Saudi Arabia issued Ministerial Resolution No 1776 on 19 March 2014 to give effect to changes in some of the implementing regulations of the tax law. The resolution is effective from the date of issue and will apply to all tax cases including those currently under appeal or where there are ongoing discussions without a final assessment.
The amendments provide that loan fees and interest in respect of inter-bank deposits that involve a bank that is non-resident will not be liable to withholding tax provided that the deposit stays with the Saudi resident borrower for a period no longer than 90 days. Also, a loan fee that a branch in Saudi Arabia pays to its foreign head office will be tax deductible.
The tax authority is to issue rules covering the definition of the fair value or arm’s length value in respect of related party transactions. These rules will be in accordance with the internationally accepted definitions.
Under the new rules the taxable income generated by foreign airlines, land transportation enterprises and sea freight concerns would be estimated as 5% of the total income from Saudi Arabia operations, including revenue from sales of passenger tickets, excess baggage, courier fees, freight fees, and other income that arises from any journey beginning in Saudi Arabia, wherever the tickets are sold.
Small enterprises without complete accounting records may be subject to taxation on their deemed profits at a rate depending on the type of business activity. Previously such enterprises were subject to tax at a 15% fixed rate.
The new rules stipulate that where there is a sale of share both parties to the transaction are have joint liability for paying any tax arising. Companies are however not included in this provision.
When fees are paid to a non-resident related party or head office in relation to technical or consulting services or services relating to international telecoms they are to be subject to a 15% withholding tax. Where such fees are paid to a party that is not related to the payer a 5% withholding tax will apply.
The tax authorities have a right to information under Article 61 of the Saudi income tax law and when the Department of Zakat and Income Tax (DZIT) requests information from a taxpayer in relation to the income tax rules or a tax treaty the taxpayer must fulfil the obligation to provide that information to the tax authority.