Are you aware about new tax law in Saudi Arabia? Essentially, this law aims to widen the applicability of income tax on residents and non residents who enter into any business, investment, or any property related transactions. It also aims to bring the income tax regime in the line with international best practices by removing ambiguities.

Does the income tax apply to the non Saudi Residents?

Well, the income tax is also applied to non saudi persons. The first and foremost issue relates to defining the legal and natural resident and non resident persons. The proposed law distinguishes not only residents and non residents but it also defines in greater details the Legal Resident Persons and Natural Resident Persons.

How about Legal Resident Persons?

When it comes to the legal resident person not only the entities duly incorporated in Saudi Arabia will be treated as legal persons, but at the same time the entities whose effective place of management is located in the Kingdom of Saudi Arabia will also be treated as legal persons.

What about natural resident persons?

Any person who holds a residents permit and resides in the Kingdom for thirty days continuously or aggregate during a period of 365 days or any person who stays in the Kingdom 183 days continuously or aggregate during a tax year. Another important fact regarding this is, if a person stayed for a period of 90 days continues or in aggregate in a year staying for 270 days continuous or aggregate during the last three tax year will be considered as natural resident persons.

Who are the taxable persons?

After having understood the definition of legal person and natural person, let’s know exactly about who will be treated as taxable persons:

All the legal persons having interest with respect to any interest or units held directly or indirectly by any known Saudi person, or legal persons that conduct any activities related to natural gas investment or production of oil or hydrocarbons shall be considered as a taxable person. And at the same time, even though the entities conducting their business or engaging in any activity through permanent establishments are considered as  known resident persons. And they will be considered as taxable person.

What is the Taxable Income? Besides the definition of taxable persons and sources of income, it is also very much essential to understand what will be considered as taxable income in the Kingdom of Saudi Arabia. The taxable income is tied to total income derived by resident legal persons from activities carried out for outside the Kingdom regardless of the payment method. This will include income arising from the ownership, trading, and disposal of interest or units in legal persons from dividends and other distributions; income from the exploitation of natural resources.

Who all are exempted from tax?

It is very important to know that income derived from the disposal of securities that are traded in the Saudi Stock exchange or on a recognized foreign stock market if such stocks are also traded on a Saudi stock exchange will be exempt from tax. Besides, dividends, capital gains, and liquidation distributions resulting from direct ownership by a Resident Person of interest or units in resident or non resident legal person provided that the percentage of ownership or shareholding in the investee Legal Person is no less than 10%.

As we are reaching towards the conclusion of our important sharing of the information regarding the new tax law in Saudi Arabia, it is very important to note that the tax policies and laws are of utmost importance for any country. And without proper revenue, it will be very difficult for any government to run. And when it comes to the common man, it is very important to know about the income tax and other kinds of taxes as well. Because ignorance of this will lead to problem later on in life.

If you have any queries or clarifications regarding what we have been discussing above, you can feel free to approach us in FIMKIN.

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