Saudi Arabia has recently issued a new bylaw for the income tax, Arab News reported. The bylaw cuts the rate of taxation on foreign investors from 45 to 20 percent. The bylaw, which came into effect July 30, 2004, was imposed on foreign companies and individuals doing business in the Kingdom.
The Council of Ministers approved the new bylaw in January this year. The new bylaw replaced the existing 48-year-old income tax law. Companies established with capital from non-Saudi shareholders, non-Saudi residents doing business in the Kingdom and individuals who do not live in the Kingdom but do business here through a permanent firm are all liable to the new tax bylaw.
The bylaw applies to foreign shareholders in local companies, regardless of whether they reside in the Kingdom or not. Saudis who live abroad but conduct business and generate income in the Kingdom are also subject to the new bylaw. The rules of the new bylaw apply to the shares of non-Saudis, whether persons or corporations, and Saudis who are conducting business in the Kingdom.
The new bylaw stipulates a maximum 85 percent tax on oil and hydrocarbon production, a field almost totally off-limits to foreign investors. Companies producing natural gas are subject to a 30 percent tax on profits made in the first four years of operations, according to Al-Eqtisadiah business daily. This will increase to 67.95 percent and 85 percent in the fifth and sixth years respectively.
The bylaw applies to non-Saudis involved in commercial, professional or handicraft businesses or any similar activity, using money or property with the aim of making profit though it spares foreigners’ personal salaries. The activities to be taxed include commercial, industrial, agricultural, service, banking, insurance and investment, transportation, rental properties, agencies and brokerage.
The bylaw will apply to the revenue from operations of a company and its branches in the Kingdom and abroad and revenues from sales of products manufactured in the Kingdom. Contracts for import of products to the Kingdom will not be considered among commercial activities taking part in the Kingdom.
The tax will be calculated after deducting essential expenditures but companies should produce documents to prove them. Certain expenses such as salaries paid to owners or partners or fines paid to Saudi authorities will not be deductible. Individuals and companies who fail to register with the revenue department will be fined SR1,000 and SR10,000 respectively.