Tax Alert: Proposed Amendments to the Income Tax Law

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On 25 October 2023, the Zakat, Tax, and Customs Authority (ZATCA) released the draft Zakat and Tax Procedures Law for the purpose of soliciting feedback. The deadline for submitting comments on the Zakat and Tax Procedures Law is 25 December 2023.

In summary

The ZTPL proposed implementation underscores the government's effort to establish a framework governing tax and Zakat regulations. ZTPL primarily focused on procedural and administrative provisions, comprising 9 chapters and 32 articles. The new legislation signifies a shift from the previous integration of these procedures within the respective Tax and Zakat laws.

In detail

The principal aspects of the ZTPL are delineated as follows:

Definitions - Introduction of new terms not specified in current tax and Zakat legislation. It further expounds a sequence to follow for interpreting a term where a specific definition is not addressed.

Statutory Deadline - ZATCA is empowered to extend a statutory deadline by ninety days in exceptional or emergency circumstances, with a maximum of two iterations within a singular calendar year.

Fee for Non-Basic Services - ZATCA has the prerogative to charge fees for non-basic services, i.e., services not related to registration, deregistration, Zakat and Tax return, payment and refund, examination, assessment, re-assessment, objections, settling disputes, confirmation of due Zakat or tax and satisfying Zakat or tax obligations.

On Behalf Tax and Zakat Settlement - Taxpayer’s tax and Zakat obligation settled by another person on their behalf will be considered as duly settled.

Registration and Deregistration - ZATCA has the authority to automatically register/ deregister a taxpayer if they fail to register within the stipulated statutory timeframe or if it determines that the taxpayer was never eligible for registration.

Correspondence - The official language for correspondence with ZATCA is Arabic, nevertheless, ZATCA may opt to use English or any other foreign language for communication, where necessary.

Retention Period for Records - The prescribed retention period for Books and records is 4 years from the date of end of tax period, unless an alternative retention period is mentioned in the Unified Excise Tax Agreement for the Gulf Cooperation Council Countries or the Unified Value Added Tax Agreement.

Tax and Zakat Financial Reports - Taxpayers shall be required to prepare financial reports for tax and Zakat purposes, the regulations will delineate the requirements and formats for such reports. Microenterprises, however, are granted an exception.

Certification of Return - A Certified Public Accountant (CPA) certification will be mandatory for returns, and implementing regulations will delineate the specific cases.

Bankruptcy obligation - In case a taxpayer declares bankruptcy, the competent judicial authority is obligated to furnish information to ZATCA for the computation of tax and Zakat.

Advance Tax and Zakat Payments - The Zakat payer/taxpayer is required to comply with specified deadlines for making advance tax/Zakat payments if mandated by tax and Zakat law.

Capital Gains Tax (CGT) Return Form - A new return form for filing Capital Gains Tax (CGT) may be introduced.

Joint Liability for Zakat and Tax Settlement - Persons jointly liable for the settlement of Zakat and taxes includes:

Any person involved in intentional violations that result in reduction of tax or Zakat liability, delay in the due tax or Zakat or refund of unlawful refund;
Non-residents receiving payments from the Kingdom without any taxes withheld;
Directors and board members of a legal person where the unpaid tax and Zakat are a result of their deliberate failure to perform their duties or for exceeding the powers granted to them;
Joint partners involved in any partnership; and
Any other person liable under any applicable law.

Adjustment of Credit Balance - ZATCA is authorized to offset a taxpayer's credit balance against outstanding Zakat or tax obligations or against the dues owed to other government departments, given that these dues from taxpayers are categorized as revenue for the state.

Merger or Division - In the event of merger or division, the surviving entity assumes charge for the rights and obligations of the entity that ceases to exist.

Refund Request Timelines - A request for a refund of overpaid Zakat or tax can be submitted within three years from the conclusion of the calendar year in which the deadline for return submission falls.

Deemed Assessment - ZATCA is empowered to issue an assessment on a deemed basis in the following cases:

Failure to file tax returns by the taxpayer within the statutory period;
Cases explicitly specified in the Tax and Zakat Law;
Lack of cooperation from the taxpayer in furnishing accurate information; and
Submission of an incomplete, inaccurate, or misleading return or information.

