Tax accounting

College of Administration and Finance Sciences
Assignment (1)
Deadline: Friday 12/10/2024 @ 23:59
Course Name: TAX AND ZAKAT
Student’s Name:
ACCOUNTING
Course Code: ACCT 422
Student’s ID Number:
Semester: First Semester
CRN: 14245
Academic Year: 1446 H
For Instructor’s Use only
Instructor’s Name: Dr. Salah Oraby
Students’ Grade:
/15
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
•
The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
•
Assignments submitted through email will not be accepted.
•
Students are advised to make their work clear and well presented, marks may be reduced for
poor presentation. This includes filling your information on the cover page.
•
Students must mention question number clearly in their answer.
•
Late submission will NOT be accepted.
•
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
•
All answers must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism.
•
Restricted – ‫مقيد‬
Submissions without this cover page will NOT be accepted.
College of Administration and Finance Sciences
Assignment Question(s):
(Marks 15)
Q1. Tax accounting differs from financial accounting in calculating depreciation
expenses for depreciable assets, as the article no. 17 of the income tax law in Saudi
Arabia set rules regarding the calculation of the depreciation expenses for the
depreciable assets.
Required:
a. Summarize the article 17.
b. Give a numerical example to explain how depreciation expense is
calculated
Answer (5 Marks)
Restricted – ‫مقيد‬
College of Administration and Finance Sciences
2. Give a numerical example on the Tax Base, Article 6 of the law
Answer: (5 Marks)
Restricted – ‫مقيد‬
College of Administration and Finance Sciences
3. Give a numerical example on Losses Carried Forward, Article 21 of the Law,
and Article 11 of the Executive Regulations
Answer: (5 Marks)
Restricted – ‫مقيد‬
Income Tax Accounting In
Saudi Arabia: An Empirical
Approach
Dr. Salah Ahmed Oraby
Associate Professor
Accounting Department
College of Administrate and Financial Sciences.
Saudi Electronic University
Dr. Hamad Alhumoudi
Assistance Professor
Head of Accounting Department
College of Administrate and Financial Sciences.
Saudi Electronic University
2023
© Salah Ahmed Oraby and Hamad Alhumoudi , 2023
King Fahd National Library Cataloging-in-Publication
Data
Oraby, Salah Ahmed
Income Tax Accounting In Saudi Arabia: An Empirical
Approach. / Salah Ahmed Oraby – 1. – Riyadh, 2023
187p; 17 ‫ سم‬cm ٢٤ * ‫سم‬
ISBN: 978-603-04-5543-0
1- Income tax I-Title
336 dc 1444/8146
L.D. no. 1444/8146
ISBN: 978-603-04-5543-0
All Rights Reserved
First Edition
2023, 1444 H
To Contact
Dr. salahoraby_1@yahoo.com
Dr. h.alhumoudi@seu.edu.sa
Dedicate
We turn to god almighty with thanks and appreciation for his countless blessings,
which helped us complete this book on income tax accounting in the kingdom of
Saudi Arabia. This book fills an urgent need in both academic and practice fields,
especially in light of the national transformation plan that aims to t bring radical
transformation in the structure of the economy of Saudi Arabia through wise fiscal
and monetary policies to maximize the role of the foreign and local private sector to
lead and play an active role in economic growth in the kingdom.
Finally, we dedicate this book to our parents and our children, who are the dearest
we have.
Authors
a
Curriculum vitae
Name
Dr. Salah Ahmed Oraby
Nationality
Egyptian
Current Job
Associate Professor, Accounting Department,
College of Administrative And Financial
Sciences , Saudi Electronic University
Bachelor In Accounting –Benha University –
Bachelor
Egypt
Master
Master of Science In Cost Accounting Benha University -Egypt
Ph.D.
Ph.D. In Managerial Accounting- Cairo
University – Egypt
Contact Information
S.Oraby@Seu.Edu.Sa
0549090128
Curriculum Vitae:
Name
Dr. Hamad Youssef Alhumoudi
Nationality
Saudi
Current Job
Assistance Professor , Accounting
Department, College of Administrative And
Financial Sciences , Saudi Electronic
University
Bachelor In Accounting –University of
Bachelor
Derby- United Kingdom.
Master of Science Accounting –Leicester
Master
University – United Kingdom.
Ph.D.
Ph.D. In Accounting- Essex UniversityUnited Kingdom.
Contact Information
H.Alhumoudi@Seu.Edu.Sa
0503288858
b
Table of contents
Topic Title
Page Number
1-2
Introduction
Chapter 1: The Theoretical Framework For Income
3-16
Tax:
1.1 Definition of Tax
3
2. 1 Taxation Rules
5
3. 1 Tax Classification
6
4. 1 Theories For Determining Taxable Income
8
5.1 Methods For Measuring Income Tax
10
6. 1 Accounting Profit And Tax Profit
10
7. 1 Income Concepts
11
7.1.1 Concept of Income In Economics
12
7.1.2 Concept of Accounting Income
12
7.1.3 Concept of Tax Income
13
8.1 Exercises
15
Chapter 2: Income Tax Law In The Kingdom
17-60
Chapter 3: The Executive Regulations For Income
62-88
Tax Law In The Kingdom.
Chapter 4: Withholding Tax
90-101
1.4 Definition Of Withholding Tax
90
2.4.The Withholding Agent
91
3.4 Practical Examples
92
4.4 Exemptions From Withholding Tax
98
4.5 Examples:
98
c
Chapter 5: Practical Examples For Income Tax In
102-165
The Kingdom
1.5 Tax Base, Article 6 Of The Law
102
2.5 Gains Or Losses From Disposal of Assets, Article 9
103
E
3.5 Article 17: Depreciation
106
4.5 Losses Carried Forward, Article 21 of The Law,
112
Article 11 7.1.3 Concept of Tax Income The Executive
Regulations
5.5 Reserves And Allocations, Article 15 of The Law.
115
Article 9 Of The Executive Regulations
6.5 Inventory, Article 27 7.1.3 Concept of Tax Income
117
The Law
7.5 Tax Exempted, Article 10 of The Law And Article 7
120
7.1.3 Concept Of Tax Income The Executive Regulations
8.5 Evaluation, Article 29 of The Law
121
9.5 Long-Term Contracts, Article 26 of The Law And
122
Article 20 Of The Executive Regulations
10.5 Interest Expenses, Article 9 of The Executive
126
Regulations
11.5 Article 68 7.1.3 Concept of Tax Income The Law,
128
Article 1 of The Executive Regulations
12.5 Received Compensations, Article 13 of The
128
Executive Regulations
13.5 Financing Lease, Article 14 of The Executive
Regulations
d
130
14.5 Insurance Companies, Article 15 of The Executive
130
Regulation
15.5 Partnerships, Article 36, 37, 38,39,40,41, 42 of The
134
Law, Article 17 of The Executive Regulations
16.5 Discretionary Tax, Article 34 of The Law, Article
136
16 of The Executive Regulations,
17.5 Tax Year, Article 18 of The Law, Article 12 of
139
The Executive Regulations
18.5 Paying Income Tax In Accelerated Payments,
141
Article 70 of The Law And Article 64 of The
Executive Regulations
19.5 Fines, Article 57, 76, 77 0f The Law, Article 67, 68,
143
69 of The Executive Regulations
20.5 Contributions To Pension Funds, Article 20 of The
147
Law, Article 9 of The Executive Regulations
21.5 Nondeductible Expenses, Article 10 of The
144
Executive Regulations, Paragraph (8)
22.5 General Example
150
23.5 Allocation of Income To The Permanent
151
Establishment
24.5 Exercises
157
Chapter 6: IAS 12: Income Taxes
166-180
1:6. Standard Objective
167
2: 6 Difference Between Accounting Profit And Tax
167
Profit (Tax Base) And How To Calculate Income Tax
3:6 Defining The Terms Contained In IFRS12
e
170
4:6 Calculating Deferred Income Taxes And Making
175
Journal Entries.
5:6 Ending Notes
179
6:6 Exercises
180
References
181
f
Introduction
In view of the rapid developments in the business climate in the kingdom that aimed
at encouraging and attracting foreign investment as one of the axes o the kingdom’s
vision 2030 by diversifying sources of income by considering direct and indirect
tax revenues as one of the most important sources of income in the state’s general
budget like other countries.
in view of the limited scientific books written in Arabic in the field of accounting
for income taxes that heavily focused on the theoretical aspects of tax accounting.
As far as i know, there is no any book on income taxes accounting in English the
kingdom. The author tried to bridge this gap by writing this book in English and
focused on both the academic and applied aspects of the course to meet the needs of
university students specializing in accounting, as well as those who are professionals
of the accounting profession and foreign companies operating in the kingdom.
The
income tax accounting course is not an international course such as
management accounting, cost accounting, financial accounting, which are governed
by international standards and practices rather, tax accounting differs from one
country to another according to the fiscal policies, the economic structure of
countries and legislative policies.
The biggest challenge when developing this book is how to transform tax legislative
articles into a clear and understandable accounting framework, as the main source
for building a tax accounting course is tax legislation and its executive regulations
and related administrative decisions.
The authors have translated the entire income tax law to be a comprehensive and
updated reference for those interested, as well as translating most of the articles of
1
the executive regulations for the income tax law. In addition, the authors provided
practical applications and cases to deepen the understanding of the scientific
material; especially that tax accounting is originally a set of abstract legal articles
that need an applied accounting framework.
As part of the kingdom’s adoption of international financial reporting standards, this
book included an entire chapter on international accounting standard no. 12 on
income tax.
Finally, the authors hope that the reader and student will find the desired benefit
from this book especially income tax accounting is considered relatively difficult
because it requires an understanding of the law and strong knowledge of all levels
of financial accounting and cost accounting.
