Saudi Arabia: Amendments to income tax and Zakat regulations

The Minister of Finance has approved amendments to the income tax and Zakat regulations, through Ministerial Resolution No. 25 (dated 26 July 2023 and published in the official gazette on 15 September 2023).

In general, the amendments update and clarify the following income tax and Zakat provisions:

• Expenses allowable for deduction from taxable income (loan interests and contribution to retirement funds)
• Withholding tax rates for payments on certain services (technical, consulting, telecommunication at 5%) and payment definitions (airline tickets)
• Tax appeal procedures
• ZATCA’s role in supporting Zakat payers in fulfilling their obligations, and the mandate to follow and apply its guidelines and bulletins

• Article 9(2) – Interest on loans used to finance capital assets, which was incurred on the assets during the asset establishment period, is excluded from the interest limitation threshold.
• Article 9(8)(2) – The amendments have further clarified for capital companies the meaning of unfunded liabilities in relation to the deduction of employer contribution to an authorized retirement fund.
• Article 60 – The amendments substitute the appeal procedures described in Article 60 with the provisions of the operating rules of the Tax Disputes Resolution Committees issued vide Royal Decree No. 26040 dated 21/04/1441H and any subsequent amendments.
• Articles 61 and 62 – These articles related to the appeals process are deleted.
• Article 63(1) – The amendments resulted in a reduction in withholding tax rate from 15% to 5% on payment to head offices or related parties for technical or consultancy services or international telecommunication services.
• Article 63(4) – The amendments refine the definition of payments against airline tickets and air or sea freight from the withholding tax perspective. With respect to airline tickets, the amendments clarify that withholding tax of 5% is applicable on the purchase of international travel tickets departing from the Kingdom of Saudi Arabia.

• Article 30 – The added article clarifies that 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, except in the following situations:
  • Actual facts, activities, and transactions are different than those stated in the application for ruling.
  • Omission or misrepresentation of material facts.
  • Transactions that do not meet assumptions or requirements set out in guideline and rulings.

The amendments clarify how taxable income is to be determined, as well as reduce the withholding tax impact on payments made to the head offices or related parties for technical, consultancy, and international telecommunication services. The appeal procedures will be based on the provisions contained in the operating rules of the Tax Disputes Resolution Committees, thus removing any risk of inconsistencies in procedural matters.
 

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com