The Ministerial Resolution No. 1727 dated 11 February 2018 has amended the following key articles of the By-Law:
General provisions- Article 1:
Persons subject to taxation include resident capital companies with respect to shares owned directly or indirectly by non-Saudi persons. The term indirect ownership means ownership up to the second level.
This amendment appears to mean that a Saudi company owned indirectly by a non GCC shareholder through a series of 2 GCC companies should not be subject to income tax. Previously, there was no limitation on the levels of indirect ownership.
The amendment emphasise that consolidation is not allowed for tax declaration even if the company is consolidated with other companies or group for accounting purposes.
Exempt income- Article 7:
Capital gain realised from disposal of securities traded in a stock exchange outside the Kingdom whether through the sale, trade, or through other means, is exempt if it meets the following conditions:
a) If such securities are traded in the stock exchange in the Kingdom. b) The disposed investment did not exist before the effective date of the Law (i.e. July 2004).
If a Saudi company is listed on the Saudi Stock Exchange and on a foreign stock exchange (e.g. NASDAQ), the exemption from Saudi capital gains taxation also applies to the shares listed on the foreign stock exchange. Previously, only capital gains realised from disposal of securities traded on the Saudi Stock Exchange were tax exempt.
Dividend income (cash or in kind) accrued by a KSA resident company from a foreign or KSA resident company, provided that: a) The ownership in the company is 10% or more; and b) The period of the 10% 0wnership is at least one year. Local dividend income was exempt under Ministerial Resolution 3294, but this amendment now exempts foreign dividends as well.
Gains and losses on disposal of assets- Article 8:
Intragroup transfers of cash, shares, financial securities and other tangible and intangible assets can now be done tax neutrally provided that such companies should be part of a group of capital companies that are wholly owned directly or indirectly by one capital company and 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 intragroup transfers of assets. The amendment to Article 43 of the Tax Law relating to loss carry forward on change of ownership have not been addressed in these implementing regulations amendments.