Authors
2
Chapter 1
The Theoretical Framework for Income Tax
This chapter aims to provide student’s practitioners for a strong theoretical base on
income tax accounting in terms of definitions and classifications of taxes, the rules,
tax theories, differences between accounting profit and tax profit and concepts of
income.
When students finish the study of this chapter they should be able to understand
1. Tax definitions.
2. Tax classifications.
3. Tax rules.
4. Theories for determining taxable income
5. Methods of measuring taxes.
6. Differences between tax profit and account profit.
7. Concepts of income.
In this chapter, we will address the conceptual framework of tax by addressing the
tax-related aspects as follows (1)
1.1 Definition of Tax
The tax is defined as a non-punitive, compulsory financial deduction determined
by the state. Natural and legal persons are obligated to pay the tax to the state
permanently and without direct consideration, in order for the state to be able to
carry out its economic, social and political functions.
From the previous definition, the tax characteristics can be defined as follows:
3
a. The tax is a financial deduction: this means that the tax is paid to the state mostly
in cash in various forms, as it is not permissible to pay the tax in the form of
personal or in-kind services. However, it is permissible in exceptional cases such
as wars or crises or for considerations of facilitation for taxpayers by the state to
accept the payment in kind of the tax, which is often not achieved the principle
of tax justice.
b. Compulsory, non-punitive tax: this means that the tax is imposed and paid by
force of the law; the taxpayer may not evade paying the state regardless of his
willingness or apprehension to pay. Since the tax is an obligation on the taxpayer
and the duty to pay the tax is the responsibility of the taxpayer, whether he is a
natural or legal person, it is obligatory for each taxpayer to submit a tax return
and pay the tax due on him for each specific financial period.
The tax is also non-punitive in the sense that it is not collected from the taxpayer
as a financial penalty for a specific violation committed by the taxpayer. Rather,
it is imposed and collected according to what is determined by the tax law of the
state. Nevertheless, the state imposes penalties on the tax evader or fraud.
c. The tax has no direct consideration or benefit: this means that the taxpayer pays
it without directly obtaining a specific benefit of his own, and this distinguishes
the tax from some other sources of public revenues in exchange for specific
services such as fees. There is no doubt that the taxpayer receives an indirect
compensation in the form of services provided by the state to society in general.
d. The tax is imposed to achieve financial, economic, social and political goals: this
means that the tax system in its early stages targeted only financial goals that
were limited to providing resources for the state to finance public expenditures.
Recently, the tax system has economic goals that can be achieved through tax
policies such as tax incentives to attract investments and increase the growth
rate or to help break the cycle of economic downturn .the tax also has social
4
objectives represented in the redistribution of national income in favor of the
poor classes or in encouraging some social activities. The tax is also a tool to
achieve political goals such as imposing customs taxes in order to regulate
relations between countries.
e. The tax is determined by the state and paid finally: the state is the only authority
authorized to issue a law that defines the provisions that must be adhered to
through the different stages of tax accounting, in addition to the rights and
obligations of taxpayers.
2. 1 Taxation Rules
Countries must observe a number of rules when imposing taxes so that the tax
achieves the goals of the state and is less burdensome on the taxpayer. The most
important of these rules are the following:
a. Justice rule: this means distributing the tax burdens to the various taxpayers
as fair as possible, because of that it is difficult to measure the effect of the
tax for each taxpayer separately. Therefore, tax justice is relative and differs
from one society to another and from one taxpayer to another, but the just tax
system is the one that the majority of taxpayers believe in its fairness.
b. Tax justice achieves the principle of generality, meaning that the tax is
imposed on all people’s and incomes without exception and in proportion to
the financial capacity of the taxpayer, regardless of the special benefit that the
state provides.
Justice has two aspects:
 Horizontal justice: this means that taxpayers with similar economic conditions
are treated identically, as the tax is imposed based on the net income.
5
 Vertical justice: this means that taxpayers with different economic conditions
are treated asymmetrically, where a progressive tax is imposed.
C. The certainty base: this means that the tax system is defined with a high degree
of clarity, accuracy, and without exaggeration or bias of everything related to the tax
from the tax base, the basis for calculating the base, the deductible expenses, the tax
rate, the date of payment and how to collect it and everything related to the tax
D. The rule of convenience: it means that the tax provisions are organized in a way
that suits the circumstances of the taxpayers so that the tax collection date is at a
time when the taxpayer is more able to pay and more accepting of the tax burden.
Example for convenience rule is:
The tax on a legal person is to be paid at the end of the fiscal year.
Tax on a natural person, the payment is related to the time of obtaining the income.
The rule of economy: this means that the expenses of tax collection are small
compared to its proceeds, as much as possible, and therefore, the achievement of this
rule depends on the comparison between the value of the collected tax and the costs
of tax collection.
3. 1 Tax Classification
Taxes can be classified in terms of many criteria as follows:
In terms of who bears the burden of tax: according to this criterion, taxes could be
classified into direct and indirect taxes as follows:
a. Direct taxes: taxes borne directly by the taxpayer and the taxpayer cannot
transfer the burden of the tax to another person because it is linked to the name
of the person who pays it and bears its burden permanently. One example is
the income tax, whether on natural or legal persons.
6
b. Indirect tax: taxes that taxpayer can transfer its burden to another person, i.e.
whoever pays it does not bear it. Examples are value-added tax and customs
duties.
c. In terms of the tax’s consideration of the taxpayer’s circumstances: according
to this criterion, taxes can be divided into personal taxes and on-personal taxes
d. Personal taxes: taxes that take into account the taxpayer’s personal
characteristics such as his marital status and family burdens when assessing
the tax (single – married – married with children. An example of personal tax
is the individual income tax.
e. Non-personal taxes: taxes that do not take into account the personal
characteristics of the taxpayer when assessing the tax, as the tax is linked
directly to the tax base or products without taking into account the personal
circumstances of the taxpayer or family burdens, such as the tax on excise
goods and value added tax.
f. In terms of tax rates: according to this criterion, taxes can be classified into
proportional taxes and progressive taxes.
 Fixed proportional tax: taxes imposed at a fixed rate on the value of the tax
base, whatever its value. For example, in the kingdom, the income tax rate is
20%.
 Progressive proportional taxes: taxes that are imposed at prices that vary
directly according to the value of the tax base, meaning that tax rates to the
base is not fixed.
g. In terms of the method of taxation: according to this criterion, taxes can be
classified into a unified tax and specific taxes
 Unified tax: the tax imposed on the taxpayer’s income from various sources
after deducting the costs necessary to obtain income, as the taxpayer’s net
income is collected in one tax base, such as net income from commercial and
7
industrial activity, net income resulting from free professions and other
sources of income.
 Specific taxes: taxes that are imposed on the net income generated by each of
the different income branches independently, i.e. the presence of multiple
taxes, for example, a tax on income resulting from commercial and industrial
activity and another tax on income resulting from free professions, as each tax
has its own provisions and perhaps a different tax rate also.
h. In terms of to whom the tax is imposed: according to this criterion, taxes can
be classified into taxes on persons and taxes on funds
i. Taxes on persons: taxes that are taken from natural persons only themselves
as a tax base by virtue of their presence in the territory of the state, regardless
of the money in their possession, as this tax does not take into account the
financial capacity of the taxpayer, and this tax has disappeared in the modern
era.
j. Taxes on funds: the tax that is imposed on the taxpayer’s funds without regard
to itself, as the focus is on the wealth and income that the taxpayer possesses,
as all taxes in the modern era are taxes on funds.
k. In terms of taxable funds: according to this criterion, taxes can be divided
into capital taxes and income taxes.
 Taxes on capital: taxes that are levied on capital itself and not on income, due
to the difficulty of estimating income.
 Income taxes: taxes levied on income from investment of capital and financial
resources.
4. 1 Theories for Determining Taxable Income
There are two theories for determining taxable income, as follows:
8
a. Source theory: income is defined according to this theory as every monetary
or appreciable product that the taxpayer obtains on a regular basis from a
source that is viable during a certain period.
 Monetary estimation: according to this theory, the tax must be taken from a
monetary source such as salaries, wages, rents and profits, or can be estimated
in money, whether in tangible or immaterial form, and then what is not
considered cash and what cannot be estimated in money is not considered
taxable income according to this theory.
 Periodicity: according to this theory, the tax should be taken from the income
that is renewed periodically and at regular successive times such as salaries.
 Stability of the source: the income that is renewed periodically requires the
continuation of its source for a long period in a way that allows the taxable
income to be renewed and the capacity to continue.
It is clear from the previous conditions of the source theory that it leads to a
narrowing of the taxable income, which led to the emergence of the theory of
enrichment
b. Enrichment Theory
according to this theory, income is the increase in the positive value of the
taxpayer’s economic capacity between two updated financial periods, regardless of
the source of this increase, regardless of whether this increase is of a cyclical,
renewable nature, or of a non-cyclical and non-renewable nature and whether this
increase resulted from selling a source of income or increasing its value.
The enrichment theory tends to expanding determining taxable income, as it extends
to include the following:
9
 Incidental revenues: these are revenues resulting from non-recurring
incidental operations that are not included in the main activity of the taxpayer,
such as the compensation obtained by the taxpayer from others.
 Capital gains: gains that result from the disposal of some of the taxpayer’s
property, which add new wealth that can be disposed of without prejudice to
the source, such as profits from the sale of fixed assets.
5.1 Methods for Measuring Income Tax
Tax income can be measured using the arithmetic method and the estimated method.
The following are the details of each method separately:
a. The calculation method: this method depends on the evidence, where the tax
base is determined from the reality of the taxpayer’s tax return, the records and
books of the taxpayer, and through the tax declaration of other taxpayers
related to the taxpayer.
b. Estimated method: this method depends on clues and evidence indicating the
value of the tax base, and therefore the assessment is indirect. The estimate
may depend on the external aspects that are easy to identify by the tax
department, such as the rental, value of the taxpayer’s housing, or the use of
arbitrary estimation, where the tax base is estimated arbitrarily based on some
clues and evidence that are closely related and closely related to similar
taxable activities.
