in which the transfer took place.

b) Detailed information that must be included in the prescribed notification form, such as the following:

o Name, address and TIN (if registered) of the parties

o Date of transfer of economic activity
o Details of the goods and services included in the TOGC
o A copy of the economic activity transfer agreement between the parties
o Any other documents specified by the Authority

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5.2 Proposed Amendments to VAT Laws and Regulations (Cont’d):

5.2.3 Zero-rating supply of goods to customs suspension zone:

A more detailed article is proposed replacing the existing provisions relating to zero-rating supply of goods
to customs suspension zones, summarized as follows:

a) Supply of goods to customs duty suspension zones or within such zones will be subject to VAT at
0%, subject to conditions, e.g., documentary retention.

b) The VAT on the import of goods to such zones will be suspended. However, VAT becomes due upon
release of the goods outside such zones.

c) The goods that exit from such zones to outside GCC territory will be considered as exports.

5.2.4 Zero-rating of services provided to non-GCC residents:

a) One of the exceptions from zero-rating under condition (c) relating to the benefit received by “other
person” in the KSA, such “other person” must be associated with the contractual customer.

b) Services supplied by a taxable person to tourists related to the tax refund service under Article 73 of
the VAT Regulations are proposed to be subject to VAT at 0%.

5.2.5 Persons liable to pay tax in “special cases”:

Specific provisions on “electronic marketplace” are proposed, which include among others, the following:

a) The definition of an “electronic marketplace”, and

b) Clarification on the VAT treatment of certain transactions of an electronic marketplace and certain
exemptions, subject to conditions.

5.2.6 Refund of tax to designated persons:

The Highlights of the proposed amendments include:

a) A comprehensive refund process, including registration requirements, eligible categories, and

specific documentary requirements.

b) A higher minimum refundable amount is proposed at SAR5,000 (currently at SAR1,000).

c) Specific exceptions for non-deductible supplies and details about international agreements and
reciprocity.

d) Empower the Authority to review refund requests and may request additional information due within
20 working days.

e) If a refund is wrongly received, the individual must notify the Authority and repay the amount
received.

f) ZATCA’s Board of Directors may allow VAT refunds based on simplified invoice and establish other
refund procedures not specified in the Article.

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5.2 Proposed Amendments to VAT Laws and Regulations (Cont’d)

5.2.7 Refund of tax to tourists:

The highlights of the proposed amendments, among others, are as follows:

a) ZATCA may refund to tourists the VAT on eligible goods purchased in the KSA, which they carry
upon leaving the KSA, following decisions, controls and procedures to be issued by the ZATCA’s
Governor.

b) “Approved service providers (ASP)” – a list of approved service providers to provide services to
tourists facilitating tax refund will be issued by the ZATCA.

c) “Tourist” – any natural person who does not have a permanent place of residence in the KSA or any
of VAT applying GCC Member States, not part of transport crews leaving the KSA, and meeting
other criteria set by the ZATCA.

d) “Eligible goods” – Refers to goods purchased for personal use but not consumed in the KSA,
excluding: (i) vehicles, boats and aircrafts; (ii) tobacco products and their derivatives/alternatives; (iii)
food and beverages; (iv) oil, gas and their derivatives; and (v) any other goods specified by the
ZATCA.

e) “Refund Process” – VAT refund requests are submitted through the ASPs while the tourist is still in
the KSA. The ZATCA may refund requests, reject them (if necessary) and will pay the approved
amount to the ASP.

f) “Record keeping requirement” – ASPs must keep records for the specified period and are jointly
responsible for any erroneous refunds.

g) “GCC Member State Tourists” are treated as non-GCC tourists until the unified electronic system is
in place.

h) The ZATCA’s Governor sets the regulations, controls, procedures and conditions for VAT refunds,
including the service provider authorization, eligible goods and requirements for the VAT refund
requests.

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5.3 VAT refunds application in Saudi Arabia

In accordance with Article 70 of the KSA VAT Regulations, non-resident businesses who are engaged in
economic activity in the Kingdom of Saudi Arabia (KSA) may apply to be registered as qualified persons
for the purposes of reclaiming the VAT incurred and paid in the Kingdom.
In August 2024, the ZATCA published the proposed amendments to the VAT Implementing Regulations.
Among these proposed amendments include the definition of eligible goods, the refund process, and the
role of authorized service providers in handling the refund claims.
This move is aligned with Saudi Arabia's broader strategy to diversify its economy and enhance its global
appeal as a tourist destination. By streamlining tax policies and improving the shopping experience for
international visitors, the Kingdom aims to attract more tourists and stimulate growth in the tourism sector.
With this initiative, this would boost the Kingdom’s tourism and help achieve its target of 127 million
visitors by the end of 2025 and tourism revenue of SAR346.6 billion as budgeted for 2025.
As the year 2024 closed, it is important for individuals and organizations in Saudi Arabia to prepare for
their VAT refund applications. In this regard, ZATCA published the Tax Circular outlining the requirements
of the two-step process for non-residents to submit their refund applications:

