Tax Alert: Proposed Amendments to Zakat, Income Tax, Excise Tax, VAT, and RETT Laws and Implementing Regulations

The Zakat, Tax and Customs Authority [ZATCA] has published proposed amendments to tax and Zakat regulations for public consultation purposes. The due dates to submit the comments on the proposed amendments through the public consultation platform (Istitlaa) are as follows:

Article 17 – Statutory deadline to file annual Zakat return is extended to 180 days (currently 120 days) from the end of the Zakat year.

Article 21(1) – Statute of limitation is reduced from five years to three years from the statutory deadline’s expiration date for the submission of the Zakat return.

Article 23 – Period of issuing a reassessment in the cases where a Zakat payer submitted incorrect information is reduced to three years from the date of ZATCA becoming aware of the matter as opposed to the current five-year period.

Article 30 – ZATCA intends to issue guidelines or bulletins to spread awareness among Zakat payers and strengthen their commitment to their Zakat obligations. In addition, ZATCA retains the right of issuance of public and solicited rulings in accordance with the specified procedures. The interpretations issued in the guidelines, bulletins, or rulings will be binding prospectively from the date of issuance.

Article 5(a)(10) – Income earned by a non-resident, having a Permanent Establishment (PE) in Saudi Arabia, from the activities performed in Saudi Arabia of the same or similar nature to the activities performed by its PE shall be attributed to the PE in case the non-resident does not prove the economic or commercial justification for not performing these activities through Saudi PE.

Article 9 – The amendments proposed to add a new clause (n) to Article 9 dealing with group reorganization relief. The amendments clarified that the provisions of clause (m) will be applicable to resident juridical persons under one group and provides further conditions as follows:

1. There will be no change in the ultimate ownership of the juridical person disposing of the assets.
2. The asset cannot be disposed of to a person outside the group for the specified period as mentioned in the Income Tax Bylaws.
3. The purpose of the disposal should not be the termination of the activities or liquidation of the resident juridical person disposing of the assets.
4. The basis of proof of the valuation of the disposal is that the value in the books of the transferee shall be in line with the value in the books of the transferor/ disposer at the time of disposal.

Article 56 – ZATCA intends to issue guidelines or bulletins to spread awareness among taxpayers and strengthen their commitment to their tax obligations. In addition, ZATCA retains the right of issuance of public and solicited rulings in accordance with the specified procedures. The interpretations issued in the guidelines, bulletins, or rulings will be binding prospectively from the date of issuance.

Article 60(b) – Statutory deadline to file annual tax return will be extended to 180 days (currently 120 days) from the end of the fiscal year.

Article 64 – Definition of related persons or persons under common control has been amended to align with the definition given under Transfer Pricing Regulations.

Article 65(a) – Amendments propose to reduce the statute of limitation period for issuing an assessment from five years to three years from the statutory deadline’s expiration date for the submission of the tax return or from the end date of the deadline for the submission of the monthly WHT return.

Further, ZATCA added clause (b) with preserving its right to issue the assessment in cases where the taxpayer does not file the return, or ZATCA finds that the information provided is incomplete or incorrect with the intention of tax evasion, i.e., it continues to be 10 years.

Article 69 – In accordance with the tax return filing deadline, the amendments proposed that the payment period of due tax as per the return will be extended to 180 days (currently 120 days) from the end of the fiscal year.

Article 9(2) – Interest on loans used to finance capital assets is excluded from the interest limitation rules. We understand that the proposed amendment has clarified that any borrowing cost capitalized would not be considered for interest limitation purposes.

Article 9(8)(2) – The proposed amendments have further clarified the meaning of unfunded liabilities in relation to the deduction of employer contribution to an authorized retirement fund.

Article 60 – The amendments propose to substitute the appeal procedures described in Article 60 with the provisions of the operating Rules for the Tax Disputes Resolution Committees issued vide Royal Decree No. 26040 dated 21/04/1441H and any subsequent amendments thereto.

Article 63(1) – The proposed amendments resulted in a reduction in WHT rate from 15% to 5% on payment to Head Office or related parties for technical or consultancy services or international telecommunication services.

Article 63(4) – The proposed amendments refine the definition of payments against airline tickets and air or sea freight from the WHT perspective. With respect to the airline tickets, the amendments clarify that WHT (5%) is applicable on the purchase of international travel tickets departing from the Kingdom of Saudi Arabia. 

Article 27(5), (6) – ZATCA can permit the taxpayers to pay the tax due in installments based on sufficient reason and justifications subject to the condition that this arrangement does not exempt from delay payment fines.

