Tax Alert: ZATCA publishes tax bulletin on resident

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On 31 December 2023, the Zakat, Tax, and Customs Authority (ZATCA) issued a tax bulletin to clarify some treatments for the provisions that subject natural persons residing in the Kingdom to income tax.

In summary:

The bulletin clarifies the following provisions:

The concept of residence in the Kingdom for a natural person.
The resident Natural person subject to income tax and the applicable tax rate.
The tax base of a resident natural person and accounting methods.
The obligations of resident natural persons subject to income tax.

In detail:

1. The concept of residence in the Kingdom for a natural person:

According to the Income Tax Law and its regulations, a natural person is considered a resident of the Kingdom for tax purposes if:

They have a permanent residence in the Kingdom and have been present in the country for at least 30 days (consecutive or separate) during the tax year.
They are present in the Kingdom for no less than 183 days (consecutive or separate) during the tax year, even if they do not have permanent residence there.

Permanent residence includes a dwelling that is owned or rented by a natural person, or otherwise provided to them, for a period of no less than a year throughout the tax year.

The individual’s nationality is not relevant to determining their residence status in the Kingdom.

2. The resident Natural person subject to income tax and the applicable tax rate:

A natural person is subject to income tax if they are a resident who:

Lives in the Kingdom and does not hold a Saudi nationality.
Is involved in commercial activity of any kind with the intention of making profit.

The tax rate applicable to a resident natural person’s tax base is 20%, in accordance with Article No. 7 of the Income Tax Law.

It is worth noting that tax rates differ for taxpayers working in the production of oil and hydrocarbons. The rates apply to the tax base and range from 50% to 85% based on the taxpayer’s total capital investment in the Kingdom.

Source of income: The bulletin clarifies when income from an activity is considered to be sourced in the Kingdom and extends it to activity in the Kingdom of any kind (professional, commercial, artisanal, etc.), as well as activity relating to movable property located in the Kingdom, disposal of shares, partnership in a resident company, rental of movable property used in the Kingdom, sale or licensing to use intellectual or industrial property in the kingdom, or any amounts for services carried out wholly or partially in the Kingdom paid by a resident.

3. The tax base of a resident natural person and accounting methods:

A natural person who is a non-Saudi resident of the kingdom: their tax base is the taxable income from any activity from sources in the Kingdom minus the deductible expenses as per the Income Tax Law.
Tax is imposed on natural persons who are partners in a partnership, rather than on the partnership itself.
The tax base of a resident capital company is calculated independently of the tax base of its shareholders, partners, and subsidiaries.
The tax base of a natural person working in the field of oil and hydrocarbons production is calculated separately from the tax base for activity in the field of natural gas.
The natural person should not calculate profit or loss on the disposal of an asset intended for a non-taxable activity.
A natural person may keep records on a cash or accrual basis. However, if their gross annual income exceeds SAR5 million, then the accrual method must be used for all subsequent years.

4. The obligations of resident natural persons subject to income tax:

A resident natural person subject to income tax must comply with registration requirements with ZATCA before the end of their first fiscal year.
They must submit an income tax return in the prescribed format, as well as pay the taxes due, within the statutory deadline (120 days from tax year-end).
A resident natural person is to adhere to withholding tax requirements set by the law, including submitting WHT returns and paying any amount due within the first 10 days of the month following the month in which a payment to a non-resident beneficiary was made.

In conclusion, ZATCA’s tax bulletin provides a focus, with clarifications and examples, on natural persons that are residents in the kingdom and subject to income tax. As it stands, these residents are subject to income tax on a territorial basis, i.e., on income derived solely from sources in the Kingdom. For more details, you can refer to the document published by ZATCA.

Contact our tax professionals for further discussions around the topics presented in this alert: