JEDDAH, 28 December 2004 — Saudi Arabia’s new income tax law, which was approved recently, was in focus at a presentation organized by Dr. Abdullah Baeshen, country coordinating partner and managing partner of Ernst & Young, Jeddah, one of the world’s largest professional services firms, held at Jeddah Hilton recently.
The presentation emphasized on the provisions of the new tax regulations, and in particular withholding tax regulations applicable from July 30, 2004 to all Saudi businesses, whether they are taxpayers or not, under the new law.
The main objective of the presentation was to inform participants about the major changes in the Kingdom’s tax regulations, new compliance requirements, tax depreciation rules and withholding tax provisions under the new law.
Executives, prominent bankers and accountants who were among the participants were keen to know about the new income tax law, as they were provided with an overview of the changes from the previous tax law.
The presentation explained some of the major changes made from old income tax law and said that under the new law the income tax rate was now fixed at 20 percent replacing the old slab rates of 20 percent to 30 percent. “However, separate rates will be applicable on oil and gas companies”.
The presentation explained that the Saudi source of income earned by non-residents without having a permanent establishment was subject to withholding tax at flat rates from 5 percent to 20 percent replacing the old system of deemed profit tax.
The presentation explained through a slide show the main compliance requirements in the new law. “The first thing is registration with the Department of Zakah and Income Tax (DZIT) and penalties for failing to meet the deadline range from SR1,000 to SR10,000,” and that certain accounting books and records were required to be maintained in Arabic.
It added that under the new law all persons and government agencies were required to provide information to DZIT on any contracts signed with private sector entities exceeding SR100,000 in value, within three months of the date of contract. The presentation further explained classification about fixed assets and depreciation under the new tax law. According to the presentation, depreciable assets were classified into five groups — immovable building five percent, movable building 10 percent, plant, equipment, machines, vehicles and computers 25 percent, geological and exploration expenses 20 percent, and other assets including furniture, ships and planes10 percent.
The final session of the presentation shed light on withholding tax provisions under the new law.
Withholding tax is imposed on Saudi Arabian source payments made to non-residents and to persons not registered with the tax authorities. Tax must be withheld at rates ranging from 5 percent to 20 percent depending on the nature of the payment. Tax must be settled within 10 days following the month in which payment is made.
Ernst & Young consists of 106,000 employees in more than 670 cities in 140 countries. Ernst & Young Saudi Arabia is operating since 1967.
Saudi Arabian Offices of Ernst and Young in Jeddah, Riyadh and Alkhobar are engaged in providing professional services such as auditing and accounting, tax and Zakah consulting and compliance, business advisory and consulting, and business community training.