6.1 Accounting Profit and Tax Profit
Accounting profit differs from tax profit, as the differences between them can be
explained as follows:
10
Accounting profit: it is the difference between revenues and expenses in accordance
with the generally accepted and approved accounting standards during a certain
period, and it represents the result in the income statement.
Tax profit: it is the accounting profit after adjusting it in accordance with the
provisions of the tax regulations and legislation.
From the above, it is clear that the accounting profit differs from the tax profit, as
the difference is attributed to the difference in accounting standards from the tax
regulations and legislation.
Tax profit can be calculated as follows:
Net book accounting profit
Add the following:
 Income and profits earned in tax and not earned in accounting.
 Expenses and losses that are deductible in accounting and non-deductible in
tax.
Subtract the following:
 Revenues and profits earned in accounting and not earned in tax.
 Expenses and losses that are non-deducted in accounting and deductible in
tax.
Net taxable income or adjusted accounting income
7. 1 Income Concepts (2)
There are three concept of income namely, concept of income in economics; concept
of accounting income and concept of tax income
11
7.1.1 Concept of Income in Economics
In economics, income is defined as the consumption made by an individual during a
period and the increase in his wealth at the end of the period. In economics, income
includes both the wealth that flows into the individual and the changes in the
individual’s wealth stock. According to the concept of income in economics,
unrealized profits, gifts, and inheritances are considered income. Moreover, the
income is adjusted for inflation. The individual is not considered to have achieved
income if the increase in the value of property is due to a decrease in the value of the
unit of measurement. In other words, inflation does not increase wealth and cannot
make the individual rich.
Example:
In 2021, Ibrahim earned a salary of SAR 100,000, out of which he consumed SAR
50,000 on living expenses of food, clothing, treatment, and other goods and services.
He saved SAR 50,000. At the end of 2021 Ibrahim’ wealth amounted to SAR
150,000 with an increase of SAR 30,000 over the value of the wealth at the beginning
of the year. No change in Ibrahim’s liabilities during the year. What is Ibrahim’s
economic income?
50,000+ (150,000-120,000) =SAR 80,000
7.1.2 Concept of Accounting Income
In accounting, income is measured using the transaction approach, where income is
measured when it is realized in a transaction, as the values measured through
transactions are relatively objective, as the accountant recognizes income, expenses,
gains and losses that have actually been achieved as a result of
transactions.
12
complete
Accountants believe that the concept of income in economics is subject to personal
estimation, which makes it difficult to use it as a basis for financial reporting, and
therefore the historical cost principle is used in measuring income instead of using
changes in market value.
The concept of realization in accounting is considered vital in the process of
measuring income. Realization is caused by two events; the first is a change in the
form or substance of the property of the taxpayer, the second is a transaction with
another party. That is, realization occurs when the taxpayer sells the property. On
the contrary, the mere increase in the value of the taxpayer’s property will not lead
to the realization of income because there is no change in the form of the property
and the absence of transactions with a second party.
Example:
In 2021, Ibrahim earned a salary of SAR 100,000, out of which he consumed SAR
50,000 on living expenses of food, clothing, treatment, and other goods and services.
He saved SAR 50,000. At the end of 2021 Ibrahim’ wealth amounted to SAR
150,000 with an increase of SAR 30,000 over the value of the wealth at the beginning
of the year. No change in Ibrahim’s liabilities during the year. What is Ibrahim’s
accounting income?
Accounting income is Ibrahim’s salary SAR 100,000.
7.1.3 Concept of Tax Income
Most income tax laws have adopted the concept of accounting income and not the
concept of income in economics. This is due to issues related to the following:
There must be an economic benefit for the taxpayer, as the economic benefit is not
limited to cash payments. For example, when employees receive company shares
13
instead of cash, this is considered an economic benefit. Taxpayers get economic
benefits even if the payments are directed to other people, so, employees cannot
avoid tax on their income by claiming that the payments were directed to creditors
or family members.
Income must be realized and realization process occurs when the profit process is
completed and a transaction occurs with another party that allows an objective
measure of income
Income must be recognized, as some items of income are not subject to tax due to
certain conditions in the income tax law. Certain corporate reorganization are not
taxable because of statutory non-recognition rules.
The concept of income in economics is so too subjective to rely on it in determining
taxable income. There is an urgent need for objectivity when measuring taxable
income. If taxpayers are asked to report the increase in property values as taxable
income, the majority will resort to reducing values to reduce the tax burden, as well
as dispute over assessment criteria and the resulting issues with taxpayers to a degree
that is difficult to administer.
On the other hands, there are differences between the income tax law and
international financial reporting standards. For example, the pre-paid income is not
income from an accounting perspective until it is earned, while some income tax
laws in the world consider this income taxable at the time of its collection based on
the fact that the taxpayer has cash to pay the tax and if tax payment is deferred until
income is earned, taxpayer might not have the cash to pay the tax.
14
8.1 exercises:
1. Horizontal justice means the treatment of taxpayers
a. People with similar economic conditions have identical tax treatment
b. Treating taxpayers with different economic conditions differently
c. Treatment of taxpayers with similar economic conditions asymmetrical tax
treatment
d. Treating taxpayers with different economic conditions the same tax treatment
2. What is meant by the rule of economy when imposing a tax?
a. That the expenses of tax collection be more than the tax revenue
b. That the tax collection expenses be equal to the tax proceeds
c. That the tax collection expenses be less than the tax revenue
d. There is no relationship between tax collection expenses and tax revenue
3. Which of the following is correct regarding the unified tax
a. The unified tax is not different from the specific tax.
b. The unified tax differs from the specific tax in that it allows personal
exemptions for taxpayers.
c. Different tax rates apply for each source of income
d. The same tax rate applies to income from different sources.
4. Source theory defines income as
a. Every monetary or appreciable product.
b. The taxpayer obtains it periodically
c. The taxpayer obtains it from a source that can stay during a certain period.
d. All of the above
5. A tax rate of 20% refers to
15
a. The tax system is unified.
b. The tax system is specific.
c. The tax system is personal.
d. The tax system is indirect.
6. Income tax as a direct tax is characterized by
a. It is directly borne by the taxpayer.
b. Taxpayer cannot transfer its burden to others.
c. It is ultimately borne by the taxpayer.
d. All of the above
16
Chapter 2
Income tax law in the kingdom
This chapter aims to introduce income tax law in kingdom of Saudi Arabia after
translating the law from Arabic version into English because as far as I know there
is no an updated English version for the income tax law because as the only English
version of the law translated by the world trade organization but unfortunately it is
a very old versionand that did not reflect all updated to the income tax law in the
kingdom. The income tax law is the cornerstone of tax accounting, which aims to
transform the articles of the law into an accounting framework to be used in
measuring the tax profit or tax base and calculating the tax. This book is considered
the first of its kind to present the income tax law in English as a reference for students
and practitioners.
When students finish this chapter, they should be able to
1. Understand taxable income and non-taxable income.
2. Understand deductible expenses and non-deductible expenses.
3. Describe penalties and fines applicable for violating the provisions of the law.
4. Persons are subject to income tax and tax rates.
5. Discuss withholding tax as special kind of income tax.
6. Identify special applicable rules for partnerships.
7. Describe discretionary taxes.
17
Definitions of key terms used in the law. (3)
Term
Definition
The kingdom
The kingdom of Saudi Arabia
The authority” or “Zakat
Zakat, tax and customs authority
The law
Income tax law issued by royal decree no. (m/1)
dated 15/1/1425h and the amendments thereto
The executive regulation
The income tax law executive regulation.
Person
Any natural or legal person
Taxpayer
A person subject to tax per the law
Income tax law issued by royal decree no. (m/1) dated 15/1/1425h and the
amendments thereto latest of which is number (m/70) dated /1439‫هـ‬11/7/1439 h.
In this section, the articles of the law are explained.
Article 1: Definitions
The following words and phrases, wherever they appear in this system, shall have
the meanings indicated afterwards, unless the context requires another meaning.
Minister: minister of finance
Authority: general authority of zakat, tax and customs
Tax: the income tax imposed under this system
Person: any natural or legal person
Taxpayer: the person who is subject to tax under this system
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Activity: the commercial activity in any form, or the professional or craftsman, or
any other similar activity intended to make a profit, and includes the use of movable
and immovable money.
Royalty payments received in exchange for the use of intellectual rights or the rights
to use them, which include, but are not limited to, copyrights, patents, designs,
industrial secrets, trademarks, trade names, knowledge, trade secrets, business,
goodwill, and payments received in exchange for information related to industrial,
commercial and scientific expertise, or in exchange for transferring the right to al or
exploitation of natural or mineral resources.
The kingdom: it is the lands and territorial waters of the kingdom of Saudi Arabia,
its airspace and all that belongs to it in the divided area between it and the state of
Kuwait, and this includes the marine and semi-marine areas over which the kingdom
exercises sovereignty and rights of sovereignty or jurisdiction in accordance with
international law.
Capital Company: joint stock companies, limited liability companies, or partnerships
with shares. Investment funds are considered as capital companies for the purposes
of this system.
Partnership: general partnership, joint venture Company, or limited partnership.
Resident: a natural person or company who meets the residency conditions specified
in article 3 of this system, or any government department, ministry, public authority,
or any legal person or body established in the kingdom.
Non-resident: every person who does not qualify as a resident
Saudi citizen: a person who holds Saudi citizenship or who is treated like a Saudi
citizen.
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Commercial books: the set of commercial books maintained by the taxpayer in
which the commercial transactions described in the royal decree no. M/61 dated
12/17/1409h and its executive regulations issued by ministerial resolution no. 699
dated 7/29/1410 that amended by the ministerial resolution no. 1110, dated
12/24/1410 h and any other subsequent amendments.
