The Ministerial Resolution No. 1727 provides amendments to Articles 1, 5, 7, 8, 9 and 58 of the Tax By-law.

General provisions: The amendment says that shares owned by non-Saudis for speculation purpose in capital companies listed on the KSA stock market are not considered as non-Saudi shares. A capital company’s share of profits or losses arising from investments accounted for under the equity method shall not be included as part of the tax base. The amendments emphasizes that the consolidated tax filing is not allowed.

Exempt income: Capital gains on the sale of shares listed and traded on the Saudi Stock Exchange [“Tadawul”] are taxexempt subject to the disposal being made in compliance with the KSA Capital Market Laws and the shares were purchased after issuance of the KSA Tax By-laws in July 2004. Tax-exempt income also includes dividend income in cash or kind (bonus shares) from investments in a KSA resident company or a nonresident company provided that the ownership in the investee company is 10% or more or the period of ownership is one year or more.

Gains and losses on disposal of assets: Intra-group transfers of cash, shares, financial securities and other tangible and intangible assets can now be done tax neutrally provided the following conditions are met:

• Such companies should be part of a group of capital companies that are wholly owned directly or indirectly by one capital company.
• Such assets should not be disposed to a company outside the group before two years passes from the date of the transfer.

The ‘cost base’ of the relevant intragroup transactions will be net book value to achieve the no gain no loss result. Previously, there was no specific exemption for intra-group transfers of assets.

Contribution to authorized retirement funds: KSA capital company may deduct contributions to retirement funds, social insurance funds and any other fund established to provide for End-of-Service Benefits or compensate for medical expenditure of beneficiaries, subject to the following:

• The fund shall have an independent legal status (whether established in or outside KSA), and separate accounts, audited by an independent certified auditor.
• The deduction does not exceed the unfunded liabilities relating to these funds, which were not paid from the beginning of the fiscal year in which deduction is made.
• Employment contracts recognize such contributions by employers as employees’ right.

GAZT right to information: The GAZT has the right to carry out a field inspection to examine the taxpayer’s books and records and to seek additional information. A fine of SR3,000 (US$800) will be imposed on any taxpayer who does not cooperate with the concerned GAZT’s employee to perform his assigned task.

These are some amendments from GAZT on the above key changes.