The Saudi Zakat, Tax, and Customs Authority (ZATCA) has released guidance on double taxation relief under the country’s tax treaties. The guidance outlines available methods for avoiding double taxation, including exemption and credit approaches.
Under the exemption method, income taxed in the source country may either be fully exempt from taxation in the resident state or considered only for determining tax rates on other income.
The credit method allows taxpayers to offset taxes paid abroad against domestic tax liability, either fully or up to the amount the resident state would have imposed.
The guidance clarifies how these methods apply under different treaties, ensuring taxpayers understand their relief options.
Procedures for claiming foreign tax exemptions:
To benefit from tax exemptions or credits, taxpayers must submit a formal request to ZATCA with supporting documentation. Taxpayers must provide the following:
- Taxpayer identification details: This includes Saudi and foreign tax ID numbers, company name, and address.
- Income details: Information about the amount earned abroad and the applicable foreign tax rates must be included.
- Proof of foreign tax payment: Taxpayers need to provide evidence such as withholding tax certificates, official receipts from foreign tax authorities, and notices of tax assessments from foreign tax authorities.
- Legal basis for tax relief: Reference relevant articles of the applicable tax treaty to establish the legal foundation for the tax relief.
- Justification for the exemption or credit: Explain the reason for the exemption or credit, especially if a full exemption was unavailable in the foreign jurisdiction.
Application process:
- The taxpayer sends a submission to ZATCA, including all necessary documentation.
- ZATCA conducts a thorough review of the request and accompanying evidence.
- If further information or documentation is required, ZATCA will request it.
- Upon approval, the taxpayer is granted the exemption or credit.