Natural gas investments: the activity of exploration and production of non-associated
natural gas, including gas condensate, as well as the activity of collecting, purifying,
treating and transporting associated and non-associated natural gas and their liquids,
gas condensate and other associated elements.
Natural gas transportation: the process of transferring associated and non-associated
natural gas in purification plants to processing plants and to retail plants, or a transfer
from these plants to consumer facilities, as well as transferring gas condensate and
liquids. This does not include local distribution networks and pipelines that
established by a non-gas producer after the official points of sale.
Regulations” the executive regulations for this system
Any word or phrase that does not have a specific definition in this chapter applies to
the specific definition of it contained in other laws in the kingdom, and in a manner
that does not conflict with the provisions of this system
Article 2: Taxable Persons
According to article 2 of the law, taxable persons are:
a. The resident capital company for the shares owned directly or indirectly by
non-Saudi persons, as well as for the shares owned directly or indirectly by
persons working in the production of oil and hydrocarbons.
b. A non-Saudi resident natural person who practices activity in the kingdom.
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c. A non-resident person who carries on activity in the kingdom through a
permanent establishment.
d. A non-resident person who has taxable income from sources in the kingdom
without having a permanent establishment there.
e. Person who works in the field of natural gas investment.
f. A person who works in the production of oil and hydrocarbons.
Article 3: Concept of Residency
According to article 3 of the law, concept of residency is defined as follows:
A. A natural person is considered resident in the kingdom in the tax year if he fulfills
any of the following two conditions.
1. To have a permanent residence in the kingdom, and to reside in the kingdom
for a period of not less than (30) total of thirty days in the taxable year.
2. To reside in the kingdom for a period of no less than 183 days in the taxable
year.
B. The company is considered resident in the kingdom during the taxable year if any
of the following two conditions are met:
1. To be established in accordance with the companies law
2. Its main administration is located in the kingdom
Article 4: Permanent Establishment
According to article 4 of the law, the concept of permanent establishment is defined
as follows:
A. The permanent establishment of a non-resident in the kingdom, unless otherwise
provided for in this article, shall consist of a permanent place of the activity of the
21
non-resident through which the activity is wholly or partly exercised, and the activity
carried out by the non-resident through an agent is included.
B. The following cases are considered a permanent establishment:
Construction sites, assembly facilities, and related supervisory works.
Installations and locations used in surveying natural resources, drilling equipment,
ships used in surveying natural resources, and the exercise of supervisory work
related to them.
A fixed base from which a non-resident natural person exercises his activity.
A branch of a non-resident company authorized to conduct business in the kingdom.
C. A place is not considered a permanent establishment for a non-resident in the
kingdom if it is used in the kingdom for the following purposes only:
1. Storage, display or supply of goods or products belonging to a non-resident.
2. Keeping a stock of merchandise or products belonging to a non-resident for
processing by another person.
3. Purchasing merchandise or products for collecting information only for a nonresident.
4. Performing other activities of a preparatory or auxiliary nature for the benefit
of a non-resident.
5. Preparing contracts for signature related to loans, supply of goods, or technical
service works.
e. A non-resident partner in a resident partnership is considered as owner of a
permanent establishment in the kingdom in the form of a share in a
partnership.
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Article 5: Source of Income
A. Income is considered realized in the kingdom in any of the following cases:
1. If it arises from an activity that took place in the kingdom.
2. If it arises from immovable property located in the kingdom, including profits
resulting from the disposal of a share in such immovable property, and from
the disposal of shares, shares, or a partnership in a company whose properties
consist principally, directly or indirectly, of shares in immovable property in
the kingdom.
3. If it arises from the disposal of shares or partnership in a resident company.
4. If it arises from leasing movable property used in the kingdom.
5. If it results from the sale or license to use industrial or intellectual property in
the kingdom.
6. Dividends or management and directors’ fees paid by a resident company.
7. Amounts for services paid by a resident company to its head office or to a
company associated with it.
8. Amounts paid by a resident for services that are fully or partially in the
kingdom.
9. Amounts for the exploitation of a natural resource in the kingdom.
10. If the income relates to a non-resident permanent establishment located in the
kingdom, including income from sales in the kingdom of goods of the same type
or similar to goods sold by a non-resident through the permanent establishment.
In addition, income arising from providing services or performing other activity
in the kingdom from the same nature of the activity performed by the nonresident through the permanent establishment, or an activity similar to it
b. The place of payment of income is not considered to determine its source.
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C. The amount paid by a permanent establishment in the kingdom to a non-resident
is the same as if a resident company paid it.
Article 6: Tax Base
a. The tax base of the resident capital company is the shares of non-Saudi
partners and the shares of partners working in the production of oil and
hydrocarbons from its taxable income from any activity from sources inside
the kingdom, minus the permissible expenses under this law.
b. The tax base of a non-Saudi resident natural person is his taxable income from
any activity from sources inside the kingdom, minus the permissible expenses
under this law.
c. The tax base for a non-resident who carries on activity in the kingdom through
a permanent establishment is his taxable income resulting from the activity of
that establishment or related to it, minus the expenses allowed under this law.
d. The tax base of a single natural person is calculated independently of others.
e. The company’s tax base is calculated independently of the tax base of its
shareholders, partners, or affiliates, regardless of whether the company’s
accounts are consolidated with someone else’s accounts for accounting
purposes.
f. The tax base for a person who works in the production of oil and hydrocarbons
is his taxable income, minus the expenses allowed under this law and this does
not include the tax base related to the investment field of natural gas for this
person.
g. The tax base of a person working in the field of natural gas investment is his
income subject to the taxable expenses in the field of natural gas investment
deducted by law, and this tax base is considered independent of the tax base
related to the rest of the other aspects of the person’s activity.
24
Article 7: Tax Rates
A. Tax rates are 20% for the following categories:
Resident stock companies.
1. A non-Saudi resident natural person who conducts the activity
2. A non-resident person who carries out activities in the kingdom through a
permanent establishment.
B. The tax rate on the tax base of the taxpayer who works in the field of gas
investment is 20%
C. The tax rate on the tax base of the taxpayer who works in the production of oil
and hydrocarbons is as follows:
1.50 % for the taxpayer whose capital investments over SAR 375 billion.
2.65 % for capital investments over SAR 300 billion until 375 billion.
3.75 % for the taxpayer whose capital investments over SAR 200 billion until 300
billion.
4.85 % for the taxpayer whose capital investments less than SAR 225 billion.
For the purposes of applying this paragraph, total capital investments means the total
accumulated value of fixed assets such as property, equipment, machinery,
equipment, etc., and of intangible assets, including the costs of exploration,
exploration and development of oil and hydrocarbons, before deducting depreciation
and amortization.
D. Withholding tax rates are the rates specified in article sixty-eight of this law,
which will be explained in details in a separate chapter.
25
Article 8: Taxable Income
1. The taxable income is the total income including all revenues, profits and gains
resulting from carrying out the activity of any kind and regardless of the form of
payment, including capital gains and any incidental income, from which the exempt
income is deducted.
2. Income generated from working in the field of natural gas investment is the total
income generated from the sale, exchange or transfer of natural gas and its liquids
and gas condensates. Also, sulfur and other products, and any other income obtained
by the taxpayer from accidental or non-operating income related to his main
activity., regardless of its type and source. Including the income derived from the
exploitation of surplus capacity in one of the facilities of the natural gas investment
activity.
Article 9: Gains or Losses from Disposal of Assets
A. The gain or loss on disposal of an asset is the difference between the
compensation received for the asset and its cost basis.
B. No profit or loss shall be calculated upon disposal of a depreciable asset other
than what is stated in article 17 of this system.
C. To determine taxable income, a natural person may not calculate the gain or loss
on disposal of an asset not intended for use in the activity.
D. The cost basis of the asset that the taxpayer purchases, produces, manufactures
or constructs by him is the amount paid by the taxpayer for the asset or incurred in
cash or in kind in the process of obtaining it.
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E. If the taxpayer disposes of part of the asset, the cost basis of the asset is distributed
over the part retained and the part disposed of using the market value at the time of
purchase of the asset.
F. Expenses incurred to make changes or improvements to a non-depreciated asset
are added to the cost basis of the asset.
G. Determine the compensation value for an asset when it is disposed of against inkind assets based on the market value of those in-kind assets, and this includes the
exemption from the debt on the asset.
H. If an asset is disposed of by gift or inheritance, the disposing of the asset shall be
treated as if the taxpayer who disposed of the asset had received a compensatory
value for that asset equivalent to its market value at the time of its disposal, unless
the next paragraph does not apply.
I. If the asset disposed of is encumbered with a debt that exceeds the value of the
asset in the market, the taxpayer who disposed of the asset shall be treated as if he
had received a compensatory value equal to the value of that debt.
J. When determining the tax base, no gain or loss is calculated on the involuntary
disposal of an asset to the extent that the compensation value is used in the purchase
of an asset of similar type within one year of the involuntary disposal.
K. When determining the cost basis of the replacement asset described in paragraph
(i) of this article based on the cost basis of the replaced asset.
L. If the taxpayer transfers an asset he owns for the personal use, or if he stops using
it permanently to generate income, the taxpayer is considered disposed of that asset
and he is asked to report only the resulting profit not the loss.
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M. To determine the tax base of a capital company or a company within a group of
capital companies wholly owned, directly or indirectly, for that capital company, no
profit or loss is calculated when an asset is transferred between the capital company
and any of the group companies, or between those companies. No profit or loss is
calculated for the companies to which the asset is transferred. In all cases, for noncalculation of profit or loss, it is stipulated that the asset should not be disposed of
to a company outside the group before the lapse of two years from the date of
transfer, and the cost basis is determined according to the following:
1. For a transferred asset, its cost is equal to the net book value of the transferor, if
the cost basis does not exceed the market value at the time of transfer.
2 .for shares issued against that asset, its cost basis is equal to the net book value of
the transferred asset.
