JEDDAH, 28 December 2005 — Saudi Arabia’s new income tax law, which was approved in April 2004, and the related bylaws issued on Aug. 15, 2004, were the focus of a seminar organized by Abdullah Baeshen, country coordinating and managing partner of Ernst & Young, Jeddah, one of the world’s largest professional services firms, held at Jeddah Hilton last week.
The presentations by Mohammed Saleem Desin, Richard Chatwin and Irfan Alladin of Ernst & Young emphasized the update on provisions of withholding tax under the new tax regulations and its related bylaws applicable to all Saudi businesses for fiscal years ending after July 30, 2004 whether they are taxpayers or not, under the new law.
The main objective of the seminar was to inform participants about the major changes in the Kingdom’s tax regulations, new compliance requirements, application of new tax law to payers of zakat, update on clarifications issued by the Department of Zakat and Income Tax (DZIT), tax depreciation rules and withholding tax provisions under the new law. More than 100 executives, prominent bankers and accountants who were among the participants were keen to know about the implication of new income tax law, as they were provided with an overview of the changes from the previous tax law.
The seminar discussed some of the major changes made from old income tax law and highlighted that under the new law the income tax rate is now fixed at 20 percent replacing the old slab rates of 20 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 is subject to withholding tax at flat rates from five percent to 20 percent replacing the old system of deemed profit tax. Payer must withhold the tax due and settle within 10 days following the month in which payment is made.
A slide show demonstration highlighted the main compliance requirements in the new law. The presentation also emphasized certain provisions of the new tax law applicable to zakat payers, namely the filing of the declaration within 120 days of the fiscal year end and also on change in method of computation of depreciation. The presentation also focused on the provisions of the new tax law relating to maintenance of certain accounting books and records required 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. It said that 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 planes (10 percent).
The final session of the seminar summarized the compliance requirements for the new tax law.
Ernst & Young consists of 106,000 employees in more than 670 cities in 140 countries. Ernst & Young Saudi Arabia has been operating in the Kingdom 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 zakat consulting and compliance, business advisory and consulting, and business community training.