a) Eligibility: The following are the eligible persons/businesses for VAT refunds:
❖ Diplomatic Missions: Includes foreign embassies, consulates, and international organizations.
❖ Non-GCC Residents: Non-GCC residents who are established and registered for tax in a
country that applies VAT or a similar tax system, and whose country allows reciprocal tax refunds
for Saudi residents, are also eligible.
❖ Businesses and Individuals: Any foreign business or individual who has incurred VAT
expenses in Saudi Arabia and meets the requirements set by the Zakat, Tax and Customs
Authority (ZATCA). Note that further guidelines on VAT refund to tourists (individuals) are yet to
be released by ZATCA.
b) Requirements: The following are the requirements for the application of VAT refunds:
❖ Reciprocal Tax System: The country of the applicant must have a similar tax system and permit
VAT refunds for Saudi entities incurring VAT in that country.
❖ Submission of Application: Applications must be submitted online through the ZATCA portal.
❖ Documentation: Proper documentation must be provided to support the VAT refund claim,
including invoices, proof of VAT paid, and any other required documents.
c) Process: The following process should be followed to claim the VAT refunds:
❖ Registration: Ensure you are registered with ZATCA and have access to the online portal.
❖ Supporting Documents: Gather all necessary documents, including invoices and proof of VAT
payments.
❖ Submission of Application: Fill out the application form on the ZATCA portal and upload the
required documents.
❖ Review and Refund: ZATCA will review the application and, if approved, process the VAT
refund.

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5.4 Imposition of VAT on Long-Term Contracts Signed Prior to 2018

➢ The Case:

In a real estate transaction, the purchaser failed to make instalment payments on the agreed dates of
payment and therefore, the property possession was delayed beyond 2018 i.e. the year in which VAT
laws were implemented. The delivery of the property was made after payment of the due instalments.
The builder had no choice but to charge VAT on the supply whereas the buyer was of the view that the
builder should be responsible for payment of VAT.

The contract was signed prior But due to late payment of

to implementation of the VAT instalments, the supply was
regulations in 2018.therefore, completed in 2020, which is
No VAT should be payable! after the implementation of
VAT.

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5.4 Imposition of VAT on Long Term Contract Signed Prior to 2018 (Cont’d)

Tax Violation and Dispute Resolution Committee [TVDRC]:

In its ruling, the TVDRC maintained that:

➢ VAT Regulations define considerations as “Everything collected or be collected by the Taxable

supplier from the Customer, or a Third Party for the Supply of Goods or Services should be inclusive
of the VAT” [Article 1 of GCC Unified VAT Framework Agreement].

➢ VAT becomes due on the date of the supply of Goods or Services, the date of issuance of the tax
invoice or upon partial or full receipt of the consideration, whichever comes first, and to the extent of
the received amount [Article 23 of GCC Unified VAT Framework Agreement].

➢ Article 14 of KSA VAT regulations provides that the Tax is imposed on all Taxable Supplies of the
Goods and Services made or received in KSA by a taxable person.

➢ The case under review is considered a long-term contract as the consideration of supply of property
was paid in instalments. The contract was signed prior to implementation of the VAT regulations in
2018 but due to late payments by the buyer of the property, the supply was completed in 2020 on
discharge of the payment obligations by the buyer.

Thus, the transaction under review was held as a taxable transaction, though the contract was signed
prior to issuance of the VAT regulations i.e. 2018 but the supply was completed in 2020 (i.e., the date
the real estate property was placed at the customer’s disposal) which is after the implementation of
VAT on 1 January 2018.

TVDRC’s decision is appealable by both the taxpayer and

the ZATCA within 30 days of issuance of the decision.

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5.5 Other VAT Updates

a) 16 February 2024 – the ZATCA issued the new tax rules for the regional headquarters (RHQ)
program. Among the notable points from a VAT perspective are the following:

• Under the general rules, the RHQs may need to register for VAT in the KSA.

• Applicability of the general KSA VAT rules to RHQs in terms of VAT registration, compliance,
input VAT deduction, refunds, etc.

b) April 2024 – the ZATCA released the comprehensive guidelines for RHQ confirming that RHQ-
related real estate transactions are subject to RETT (thus, exempt from VAT) and that the general
VAT rules apply.

b) 31 May 2024 – the ZATCA’s Board of Directors’ decision was published in the Official Saudi
Gazette, which allows a licensed real estate developer (LRED) to retroactively claim a VAT refund
from 4 October 2020 or from the date it fulfils certain conditions, whichever is earlier.

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6. RETT Updates

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6.1 Saudi Arabia’s Council of Ministers approves the RETT Law

The Council of Ministers of Saudi Arabia, through Ministerial Resolution (MR) No. M/84 dated 19/3/1446H
(22 September 2024 G), approved the Real Estate Transaction Tax (RETT) Law. The Arabic version of the
said Ministerial Resolution and the RETT Law are provided on this link. Article 20 of the RETT Law provides
that the law shall enter into force after 180 days from its publication date in the Official Gazette and that all
provisions contrary to the law shall be repealed.