For the purposes of applying this article, the word (asset) means cash, shares, and
securities and other tangible and intangible assets.
Article 10: Tax-Exempt Income
The following incomes are exempt from income tax:
A. Capital gains realized from the disposal of securities traded in the financial market
in the kingdom, as well as in a financial market outside the kingdom regardless of
whether this disposal was carried out through a financial market in the kingdom or
abroad, or through any other means, in accordance with the controls specified in the
regulations.
B. Gain from disposal of property other than business assets
C. Cash or in-kind dividends due from resident or non-resident capital company’s
investments when the following conditions are met:
28
1. The percentage of the resident capital company’s contribution to the capital of
the investee company shall not be less than 10%
2. The minimum period of ownership of the company’s shareholding percentage
mentioned in paragraph (c/1) of this article shall not be less than one year.
Article 11: Donations
To determine the tax base of each taxpayer, it is permissible to deduct the
donations paid during the tax year to public bodies or charities licensed in the
kingdom that are not for profit and may receive donations.
Article 12: Income Generating –Expenses
All ordinary and necessary expenses to generate taxable income, whether paid
or accrued, and incurred during the tax year are deductible expenses when
calculating the tax base, excluding any expenses of a capital nature, and other
expenses that are not deductible under article 13 of this system, and other
provisions in this chapter.
Article 13: Non- Deductible Expenses
The following expenses may not be deducted:
A. Expenses not related to generating taxable income.
B. Any amounts paid or benefits provided to the shareholder or partner or any
relative of them if they represent salaries, wages, rewards and the like, or do not
meet the terms of transactions between independent parties in exchange for property
or services.
C. Recreational expenses.
D. Any expenses for the natural person for his personal consumption.
29
E. Income tax paid in the kingdom or in another country.
F. Fines or financial penalties paid or payable to any party in the kingdom, with the
exception of amounts paid for breaching contractual terms and obligations.
J. Any bribery under the laws of the kingdom is a criminal offense or similar
amounts, which are considered a criminal act even if they are paid abroad.
Article 14: Bad Debt
A. The taxpayer may deduct bad debts resulting from the sale of previously declared
goods or services in the taxable income of the taxpayer.
B. The bad debt may be deducted when it is written off from the taxpayer’s books,
when appropriate proof of evidence is available as specified by the regulation.
Article 15: Reserves and Allocations
It is not permissible to deduct any reserves or provisions other than provisions
for doubtful debts in banks, and the regulations specify the rules and controls for
determining these provisions.
Article 16: Research and Development Expenses
Deduction of research and development expenses related to the achievement of
taxable income but expenses of purchasing land or equipment used for research
purposes may not be deducted as they are depreciated according to this system.
Article 17: Depreciation
A. With the exception of land, depreciation expenses may be deducted either on
taxpayer’s tangible or intangible depreciable assets whose value decreases due to
use, damage or obsolescence, and all or part of them are used to generate taxable
income and they have a residual value after the end of the tax year.
30
B. Depreciable assets are divided into groups and depreciation ratios as follows:
1. Fixed buildings 5%
2. Movable industrial and agricultural buildings 10%
3. Factories, machinery, hardware, software (computer software) and
equipment, including passenger cars 25%.
4. Expenses of geological survey, prospecting, exploration and preparatory work
for the extraction of natural resources and development of their fields 20%
5. All other tangible and intangible assets of a depreciated nature other than
included in the previous groups such as furniture, aircraft, ships, locomotives
and goodwill 10%
C. The depreciation expense for each group is calculated by applying the
depreciation rate specified for it in accordance with paragraph (b) of this article on
the rest of the value of that group at the end of the tax year.
D. The remainder of the value of each group at the end of the tax year is the total
value of the remainder of this group at the end of the previous tax year after
deducting the accumulated depreciation. Add 50% from the cost base of the assets
placed in service during current and previous tax year. Subtract 50% of
compensations for assets disposed of during the current and previous tax year if the
remainder does not become negative.
E. If the taxpayer transfers the asset owned by him to personal use, or the asset is no
longer used to generate taxable income, this work is considered a final disposal of
the taxpayer at its market value.
F. When 50% of the compensation for the assets disposed of during the current and
previous years exceeds the balance of the group value at the end of the tax year –
31
regardless of the compensation value – the group value is reduced to zero, and the
excess is added to the taxpayer’s income.
G. If the value of the remaining group at the end of the year, after deductions are
permitted is less than sar 1,000, it is permissible to deduct this amount.
H. If all assets in the group are disposed of, the remaining amount of the group may
be deducted at the end of the year.
I. In the case of buying or selling a land with constructions on it, the value is
distributed over the land and constructions in a reasonable manner, in order to arrive
at the separate value of the constructions.
J. In the event that part of the assets is used to generate taxable income, a
depreciation may be made for part of the cost of the asset against the part of the asset
used to generate taxable income.
K. As an exception, the assets of the build-operate-then-transfer contracts, and the
build-own-operate-then-transfer contracts, may be depreciated over the years of the
contract, or over the remaining period of the contract, if the assets are secured or
renewed during that period.
Article 18: Expenses for Repairs and Asset Improvements
A. Expenses incurred in each group may be deducted for repairs or improvements
made by the taxpayer to the depreciated assets located in that group.
B. The value of the permitted expenses for paragraph (a) of this article for each year
shall not exceed 4 % of the balance of the group value at the end of that year.
C. The amount in excess of the limit indicated in paragraph (b) of this article shall
be added to the balance of the group value.
32
Article 19: Expenses of Geological Survey and Preliminary Work for the
Extraction of Natural Resources.
A. Expenses of geological survey and preliminary work for the extraction of natural
resources are deducted in the form of depreciation expenses, and at the rate of
depreciated specified in paragraph (b) of article 17 of this system, where these
expenses constitute an independent group.
B. This article also applies to the expenses of intangible assets incurred by the
taxpayer in the purchase of rights to geological survey and the treatment and
exploitation of natural resources.
Article 20: Contributions to Pension Funds
A. With the exception of capital companies, the employer’s contributions may be
deducted in favor of the employee for a regular retirement fund established in
accordance with the laws of the kingdom, taking into account that the deduction
should not exceed 25% of his income for each employee before calculating the
employer’s contributions.
B. Capital companies – for tax purposes – may deduct their contributions to
retirement funds, or to provide end-of-service rights, to social insurance funds, and
to any fund to compensate for the medical expenses of employees, taking into
account the following:
1. The deduction shall not exceed the amount of the unfunded obligations of
these funds which are due from the beginning of the fiscal year as of the
date in which the deduction is made.
2. Funds have an independent legal personality, whether or not established in
the kingdom.
3. It is not permissible to deduct employees’ contributions to pension funds.
33
Article 21: Losses Carried Forward
A. The net operating losses may be carried forward to the tax year following the year
in which the loss occurred, and the carried forward loss shall be deducted from the
tax base for the following tax years until the entire accumulated loss is recovered,
and the regulation sets the maximum permissible limits.
B. Net operating loss is the deductions permitted under this chapter in excess of
taxable income in the tax year.
C. To calculate the net operating loss for a natural person, only the deductions and
revenues for the activity are considered.
D. It is not permissible to deduct the net operating losses related to the tax base of
the field of natural gas investment from the tax base of the field of oil and
hydrocarbon production. It is not permissible to deduct the net operating losses
related to the tax base of the field of oil and hydrocarbon production field may not
be deducted from the tax base of the field of natural gas investment for the taxpayer
working in the field of oil and hydrocarbon production.
Article 22: Tax Year
A. The tax year is the fiscal year of the state
B. The taxpayer may use a period of twelve months different from what is stated in
paragraph (a) of this. Article as a tax year for controls specified by the regulation‫ز‬
C. If the taxpayer changes his tax year, the period between the last full tax year
before the change and the start date of the new tax year is treated as a short and
independent financial period. The first year of the new taxpayer or the last year of
the taxpayer in the event of liquidation may be a short independent financial year
unless provides that it will be a long year according to the corporate system.
34
Article 23: Accounting Method
A. The accounting method used by the taxpayer must clearly show his income.
B. The total income and expenses of the resident company and of any taxpayer who
maintains or is legally obligated to keep commercial books in accordance with
generally accepted accounting principles shall be determined based on these books
after amending the accounts to fit the rules of this system.
C. For tax purposes, a natural person may record his transactions based on the cash
principle or the accrual principle, but if his total income from the activity in a tax
year exceeds the amount specified in the regulation, he must use the accrual principle
in all subsequent tax years.
D. A company that keeps commercial books or legally obligated to keep them must
record the income and expense systems on an accrual basis. Otherwise, it may use
the accrual or cash principle for tax purposes.
E. Except for the change from the cash principle to the accrual principle according
to paragraph (c d ) of that article, the taxpayer may change his accounting policy
after obtaining the approval of the authority.
F. If the taxpayer changes his accounting policy, he must make adjustments to items
of income, deductions, debt, or any other items in the tax year following the change
so that no item is omitted or appears more than once.
Article 24: cash basis of accounting
The taxpayer who uses the cash basis in his books records the income received when
it is received or when it is available to receive, and the expenses paid when they are
paid.
35
Article 25: Accrual Basis of Accounting
A. An accrual taxpayer records income and expenses when they become accrue.
B. The amount becomes receivable if the taxpayer has the right to receive it even if
the payment to the taxpayer is deferred or made in installments.
C. The amount becomes payable by the taxpayer when all the facts confirming the
liabilities occur.
Article 26: Long-Term Contracts
A. Income and expenses related to a long-term contract for a taxpayer using the
accrual principle are calculated based on the percentage of work completed during
the tax year.
B. The percentage of work done is determined by comparing the contract costs
incurred during the tax year with the estimated total contract cost.
C. A long-term contract means a contract for the manufacture, installation,
construction or performance of related services, the implementation of which was
not completed during the year in which it began, except for the contract that is
expected to be completed within six months from the actual start date of the work
mentioned in the contract.
