The Saudi Arabian General Authority for Zakat and Tax (GAZT), in April 2021, published Circular No. 2104001, entitled Force of Attraction rule in the context of permanent establishment (pdf). The Circular confirms the GAZT’s approach to applying the force of attraction principle under the Income Tax Law and several of Saudi Arabia’s tax treaties. The GAZT has affirmed that when a treaty does not contain a force of attraction rule, only the profits that are directly attributable to a permanent establishment (PE) should be taxed in Saudi Arabia.

The Circular continues the GAZT’s focus on PE taxation in Saudi Arabia. Nonresidents investing into Saudi Arabia without operating through a Saudi legal entity should review the PE rules and confirm that they are applying the PE rules and income determination principles correctly.

This circular deals with the application of FOA in the following contexts:

  • FOA application under the Law in Saudi Arabia in the absence of a double tax agreement (DTA) between Saudi Arabia and the country of residence of the PE’s headquarters; and
  • FOA application in the context of DTA between Saudi Arabia and the country of residence of the headquarter of the PE:
    • DTA including FOA rule provision; and
    • DTA nullifying the application of the FOA.

The guidance explains details of FOA rule with providing example.