On 3 May 2024, prior to the release of the approved RETT Law, the Zakat Tax and Customs Authority
(ZATCA) published on its website the approved amendments to the RETT Implementing Regulations. A link
to announcement at the ZATCA’s website is provided here. A copy of the Arabic RETT Implementing
Regulations (based on the last amendment thru MR No. 1445-88-1, dated 02/09/1445AH (12 March 2024 G)
is available at the ZATCA’s website (refer to this link). Likewise, the ZATCA also published the RETT
Guidelines Version 5, dated 3 May 2024 (Arabic and English).

In summary, among the notable provisions of the RETT Law (non-exhaustive) are the following:

1. Article 3 of RETT Law has provided 21 transactions that are exempt from RETT, whereby we noted the
following:

a) There are two new exempt transactions included under Article 3 of RETT Law, which were
previously not separately included under Article 3 of the RETT Implementing regulations,
as follows:

▪ Real estate disposition in cases of public initial purchase offering, trading in

listed securities, and trading investment fund units.
▪ Real estate disposition resulting from mergers and acquisitions between legal persons.

b) Exclusion from the list of RETT exempt transactions of the following:

▪ Real estate transactions carried out in implementation of lease-to-own and finance

lease contracts, concluded before the effective date of the real estate transaction
tax on 14/2/1442H (01/10/2020G).
▪ Real estate transactions that were subject to VAT before being documented, if the
documentation was made after the provisions of the RETT system came into effect.

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6.1 Saudi Arabia’s Council of Ministers approves the RETT Law (Cont’d)

It is worth noting that the revised penalties for non-compliance, including reduction of late payment fines
from 5% to 2% of the unpaid tax per month of delay and capped at 50% of total tax liability. An additional
1% will be imposed if ZATCA identifies additional tax due.

2. Article 8 of the RETT Law prescribes the 3-year period from the date of the real estate disposition,
within which the ZATCA may carry-out the following:

a) Verify the value real estate transactions disclosed and recalculate the RETT due in case it is proven
that the value is less than the fair market value, including cases of tax evasion.

b) Estimate the value of the real estate transaction of unspecified value disclosed to the Authority.

c) Calculate the tax due for the undocumented or undisclosed real estate transaction and demand the
payment of the tax due within 3 years from the date of the real estate transaction or from the date of its
knowledge of the undocumented or undisclosed real estate transaction.

d) Seek the assistance of an accredited evaluator for the purposes of verifying the fair market value of the
real estate disposition and estimating the value of the undetermined real estate transaction.

The above are only a few of salient provisions of the RETT Law, as compared to the RETT Implementing
Regulations previously issued under MR No. 712 dated 15/2/1442H (01 October 2020 G). It is also
expected that certain amendments to the existing RETT implementing regulations, additional guidelines
and clarifications will be issued by the ZATCA to provide guidance and clarifications on certain provisions
that were previously not included in the RETT Implementing Regulations.

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6.2 Amendments to the RETT Implementing Regulations:

On 3 May 2024, the approved amendments to the RETT Implementing Regulations came into effect.

In summary, the significant amendments, among others, are as follows:

a. Expansion of scope of exemptions for certain real estate transactions.

b. The change in the ownership percentage through a public offering of the company's shares or fund
units is not considered a violation of the condition for RETT exemption (i.e., requirement not to
dispose of the shares or stocks corresponding to the exempted real estate disposal).

c. “New RETT rules for build, own, operate, transfer (BOOT) projects” – The new due dates shall be
the date of transfer of ownership or actual possession to the transferee to whom those projects are
transferred under previous contracts. The tax for these contracts must be paid within 30 days from
the date of transfer of ownership or actual possession of the property.

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Contact
BABS is a blend of professionals having expertise in KSA zakat
and taxation matters, with a combined team experience exceeding
250 years. We are united by our commitment and quality services
and offering a comprehensive suite of “Business Consultancy”.
Please get in touch with one of our tax experts listed below.

You can also contact us and submit all your queries on this email:
saudibusinessconsultants@finserveconsulting.com

BABS Team

Mohammed Desin Irfan Alladin

Team Leader Tax Markets Leader

Mohammed.Desin@finserveconsulting.com Irfan.Alladin@finserveconsulting.com
+966 50 006 7280 +966 50 987 3135

Finbarr Sexton Mashael Rahbini

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Finbarr.Sexton@finserveconsulting.com Mashael.Rahbini@finserveconsulting.com
+974 55 55 4692 +966 54 777 1250

Diendo M. Dupal Junaid Jamshaid

Diendo.Dupal@finserveconsulting.com Junaid.Jamshaid@finserveconsulting.com
+966 54 102 1264 +966 59 938 0590

Nora Alothman Rabab AlSulami

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 Business Consultants The Annual Booklet 2024

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