Article 27: inventory
A. The taxpayer, who maintains inventory, must keep inventory records for it and
keep those records.
B. The cost of goods sold is deducted during the tax year.
36
C. The cost of goods sold during the tax year is determined by adding the cost of
goods purchased during the year to the goods at the beginning of the period
subtracting the value of end of period merchandise.
D. A taxpayer using the cash principle calculates the cost of inventory using the
prime (direct) or total costing method, while an accrual taxpayer calculates the cost
of inventory based on the total costing method only.
E. The value of the goods at the end of the period is the book cost or the market
value, whichever is lower at that date. The taxpayer must calculate the book cost of
the goods using the weighted average method, but he may use another method after
getting approval of the authority.
Article 28: Common Property
Income or expenses related to joint properties are distributed among the partners
according to the ownership shares therein.
Article 29: Evaluation
a. If the tax base or total income includes property, services, or other nonmonetary benefits, the market value of them is calculated on the date of
registration in the books for tax purposes.
b. The market value of the non-monetary asset whose ownership is transferred
to the user or to any person providing services is determined without regard
to any restrictions on transfer of ownership.
Article 30: currency exchange
a. Total income and tax base are calculated in Saudi Riyal.
b. If the income calculation includes an amount in a currency other than the
Saudi Riyal, it is calculated for tax purposes in the Saudi Riyal at the exchange
37
rate announced by the Saudi Arabian monetary agency on the date of the
transaction.
Article 31: Indirect Payments or Benefits
The total income of the taxpayer must include any payment that the taxpayer benefits
directly or indirectly, as well as any payment that is disposed of according to his
instructions if that payment is considered income for the taxpayer if paid to him
directly.
Article 32: Compensation Received
The amount of compensation received is considered compensated
Article 33: Refund of Deducted Expenses
A. If the taxpayer recovers an expense or loss or dad debt that was previously
allowed, the recovered amount shall be calculated from within the total income in
the year of recovery, and shall take the status of income related to the expense.
B. For the purpose of this article, when payment basis is no longer valid.
Article 34: Discretionary Tax
A. If the branches of foreign airlines, shipping companies, land and sea transport do
not submit their tax returns as per the provisions of this system, their tax base shall
be determined according to the following:
1. The tax base for branches of foreign airlines operating in the kingdom is
5% of the total income generated from the kingdom from tickets, freight
and mail and any other income, and those branches must submit a
declaration showing their total income in the kingdom on the dates
specified by law.
38
2. The tax base of the branches of foreign shipping, land and sea transport
companies operating in the kingdom is 5% of the total income generated
in the kingdom from freight or any other income. Those branches must
submit a declaration showing their income in the kingdom on the dates
specified by law.
c. The minister has the authority to allow other specified sectors to use the
estimation method to determine their tax bases according to rates specified by
the regulation.
Article 35: International Conventions
When the terms of an international treaty or agreement to which the kingdom is a
party conflict with the articles and provisions of this system, the terms of the treaty
or international agreement shall apply, except for the provisions of article 63 of this
system related to measures to combat tax evasion.
Tax Rules for Partnership
Article 36: General Provisions
A. The tax is imposed on the partners in partnership companies and not on the
company itself. However, the company must submit a tax return for the purpose of
information showing the amount of income, profit and loss, expenses, debts and any
other items or matters related to taxes on the partnership for the tax year, and the
declaration is subject to procedural rules, including penalties applied to tax returns
under this system.
B. It is the responsibility of the partnership, not the partners, to choose the tax year,
accounting method, inventory method, and other accounting policies in accordance
with this system, and the responsibility to provide the required notices and data about
the types of its activity.
39
C. The provisions contained in this bylaw relating to capital companies shall apply
to the shares of limited partners in limited partnership companies.
Article 37: Taxes on Partners
A. To determine a partner’s tax base, the income, deductions, losses, and debt arising
or owed by the partnership shall be kept as of geographic source, type of income,
gains, deductions, losses, and debt.
B. The partner’s share in a partnership of income, loss, expenses and debt is taken
into account for determining the tax base of the partner for his tax year in which the
company’s tax year ends. The partner’s loss in excess of his cost base is suspended
until the partner secures a cost basis that covers the loss, or until disposal is
completed of his share.
Article 38: Cost Basis for Partner Share
A. The cost basis for a partner’s share in the partnership is determined by the amount
the partner has paid in addition to the cost basis of the property he has provided to
the company.
B. The cost basis increases by the amount of the partner’s share of the partnership’s
income including its exempt income included in the partner’s total income.
C. The cost basis is reduced by the value of the distributions from the partnership to
the partner but not less than zero, and by the value of the partner’s share in the losses
and expenses of the company and the non-deductible expenses of the company,
excluding capital items.
D. The debt borne by the partnership – including the debt on its property – increases
his share in the company, and the debt incurred by the partners in the company as
their personality increases the cost basis of these partners only.
40
Article 39: Cost Basis in Partnership’s Assets
A. The initial cost basis of the property given to the partnership is equal to the cost
basis of the partner who provided it.
B. Whoever disposes of his share makes a profit if a partner leaves a partnership and
receives a distribution in the partnership. The cost basis of the profitable assets in
the partnership is adjusted by an increase in the value of the realized profit, provided
that the value of those assets does not exceed the market value. Adjustments are
distributed according to the percentage difference between the cost basis and the
value of the cost basis among the assets according to the market.
C. If a partner leaves a partnership and receives a distribution of his share in the
partnership, he incurs a loss by getting rid of his share in the partnership. Adjusting
the cost basis of the losing assets in the partnership by reducing the value of the loss
incurred, if the cost basis for those assets is not less than zero, for the proportion of
the difference between in the cost basis between assets according to cost basis and
market value.
D. The profitable asset is the asset that has less cost basis than the market value and
the losing asset is the asset whose cost basis is more than the market value.
Article 40: Transfer of Property to Partnership
A. No profit or loss is calculated on the transfer of an asset by a partner to a
partnership in exchange for his interest in ownership.
B. The partner is considered the owner of a share in the persons equal to the
difference between the values of the movable asset from him to the partnership at
the market value and the amount paid to him and if the amount paid more than the
market price, the excess amount is considered dividends.
41
Article 41: Transfer of Ownership of Assets from a Partnership to a Partner.
A. The transfer of ownership of a non-monetary asset from a partnership to a partner,
including in the case of a partner’s share being liquidated, shall be treated as a
disposal of the asset by the company with recognition of profit or loss on the date of
the transfer.
B. The partner has cost basis for the asset equal to the market value of the asset.
C. The share of the profit from the company is considered a distribution with a value
equal to the market price of the asset transferred to it without paying its value. The
partner’s share, which is less than the cost basis, and if the distribution is a disposal
of this partner, the difference between his cost basis and the distribution may be
deducted as a loss resulting from his disposal of his share.
Article 42: Change of Partners in a Partnership
A. Upon the entry or exit of a partner or partners in the partnership and as a result,
it has been reformed; all its assets are transferred to the new partnership in exchange
for shares in this company.
B. The re-formation of a partner occurs when the entry or exit of a partner or partners
and the change in the membership after its formation is more than 50 % compared
to the previous year.
Article 43: General Provisions
A. A tax is imposed on the shares of the general partners in a stock limited company
as in a partnership, and then the shares of the general partners are deducted to
determine the tax base of the stock limited company.
B. If there is a change in the ownership or control of the capital company amounting
to 50% or more of the share of non-Saudis in the company. It is not permissible to
42
deduct the share of non-Saudis in the losses incurred before the change in the tax
years that follows the change unless the company continues to engage in the same
activity.
Articles 44 to 55 of chapter 10 have been cancelled by the royal decree (m/70)
dated 11/7/1439 h.
Article 56: Tax Administration
a. The authority is the authority responsible for the administration, examination,
assessment and collection of income tax and the imposition of penalties
stipulated in this system.
b. The infliction of the penalty shall be by a decision of the governor or
whomever authorized by the board of directors of the authority to do so .
Article 57: Taxpayer Registration
a. Every person subject to tax under this system must register his activity with
the authority before the end of the first fiscal year.
b. The provisions of this article do not apply to taxpayers who are subject to final
withholding tax only under article 68 of the system.
c. A fine of not less than one thousand riyals and not more than ten thousand
riyals is imposed for non-registration. The regulations specify the controls and
the amount of the fine for the different categories of taxpayers
Article 58: Books and Records
A. The taxpayer, with the exception of a non-resident who does not have a permanent
establishment in the kingdom, may keep the necessary commercial books and
accounting records in Arabic for an accurate determination of the tax due on him.
43
B. The authority has the right to refuse to charge any expense if the taxpayer fails
without reasonable cause to provide the document related to the expense or the
evidence supporting the validity of the claim.
Article 59: Confidentiality of the Information
a. The authority and all persons working for it shall maintain the confidentiality
of information related to taxpayers that they have access to by virtue of their
positions, and as an exception to this, they may disclose information to the
following entities:
1. Authority employees for the purpose of carrying out their duties in accordance
with the system.
2. Customs authority employees for the purpose of applying the customs system.
3. The general auditing bureau for the purposes of auditing and review by virtue
of its terms of reference.
4. Tax authorities of foreign countries in accordance with the treaties to which
the kingdom is a party.
5. The agencies responsible for implementing the system for the purpose of
criminal prosecution of tax violations.
6. Any judicial body in the kingdom based on an order from it to determine the
tax due on the taxpayer in a case it is considering or for an administrative or
criminal order, it is considering.
B. The person who receives information pursuant to paragraph (a) of this article
is obligated to maintain its confidentiality and not to use it except for the purpose
for which it was requested.
C. Information relating to a taxpayer may be disclosed to another person upon
the written consent of the taxpayer.
