A guide to doing business in Saudi Arabia: taxes (page 3 of 3)

A related entity simply means a non-resident sister firm owned partially (51 per cent or above) or entirely by the head office (the mother company).

For example, if a Spanish firm (Company A) owns 51 per cent or more of a Saudi business (Company B), and also owns 51 per cent or more of a Jordanian company (Company C), Companies B and C are considered as related entities according to the Tax Law. Consequently, if Company C provided services to Company B, then the amount paid against these services is subject to withholding tax at 15 per cent because it is a service provided by a related entity. However, for the payment of technical and consulting services fees to a non-resident related entity, a recent court decision in Riyadh (Higher of the Committee) holds that a withholding tax of 5 per cent, rather than 15 per cent, is required.

For dividends, any distribution made by a resident business to a non-resident shareholder, and any profits transferred from a permanent entity to related parties, will be subject to a withholding tax rate of 5 per cent (also referred to as a branch remittance tax in certain instances).

Is there a personal income tax in Saudi Arabia?

There is no personal income tax on employee salaries and related benefits.

Is there a capital gains tax in Saudi Arabia?

Capital gains taxes are treated as ordinary income and considered part of the standard income tax calculation. However, in certain instances there are exemptions from capital gains taxes. Sales by non-residents in Saudi joint stock companies are exempt from taxes if such shares were acquired after the effective date of the Tax Law (30 July 2004).

There is also an exemption on the disposal of certain properties not used in business activities.

Are different business entities subject to different tax rates?

In general, from a tax liability standpoint, no distinction is made among the various forms of business organisations and taxes are calculated on the same basis, regardless of whether the entity is a limited liability firm, joint stock company, branch of a foreign business, or another form of company.

Are companies allowed to carry forward and carry back losses in the kingdom?

Losses may be carried forward indefinitely. However, the maximum loss that can be offset against a year's profit is 25 per cent of the profits for that year. Losses related to exempt activities may not be deducted or carried forwards. Companies are not allowed to carry back losses.

Are there real estate taxes in Saudi Arabia?

There is no real estate tax in Saudi Arabia, except in certain instances when real estate is held for speculative purposes.

Is there a Sales Tax or Value-Added Tax in Saudi Arabia?

No.

Does Saudi Arabia have tax-free zones?

While the Saudi government does provide various incentives to foreign investors, there are no tax free zones in the kingdom. Any exemptions from corporate income tax require a royal decree.

This article is part of MEED magazine's Doing Business in Saudi Arabia Guide, for more information please visit MEED.com