Article 50 – The amendment proposes to introduce clauses making the bulletins, guidelines issued by ZATCA, and the tax rulings issued by the authority binding for ZATCA subject certain conditions.

Article 8(8) – The taxable person needs to display the registration certificate at its principal place of business, branches, and online stores so that it is visible to the public.

Article 9(5) – Any activity directly exercised by a government body in its capacity as a public authority shall not be subject to tax if all of the following conditions are met:

a) There is an effective legal instrument that obliges the government body to practice these activities and supplies, which represent the main activity of the body.

b) These activities should not be practiced in accordance with commercial, economic criteria.

c) The body exclusively carries on these activities, and there is no competition with the private sector.

Article 9(6) – The proposed amendment enhances the scope of the clause whereby the service contracts for the provision or secondment of workers shall also be out of the scope of the economic activity provided that certain conditions are met.

Article 29(7) – The proposed amendment intends to exempt the consideration payable in the way of explicit fees, commissions, or commercial discounts for the provision and transfer of life insurance/re-insurance contracts.

Article 34(4), (9) – The proposed amendment has specified the conditions for zero-rating of qualifying means of transport.

Article 36(2) – The proposed amendments have inserted a new article whereby the supplies to diplomatic missions from qualified suppliers are subject to zero-rate of VAT. We understand that the Governor will issue the decision for determining the qualification criteria for the suppliers.

Article 40 (7)(d) – The proposed amendment allows the taxable person to submit a certificate from a certified accountant regarding the write-off of consideration in order to reduce the output tax in the cases where the consideration for the supply is not received.

The Authority may accept any other supporting documents if the taxable person is not obligated to appoint an auditor as required by the applicable regulations.

Article 46(12) – The amendment has proposed that the taxable government authorities may submit a request to calculate the net tax due for the tax period on a cash basis. The Authority will notify the taxable government authorities about the acceptance of its request.

Article 63(3) – The amendment proposes to increase the net tax adjustment for a  threshold from 5,000 SAR to 15,000 SAR, for which corrections for the past periods can be made in the VAT return  of  the subsequent  tax period.

Article 64(3) – The proposed amendment has reduced the period of limitation from 5 years to 3 years from the end of the calendar year, within which the authority may issue or amend the assessment.

Article 14 (3), (4) – The amendment proposes that ZATCA can permit the taxpayers to pay the tax due in installments based on sufficient reason and justifications subject to the condition that this arrangement does not exempt from the delay   fines.

Article 28 – The amendment proposes to introduce clauses making the bulletins, guidelines issued by ZATCA, and the tax rulings issued by the Authority binding for ZATCA subject to certain conditions.

Article 55(1) – The amendment proposes to limit the period to three years from the end of the calendar year, within which the Authority can Access information, inspect or Audit related to excisable goods for enforcement of the law.

Article 3(a)(16) – The scope of RETT exemption in case of transfer of real estate by natural personal is proposed to be extended to include investment fund subject to certain prescribed conditions.

Article 3(a)(17) – The scope of RETT exemption for transfer of real estate between companies having the same ownership has been clarified as well as proposed to be extended further, to be granted in case of transfer of real estate between company and investment fund subject to certain conditions.

Addition of new Clause 3 in Article 6 – A period not exceeding three years from the date of the real estate transfer for the purposes of calculating the tax due has been proposed to be added by ZATCA to estimate the value of the real estate transfer with a fixed disclosed value.

Addition of new Clause 4 in Article 6 - A period not exceeding three years from the date of the real estate disposal for the purposes of calculating the tax due has been proposed to be added to estimate the value of the real estate transfer of an indefinite value.

Addition of new Clause 5 in Article 6 – It has been proposed that the ZATCA shall demand payment of the tax due within a period not exceeding three years from the date of the real estate disposal or from the date of its knowledge of the undocumented or undisclosed real estate disposal.

Addition of new Clause 6 in Article 6 – It has been proposed that the period mentioned in this Article does not affect the right of ZATCA to claim payment of the tax due in cases where the time restrictions specified in Article 3 of the RETT Regulations are breached.

Addition of new Article 11 (Repeated) – Proposed change includes the ZATCA’s responsibility and authority to issue the interpretations and rulings of RETT regulations, subject to certain conditions, as prescribed therein.

We suggest taxpayers use this opportunity to provide their valuable suggestions on the proposed amendments through the public consultation platform, Istitlaa, before the abovementioned dates.

For detailed discussions on how the proposed amendments affect your business, please contact our tax team: