The definitions under Article 1 have been revised to include new definitions as well as revise certain terms to provide additional clarifications including but not limited to the following:
The scope of “royalties” has been widened to not only include the exploitation of natural or mineral resources but also the exploitation of intellectual rights.
“Activity” has been redefined to include an ongoing activity and/or a series of activities carried out to generate profits.
“Partnerships” have been redefined to include general partnership, a limited partnership, and any other form of partnership, other than the established forms of companies formed under the company law.
“Person” have been redefined to include, inter alia, endowments, investment funds, and any form of partnership.
“Payments” have been defined anew to include, inter alia, in-kind considerations paid or payable, including settlements, set-offs, and book adjustments.
“Islamic financial instruments” have been defined to include any contracts, arrangements, or financial rights that are compliant with the Shari’ah law.
The Draft Income Tax Law proposes that in the absence of the definition of a specific term, the following hierarchy is to be followed to ascertain the meaning:
- The Regulations;
- Zakat and tax procedure law;
- Other tax and Zakat laws in force in Saudi Arabia;
- Other regulations in force in Saudi Arabia, provided that such definitions do not contradict the provisions of the Income Tax Law;
- International agreements; and
- Accounting standards adopted by the Saudi Arabian Organization for Certified Public Accountants (SOCPA), provided that such definitions do not contradict the provisions of the Income Tax Law.