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
Page 2
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)
Page 4
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
Page 7
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
Page 11