Nevertheless, with certain exceptions, ZATCA is prohibited from issuing a deemed assessment until at least 60 days have passed from the statutory filing date.

Statute of limitation - The statute of limitation for issuing an assessment is set at three years from the conclusion of the calendar year in which the deadline for return submission falls, with an exception to extend the period to 10 years in the case of non-filing of the return within the statutory period, tax evasion, or with the written consent of the taxpayer.

Anti-Avoidance Provisions - Provisions addressing the avoidance of Tax and Zakat have been incorporated into the legislation. Notably, tax benefit may not be given in cases of avoidance and a committee is to be formed within ZATCA to review/inspect/decide on the suspected cases of avoidance.

Bank Guarantee - ZATCA can request to provide a bank guarantee against the taxpayer’s obligation. ZATCA can further retain or utilize the bank guarantee against other outstanding dues for Tax and Zakat.

ZATCA’s Guidelines are Binding - ZATCA, at its discretion, may provide clarifications through circulars, guidelines, and explanatory decisions regarding the treatment of specific transactions in accordance with the Zakat and Tax Law provisions. ZATCA will stand by its interpretations, with certain exceptions.

Finality of Tax and Zakat Liability - Tax and Zakat liability be final in the following cases:

The issuance of a final decision by the competent authority.
The expiration of the objection-filing period against ZATCA's assessment.
Taxpayer’s agreement with the assessment.
Conclusion of settlement agreement with ZATCA.
Zakat or tax obligations, as delineated in Article 10 (Returns), or the tax liability arising from the sale of real estate, in accordance with the Real Estate Transaction Tax (RETT).

Debt Collection Procedures - Detailed procedures for compulsory debt collection are stipulated in the event of non-payment of the due tax and Zakat within the statutory period through various measures.

Third-Party Audit - ZATCA is authorized to conduct audits on third parties to gather information related to a taxpayer who is under inspection.

Fines and Penalties

Offense	Fines
Failure to register with ZATCA within the stipulated period.	Up to a maximum of SAR 20,000; For a Micro-Enterprise, the penalty is limited to 2% of the annual revenue, with a maximum cap of SAR 10,000.
(a) Non-compliance with record-keeping obligations stipulated by the Tax and Zakat Law; (b) Neglecting to inform ZATCA of the required information within the specified period as outlined in the Tax and Zakat Law; (c) Failing to issue a tax invoice or any other mandated official documents according to the Tax and Zakat Law; (d) Issuing a tax invoice or other official document being unauthorized or without being registered for tax purposes; (e) Providing ZATCA's employees with false or incomplete statements; (f) Obstructing or impeding ZATCA's employees or associates from carrying out their official duties; and (g) Breach of any binding provision of Zakat or Tax Laws, provided it is listed in the schedule of violations.	Up to a maximum of SAR 10,000
Non-filing of the Information Disclosure Statement within the statutory period.	Up to a maximum of SAR50,000; For a Micro-Enterprise SAR5,000.
Failure to submit a return within the statutory period.	2 percent of the value of Zakat or Tax, with a maximum cap of 24 percent.
Non-payment (totally or partially) of the due Zakat or Tax within the statutory period and unlawful refund of Zakat or Tax.	2 percent of the value of unpaid Zakat or Tax or unlawfully refunded for each month, with a maximum cap of 50 percent. An additional fine of 1 percent of the value of unpaid Zakat or Tax or part thereof for each month in case of amendment by ZATCA, commencing 30 days after the date of amendment notification.
Submission of return after the elapse of the statutory deadline, or amendment of an already submitted return, or submission of any document pertaining to due tax or Zakat which results in additional Tax and Zakat liability.	A fine not exceeding 50 percent of the value of the undeclared Zakat or Tax
Intentionally omitting any information in the filed tax return or in the information disclosed to ZATCA.	Up to a maximum of SAR5,000
Committing or participating in any act of evasion.	A fine ranging from 100 percent to 300 percent of the due tax or Zakat.

In closing, we recommend taxpayers take advantage to provide their insightful feedback on the proposed ZTPL through the Public Consultation Platform before the due date of 25 December 2023.

For detailed discussions to know the impact of the proposed ZTPL on your business, kindly contact our tax team.