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Article 60: Tax Returns
a. Each taxpayer who is required to file a declaration must submit it in
accordance with the approved form, write down its number and pay the tax
due accordingly to the authority.
b. The tax return must be submitted within 120 days of the end of the tax year
represented by the return.
c. The taxpayers specified below must submit a tax return:
1. Resident Capital Company.
2. A non-resident of a permanent establishment in the kingdom.
3. A non-Saudi resident natural person who practices an activity.
D. The taxpayer who stops the activity must notify the authority and submit a tax
return for the short tax period that ends on the date of cessation of activity within
60 days from the date of cessation.
E. The taxpayer whose taxable income exceeds one million Saudi Riyal must
certify a certified accountant licensed to practice the profession in the kingdom
of the validity of the return.
F. A partnership must file an information return in accordance with article 36 of
this law within 60 days of the end of its tax year.
Article 61: The Authority’s Right to Information
a. All persons and government entities shall provide the authority with any
information related to tax and requested by the authority, whether for the
purposes of the tax contained in the law or for the purposes of the provisions
of international agreements. The regulation shall specify penalties in case of
non-compliance.
45
b. The authority has the right to examine the books and records of the taxpayer
in the field during working hours to verify the correctness of the tax due on
him.
c. All persons in government agencies must provide the authority with
information about the contracts they conclude with the private sector within 3
months from the date of concluding the contract, its value, financial
conditions, the date of its implementation and its termination. A person who
does not provide the authority with what is required in accordance with this
paragraph or does not notify the authority of the date of stopping the work
mentioned in the contract is jointly responsible for any tax claim due on the
contract. The regulations specify the controls and procedures required to
implement this obligation.
Article 62: Checking and Linking Procedures
The authority has the right to correct and amend the tax shown in the declaration to
make it compatible with the provisions of this system, and it has the right to make a
tax assessment if a taxpayer has not submitted the return.
the authority shall notify the taxpayer under paragraph (a) of this article of the tax
due on him by an official registered letter or by any other means proving that he has
received the notification.
Taking into account the provisions of article 65 of this system, if it becomes clear to
the authority that the tax it has accepted is incorrect; the authority may make an
additional assessment on the taxpayer. The authority informs the taxpayer of the
additional assessment and its justification, and the taxpayer may object to it in
accordance with the rules of objection.
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Article 63: Measures to Combat Tax Avoidance
a. For determining tax, the authority has the right to:
1. Not to take any transaction that has no tax effect.
2. Re-adjust transactions that do not reflect their form or essence and put them
in their true form.
B. The authority has the right to assess the tax assessment on the taxpayer
according to the facts and circumstances related to the taxpayer if he does not
submit a return on the regular time, does not keep accurate accounts, books and
records, or does not adhere to the form, and method required in his books and
records.
C. The authority may redistribute the revenue and expenses in the transactions
that take place between related parties or parties of the same entity to reflect the
revenue that would have been achieved if the parties were independent and
unrelated.
D. The taxpayer is not entitled to deduct a loss resulting from the transfer of
property between him and a related party. Unless otherwise stated in this system,
the loss deduction shall be suspended until the related party disposes of the
property to another unrelated party.
F. If the individual taxpayer splits his income and shares it with another person,
the authority may adjust the tax base of the taxpayer and the other person to
prevent any reduction in the tax due.
G. The breakdown of income for the purpose of this article means the following:
1. Transfer of income directly or indirectly from one person to another related to
it.
47
2. Transfer of property, including money, directly or indirectly, from one person
to another person related to him, which results in the other person achieving
income from these properties if the reason or one of the reasons for the transfer
is to reduce the total tax due on the income of the transfer person or the person
transferred to.
h. The authority may take the value provided by the person transferred to it to
decide if the taxpayer is seeking to divide the income.
Article 64: related persons and persons under one control
A. A natural person is considered related to another natural person if he is a husband
or in-law of the natural person or a relative related to him up to the fourth degree.
B. A natural person is related to any type of company if he is
1. In a partnership, a partner and controls, either alone or with a related
person or persons, 50% (or more than 50%) of its income rights,
according to this article, according to its capital, directly or indirectly,
through a company or subsidiary companies of any kind.
2. A capital company, whether alone or with a person or persons related to
it, is a partner in accordance with article 50 (or more) of the voting rights
or its value and controls fifty percent (directly or indirectly through a
company or subsidiaries of any kind.
3. As for the bodies that manage endowed funds for specific purposes, a
natural person is in it if he benefits or can benefit from them alone or with
a related person.
a. Companies or bodies are considered to be subject to one control, if they are
controlled by 50 % or more by the same person or related persons, as follows:
48
b. In relation to partnerships, control means ownership of the rights to its income or
capital directly or indirectly by a corporation or subsidiaries of any kind.
c. In relation to equity firms, control means ownership of their voting rights or
ownership of their value directly or indirectly by a corporation or subsidiaries of
any kind.
d. For entities that manage endowed funds for specific purposes, control means
ownership of a beneficial interest in their income or assets.
Article 65: the regular period of tax assessment
a. The authority has the right, with a justified notice, to make or amend the tax
assessment within five years from the end of the deadline for submitting the
tax return for the tax year, and it is entitled to do so at any time if the taxpayer
agrees to that in writing.
b. The authority has the right to make or amend the assessment within ten years
from the end of the deadline specified for submitting the tax return for the tax
year if the taxpayer did not submit the tax return or if it was found that the
return was incomplete or incorrect with the intention of tax evasion.
c. The taxpayer may request the refund of any overpaid amounts at any time
within five years of the tax year for which the excess was overpaid.
Article 66: objection and appeal
a. A person against whom a penalty decision has been issued may file a
grievance with the committee for the adjudication of tax violations and
disputes within thirty days from the date of becoming aware of it.
b. If the subject of the grievance is related to a special assessment decision, the
grievance does not affect the taxpayer’s obligation to pay the amount of the
tax due under the provisions of the system that is not objected to.
49
Article 67: Formation and Functions of the Primary And Appellate Objection
Committees
1. A committee shall be formed under the name of the committee for
adjudication of tax violations and disputes, to be concerned with the
following:
a. Settling violations and disputes, public and private rights claims arising from
the application of the provisions of tax systems and their regulations, and the
decisions and instructions issued by them.
b. Settling the objections of stakeholders to the decisions issued by the authority
in application of the provisions of the tax regulations and their regulations and
the decisions and instructions issued according to them. The committee has
all the necessary powers to investigate and decide cases within its jurisdiction,
including the authority to summon witnesses, order the presentation of
evidence and documents, issue decisions and impose penalties.
2. The committee consists of a number of departments, if the jurisdiction of each
department is limited to one of the tax regimes.
3. Each department consists of three original members and a fourth member in
reserve, with experience and legal or accounting qualifications, provided that
the head of the department and at least one of its members are legally
qualified, taking into account that none of the members is an employee of the
authorities related to the supervision of tax business, and the head of each
department is appointed and its members by royal order for a period of four
years, subject to renewal, and upon the expiry of this period without reformation or renewal of the members continue to perform their work until the
issuance of a royal order to do so.
50
4. The decisions of the adjudication committee are issued by the majority, and
the decision may be objected to before the committee referred to in the fifth
paragraph of article within thirty days from the date of becoming aware of it,
and it shall not be counted as final.
5. A committee shall be formed for the name of the appeal committee for tax
violations and disputes to be competent to decide on the objections submitted
against the decisions of the committee for tax violations and disputes.
6. The appeal committee consists of a number of specialized departments, and
each department consists of three original members and a fourth reserve
member with experience and high qualifications in the statutory or accounting
field, provided that the head of the department and at least one of its members
are legally qualified, taking into account that none of the members is affiliated
with any of the members of the authorities related to the supervision of tax
business, and the head of each department and its members are appointed by
royal order for a period of four years, subject to renewal. Upon the expiry of
the period without re-formation or renewal of the members, they shall
continue to perform their duties until the issuance of a royal order to that
effect.
7. The decisions of the appeal committee are issued by the majority and are final
and not subject to appeal before any other judicial body.
8. Cases in tax disputes shall not be heard after five years have passed from the
date on which the amount in question is due or from the date of knowledge of
the incident in question, unless there is an excuse acceptable to the committee.
9. The appeal committee, within 60 days from the date of naming its members,
sets rules of work of the two committees referred to in paragraphs (1, 5) of
this article to be submitted by the chairperson of the board of directors of the
authority and issued by a royal order.
51
10. The board of directors of the authority determines the remuneration of the
members of the two committees, consultants, employees and secretaries.
11. The authority shall provide the necessary human and financial resources
for the two committees to carry out their work in accordance with what is
determined by the rules referred to in paragraph (9) of this article.
Article 68: Tax Withholding
A. Every resident, whether he is taxpayer or not under this system, and a permanent
establishment in the kingdom for a non-resident who pays an amount to a nonresident from a source in the kingdom, must deduct tax from the amount paid
according to the following rates:
1. Rent 5%
2. Royalty %15
3. Management fee%20
4. Payments for airline tickets or air or sea freight 5%
5. Payment for international telephone services 5%
6. Any other payments specified by the regulation provided that the tax rate does
not exceed 15%.
In the case of amounts paid by a natural person, the deduction conditions stipulated
in this article shall apply to the payments related to the activity of this person.
B. A person who withholds tax under this system must comply with the following:
1. Register with the authority and pay the deducted amount to the authority
during the first ten days of the month following the month in which the
payment was made to the beneficiary.
2. Provide the beneficiary with a certificate showing the amount paid to him and
the value of the tax due.
52
3. Provide the authority at the end of the tax year with the name, address and
registration number of the beneficiary (the distinctive number), if available,
and any other information that the authority may require.
4. Maintaining the records required to prove the validity of the withholding tax,
as specified by the regulation.
