Public consultation on Income Tax Law amendments: Some key highlights

Proposed Amendments to Zakat Implementing Regulations

• Article 17: The statutory deadline to file the annual Zakat return is now extended to 180 days, up from the previous 120 days, from the end of the Zakat year.
• Article 21(1): The statute of limitation has been reduced from five years to three years from the statutory deadline’s expiration date for the submission of the Zakat return.
• Article 23: The period for issuing a reassessment in cases where a Zakat payer submitted incorrect information is now reduced to three years from the date of ZATCA becoming aware of the matter, down from the previous five-year period.
• Article 30: ZATCA plans to issue guidelines or bulletins to spread awareness among Zakat payers and strengthen their commitment to their Zakat obligations. In addition, ZATCA retains the right of issuance of public and solicited rulings in accordance with the specified procedures. The interpretations issued in the guidelines, bulletins, or rulings will be binding prospectively from the date of issuance.

Proposed Amendments to Income Tax Law

• Article 5(a)(10): Income earned by a non-resident, having a Permanent Establishment (PE) in Saudi Arabia, from the activities performed in Saudi Arabia of the same or similar nature to the activities performed by its PE shall be attributed to the PE in case the non-resident does not prove the economic or commercial justification for not performing these activities through Saudi PE.
• Article 9: The amendments proposed to add a new clause (n) to Article 9 dealing with group reorganization relief. The amendments clarified that the provisions of clause (m) will be applicable to resident juridical persons under one group and provides further conditions as follows:
• There will be no change in the ultimate ownership of the juridical person disposing of the assets.
• The asset cannot be disposed of to a person outside the group for the specified period as mentioned in the Income Tax Bylaws.
• The purpose of the disposal should not be the termination of the activities or liquidation of the resident juridical person disposing of the assets.
• The basis of proof of the valuation of the disposal is that the value in the books of the transferee shall be in line with the value in the books of the transferor/ disposer at the time of disposal.
• Article 56: ZATCA intends to issue guidelines or bulletins to spread awareness among taxpayers and strengthen their commitment to their tax obligations. In addition, ZATCA retains the right of issuance of public and solicited rulings in accordance with the specified procedures. The interpretations issued in the guidelines, bulletins, or rulings will be binding prospectively from the date of issuance.
• Article 60(b): The statutory deadline to file the annual tax return will be extended to 180 days, up from the current 120 days, from the end of the fiscal year.
• Article 64: The definition of related persons or persons under common control has been amended to align with the definition given under Transfer Pricing Regulations.
• Article 65(a): Amendments propose to reduce the statute of limitation period for issuing an assessment from five years to three years from the statutory deadline’s expiration date for the submission of the tax return or from the end date of the deadline for the submission of the monthly WHT return. Further, ZATCA added clause (b) with preserving its right toissue the assessment in cases where the taxpayer does not file the return, or ZATCA finds that the information provided is incomplete or incorrect with the intention of tax evasion, i.e., it continues to be 10 years.
• Article 69: In accordance with the tax return filing deadline, the amendments proposed that the payment period of due tax as per the return will be extended to 180 days, up from the current 120 days, from the end of the fiscal year.

Proposed Amendments to VAT Law

• Article 27(5), (6): ZATCA can permit the taxpayers to pay the tax due in installments based on sufficient reason and justifications subject to the condition that this arrangement does not exempt from delay payment fines.
• Article 50: The amendment proposes to introduce clauses making the bulletins, guidelines issued by ZATCA, and the tax rulings issued by the authority binding for ZATCA subject to certain conditions.

Proposed Amendments to VAT Implementing Regulations

• Article 8(8): The taxable person needs to display the registration certificate at its principal place of business, branches, and online stores so that it is visible to the public.
• Article 9(5): Any activity directly exercised by a government body in its capacity as a public authority shall not be subject to tax if all of the following conditions are met:There is an effective legal instrument that obliges the government body to practice these activities and supplies, which represent the main activity of the body.
• These activities should not be practiced in accordance with commercial, economic criteria.
• The body exclusively carries on these activities, and there is no competition with the private sector.
• Article 9(6): The proposed amendment enhances the scope of the clause whereby the service contracts for the provision or secondment of workers shall also be out of the scope of the economic activity provided that certain conditions are met.

These proposed amendments reflect a significant shift in the tax landscape in Saudi Arabia as part of its rapid shift to welcome foreign entities and investments. It's crucial for businesses and individuals to understand these changes and how they may impact their tax obligations. Having serviced the KSA market for over 4 years now, let us know if you need clarity on an item.