Navigating Double Tax Treaties: Unlocking Opportunities in Saudi Arabia

Introduction:

Double tax treaties play a crucial role in fostering international trade and investment by providing relief from double taxation and establishing a framework for cooperation between countries. In this article, we explore the landscape of double tax treaties in Saudi Arabia, their application, and the processes involved in resolving disputes through the Competent Authority and Mutual Agreement Procedure (MAP).

Double Tax Treaties in Force:

Saudi Arabia has signed double tax treaties with 53 countries, with most already in force and others in various stages of finalization or awaiting ratification. The government aims to expand its treaty network further to attract foreign investment and strengthen economic ties. Notable trading partners with whom Saudi Arabia has entered into tax treaties include Austria, China, France, India, Italy, Malaysia, Pakistan, South Africa, South Korea, Turkey, and the United Kingdom. While the provisions of these treaties have not been extensively tested in Saudi Arabia, they generally follow the OECD model and offer tax relief such as withholding tax reductions on service fees, dividends, royalties, and interest.

Reservations and Competent Authority:

Saudi Arabia has not recorded any reservations to the OECD Model or commentary in relation to Article 9 (associated enterprises) or Article 25 (mutual agreement procedure). The country has authorized the Minister to sign the Multilateral Instrument (MLI) to implement BEPS measures into bilateral tax treaties, indicating its commitment to international tax cooperation. The MLI entered into force in Saudi Arabia on 1 May 2020, and the country has deposited its instrument of ratification. Furthermore, Saudi Arabia has signed the Multilateral Competent Authority Agreement (MCAA) for the exchange of Country-by-Country (CbC) reports, reinforcing its dedication to transparency and information sharing.

Mutual Agreement Procedure (MAP) Guidance:

In June 2020, the General Authority of Zakat and Tax (GAZT) published MAP Guidance, outlining the process through which taxpayers can seek assistance from the Competent Authority to resolve disputes arising from taxation issues not in accordance with the provisions of the relevant double taxation agreement. This guidance provides a clear framework for taxpayers to navigate MAP and ensure the proper resolution of cross-border tax disputes.

Conclusion:

Double tax treaties offer significant advantages for businesses operating in Saudi Arabia, providing relief from double taxation and promoting cross-border investments. By understanding the treaties in force, the Competent Authority processes, and leveraging the MAP Guidance, businesses can navigate international taxation matters more effectively, reduce tax risks, and seize opportunities for growth. Stay informed and make the most of Saudi Arabia's expanding double tax treaty network.