C. The person responsible under this article for withholding tax is personally
obligated to pay the unpaid tax and the delay penalties incurred according to
paragraph (a ) of article 77 of this system if any of the following applies to him:
1. If the tax is not deducted as required.
2. If he withholds the tax but does not pay it to the authority as required.
3. If he does not submit the deduction data to the authority as required by the
third sub-paragraph of paragraph( b )of this article.
D. In addition to what was mentioned in paragraph (b )of this article, if the tax is not
deducted in accordance with the provisions of this article, the beneficiary remains
indebted to the authority for the value of the tax, and it is entitled to collect it from
him or from an agent or sponsor.
E. Without prejudice to paragraphs (d f, g ) of this article, payment of an amount to
a non-resident and the tax deducted on his behalf in accordance with the provisions
of this article, that tax shall be final, without taking into account the imposition of
another tax on the income from which the tax was withheld, and not returning any
amounts paid as tax in accordance with this article.
F. If the amount referred to in this article was paid to a non-resident who practices
work in the kingdom through a permanent establishment, and this amount paid to
him is directly related to the work practiced by the permanent establishment, this
amount is calculated in determining the tax base for the non-resident.
53
G. If the tax is deducted from an amount paid to a taxpayer that is included in his tax
base, the withholding tax shall be deducted from the tax due on the taxpayer for the
tax base.
H. For the purposes of this article and article five of this system, the word services
means any work in exchange for consideration, except for the purchase and sale of
goods or any other property.
Article 69: Tax Payment
The taxpayer must pay the tax due within one hundred and twenty days from the end
of his tax year by virtue of a declaration.
Article 70: Pay Tax on Accelerated Payments
a. Without prejudice to paragraph (b) of this article, the taxpayer who achieves
revenue in the tax year must pay three accelerated payments on or before the last
day of the sixth month, the ninth month and the twelfth month of the tax year;
the amount of the payment is the output of the following equation:
25% * a-b
Whereas, a = the taxpayer’s tax for the previous year, according to the return.
B = the amount of tax paid by withholding in the previous year in accordance with
article 68 of this system.
b. The taxpayer is not obligated to make precipitated payments under paragraph (a)
of this article if the outcome of the above equation does not reach an amount of
500 thousand Saudi Riyal.
c. The authority has the power to reduce any of the payments due under this article
if it is satisfied that the taxpayer’s income for the tax year, with the exception of
54
income for which the tax is withheld from the source under article 68 of this
system, will be significantly less than during the previous year.
d. The payment made under this article is considered a payment on account of the
taxpayer’s total tax for the tax year for which the payment is paid.
e. The provisions of this system related to collection and its mandatory procedures
apply to accelerated tax payments as they apply to the tax itself.
Article 71: Tax Installments
a. The minister has the authority to pay in installments the amounts due from the
taxpayer whenever there are sufficient reasons and justifications within the
framework of the controls and conditions specified by the regulation. The
minister, or whomever he delegates, also has the right to cancel the installment
when it becomes clear to him that the rights of the public treasury are liable
to be lost.
b. The installment of the tax according to this article does not exempt the
taxpayer from paying the delay fine by the taxpayer according to article 77
of this system for the installment period.
Article72: Refund of the Taxpayer for Excess Amounts
A taxpayer who has paid an amount in excess is entitled to recover the amount of
the excess and a compensation of one percent of it for every 30 days starting after
30 days have passed since his claim and continues until he receives the amount.
Article73: Seizure of the Property of the Taxpayer:
a. If the taxpayer does not pay the tax due by him according to the dates specified
by law, the authority may seize the movable and immovable property that is
legally permissible to seize, and the authority in charge of the seizure
55
procedures shall have the effect of 20 days after the taxpayer received a
notification from it of the intention to seize.
b. Any person, including banks and financial institutions, who are in possession
of the seized asset shall deliver the assets to the authority when the authority
so requests.
c. The bank or financial institution shall refrain from allowing any withdrawals
or other payments from the taxpayer’s account in the bank after the bank
receives notification of the intention to seize his account.
d. A person who does not abide by the provisions of paragraphs (b, c ) of this
article is obliged to pay the authority an amount equal to the value of the
property in his possession, not exceeding the amount for which the seizure
was made.
e. The tools used by the taxpayer in his trade, his belongings and his personal
furniture are excluded from the seizure with a maximum limit not exceeding
300,000 riyals.
Article74: Sale of Seized Properties
a. The authority, through the competent authority, sells the seized property in
accordance with the provisions of the seizure.
b. From the sale value, the costs of seizure and sale shall be paid first, then taxes
and fines, and any remaining amount shall be returned to the taxpayer.
c. The sale of the taxpayer’s property is suspended during the period of
administrative or judicial review of the assessment made on the basis of
seizure, except for:
1.property subject to damage.
2. The property that the taxpayer requests from the authority to sell.
56
Article75: Seizure the Money Owed To the Taxpayers
a. The authority may, after signing the seizure, issue notices to third parties,
including the business owner, banks or financial institutions, instructing them
to pay directly to the authority any amounts that the third party owes to the
taxpayer on or after the date of receiving the seizure notice.
b. A notice may be issued to the employer who works for the taxpayer, and the
validity of the notice may be determined for a specific period.
c. The seizure does not take place on the value of the monthly alimony that the
taxpayer is obliged to pay, nor his living expenses that are stipulated by the
provisions of other applicable regulations.
d. The liability of the person who adheres to the provisions of this article and
article 73, 74 of this system shall be free from any obligation before the
taxpayer or any other person related to the value of the property subject of the
seizure from the time of his commitment.
Article76: Fine for Failure to Submit the Tax Return
a. Imposing a fine on the taxpayer who does not comply with the provisions of
paragraphs (a, b, d, f ) of article 60 of this system, the amount of which is 1%
of his total revenue, provided it does not exceed 20,000 riyals.
b. In the event that the declaration was not submitted on time, the following fine
shall be imposed in place of the fine mentioned in paragraph (a )of this article,
if the fine under this paragraph is not less than the amount specified in
accordance with this paragraph.
1. 5% of the unpaid tax if no delay may be made 30 days from the statutory date.
2. 10% of the unpaid tax, if the delay exceeds 30 days and does not exceed 90
days from the legal deadline.
57
3. 20% of the unpaid tax, if the delay exceeds 90 days and does not exceed 365
days from the regular date.
4. 25% of the unpaid tax, if the delay exceeds 365 days from the regular date.
c. Unpaid tax means the difference between the amount of tax payable under this
system and the amount paid on the statutory date specified in paragraph (b) of
article 60 of this system.
Article77: Late and Fraud Fines
In addition to the fines stipulated in article 76 of this system and in paragraph (b) of
this article, the taxpayer must pay a delay fine at the rate of 1% of the unpaid tax for
every 30 days of delay. .
in addition to the fines stipulated in article 76 of this system and in paragraph (a )
of this article, a financial fine of 25% of the tax difference is imposed on the
taxpayer, resulting from the taxpayer’s or his certified accountant submission of
false information or fraud with the intention of tax evasion, especially in the
following cases:
1. Submitting false books, records, accounts or documents that do not reflect the
correct status of the taxpayer.
2. Submitting the return on the basis that there are no books or records, with
including information that contradicts what appears in its books and records.
3. Submitting forged or fictitious invoices or documents, or changing purchase
or sale invoices or other documents with the intent of reducing profits or
increasing losses.
4. Failure to disclose one or more types of activity that are subject to tax.
5. Destruction or concealment of books, records or documents prior to the
commission’s examination.
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Article78: Responsibility of Chartered Accountants
In a manner that does not conflict with the system of certified public accountants,
the authority has the right to prosecute any certified accountant in court who proves
he provided or testified to the validity of incorrect data and in a manner that
constitutes a violation of generally accepted accounting principles with the intention
of assisting the taxpayer to evade all or part of the tax.
Article79: Minister’s Powers
a. The minister has the following powers:
b. Issuance of executive regulations.
c. Issuing instructions and taking the measures it deems necessary to put this
system into practice.
d. Amending groups and consumption rates mentioned in article 17 of this
system.
e. Forfeiting the tax debt and fines when there are reasons for the impossibility
of collecting them, and the regulation determines the cases in which collection
is impossible.
f. Granting rewards based on the recommendations of the authority’s governor
for distinguished employees in the performance of their work. The regulations
specify the conditions and controls for granting this reward.
Article 80: Effective Date
a. This system shall be published in the official gazette and shall come into force
90 days after the date of its publication.
b. The system applies to the tax years that start after the effective date. As for
the tax years that start on or before the effective date, the tax regulations in
force before the issuance of this system are applied to them.
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c. This system cancels the income tax system issued by royal decree no. 3321
dated 1/1/1370 h and its amendments, the additional income tax system for
companies engaged in the production of oil and hydrocarbons issued by royal
decree no. 7634 dated 3/16/1370 h and its amendments, and the natural gas
investment tax system issued by decree royal no. M/37 dated 25/6/1424 h.
d. The provisions of withholding tax mentioned in article 68 of this system shall
be effective from the date of its entry into force.
Article 81: Transitional Provisions
a. In the case of purchasing an asset in a tax year prior to the entry into force of
this system, the value added to the appropriate group is the cost of the asset,
minus any depreciation premium received by the taxpayer in the past.
b. Operational losses incurred prior to the enforcement of cabinet resolution no.
3 dated 5/1/1421 ah may not be carried forward.
c. Losses incurred by the taxpayer may not be carried forward during the tax
exemption period.
Exercises
1. Critically evaluate the extent to which the income tax law in the kingdom of
Saudi Arabia is in line with the national transformation plan within the
framework of vision 2030.
2. Explain the tax treatment of interest expense on borrowed funds and is it in
line with international accounting standards‫؟‬
3. Explain the circumstances in which withholding tax is imposed and what are
the legal articles related to withholding tax.
4. Explain the tax treatment for depreciation of assets and is this treatment in the
interest of the taxpayers?
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5. In the interest of publ…