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Old Income Tax: Income Tax LawArticle 1 Persons Subject to Tax The Income Tax Law imposes income tax on total personal income of non-Saudi nationals on their income derived from capital investment. The Income Tax Law also imposes corporate income tax on non-Saudi corporations that exercise business in the Kingdom of Saudi Arabia ( the Kingdom ) alone or inside and outside the Kingdom at the same time. The Income Tax Law also imposes tax on profits distributed to non-Saudi nationals from profits of capital companies that are jointly incorporated by Saudis and non-Saudis. Saudi individuals, and Saudi companies whose partners and shareholders are all Saudi are not subject to tax. Article 2 Personal Income For the purpose of this Law, the term “personal income” means all income earned by an individual to include salaries, wages, fees and rewards for work or services an individual performed in the Kingdom for another individual, company, or organization. The personal income also includes payments received by non-Saudi employees or contractors working for the Saudi government . The personal income also includes any in kind reimbursements to individuals reasonably estimated in lieu of wages, salaries, fees or rewards in return for work or services. The personal income also includes deductions from salaries, wages, fees or rewards to pay back debts to employers. For the purpose of this Law, the term “Inside the Kingdom” means the Kingdom’s land, territorial water and its air space and its rights in the two neutral zones between the Kingdom and either Iraq or Kuwait. Article 3 Income from Capital Investment For the purpose of this Law, the term “Income from Capital Investment” means any net income or profit realized by an individual as a result of a transaction in which movable or immovable capital is used to purchase and sell goods, of any type or description, produce of land, or to exchange money, lease or rent movable or immovable property including animals, transport vehicles, ships, other transport means, and any machinery and equipment. Profits realized by partners in a personal company is considered income from capital investment. Necessary tools owned and used by a professional, tradesman or craftsman to perform profession or trade is not considered capital. Article 4 Gross receipts from all transactions during the year are considered net income or profits from capital investment. Gross receipts include all cash amounts received and any properties or chattels acquired without payment of money. Gross receipts will be reduced by cost of goods sold, and reasonable administration cost and depreciation. Personal expenses of a taxpayer are not an allowed deduction against gross receipts. Net profits or income from capital investment is 15 percent of gross receipts unless the taxpayer proves otherwise to the competent authority by complete documents and accurate records. Article 5 Tax – Exempted Threshold The tax-exempted threshold from personal income or from income from capital investment realized by an individual is the first SR 6,000. To be entitled to the full tax-exempted threshold, the taxpayer must reside in the Kingdom for a complete year or must be deemed to be resident in the Kingdom for a year. Shorter periods of residence shall be granted a tax-exemption amount in proportion with the length of residence. Article 6 Tax Rates Tax rates applied to total personal income, net income and profits from capital investment in excess of the first SR 6,000 shall be as follows: - Five percent of the first SR 10,000 in excess of the exempted threshold, i.e. SR6,000. - Ten percent of the next SR 20,000. - Twenty percent of the next SR. 30,000. - Thirty percent of any amounts above that. Income subject to tax will not include any income realized by an individual from investment in a company whose income has already been subject to corporate income tax under this Law. Article 7 Collection of taxes on personal Income and the Employers’ obligations An employer with one employee or more who are subject to personal income tax is required to withhold the tax amount on the employee/s and to pay the withheld amount to the authority assigned by the Ministry of Finance on or before the fifteenth day of the month following the month on which the amount was withheld. The employer shall also record this in the prescribed form under the supervision of the official assigned by the Ministry of Finance. If the employer fails to make correct and timely payment of the withheld amount, the employer becomes obligated to pay the amount and the Ministry of Finance may collect it from the employer in the manner it deems appropriate. The employer shall inform its employees of the amount withheld from their wages and salaries and shall record these amounts in the prescribed form. Companies registered under the Company Registration Act issued in Royal Decree 144 shall withhold payable tax on their employees’ wages and salaries. They may make payment of withheld amounts once every three months, on or before the fifteenth day of the month following the period on which the amounts withheld. The employer who fails to make timely payment of tax payable on its employees will be subject to a delay penalty of 10 percent of the payable amount if the delay is up to five days of the legally prescribed date, and if the delay exceeds fifteen days the penalty will be 25 percent of payable tax. Article 8 Collection of tax on income of professionals, tradesmen, And on income from capital investment Professionals and tradesmen are required to declare to the Department of Zakat and Income Tax their gross income subject to tax from profession, trade and capital investment, and to make payment of tax payable during the 15 days following their completion of one year in the Kingdom. A taxpayer who fails to file the mentioned declaration and to make payment of the payable tax in a timely manner will be subject to a delay penalty of 10 percent of payable tax, and if the delay exceeds 15 days the penalty will be 25 percent of payable tax. Article 9 Professionals, tradesmen or capital investors who may be at the same time employed by other individuals, companies, governmental or non-governmental agencies are required to include in the above-mentioned declaration wages, salaries, rewards or fees received from such an employment and the amount of tax withheld by the employer. Article 10 Profits subject to Corporate Tax For the purpose of this Law, “Corporate profits” means the following: 1. Net profit realized by non-Saudi capital companies exercising business inside the Kingdom or inside and outside the Kingdom at the same time. 2. Total shares of non-Saudi partners in net profit of non Saudi Capital companies. 3. Total shares of non-Saudi partners in net profits of partnerships. Article 11 Tax Rates on Corporate Profits Tax Rates on Corporate Profits are as follows: Profit Brackets ( in Saudi Riyal) Rates Up to 100,000 25 percent 100,001 – 500,000 35 percent 500,001 – 1,000,000 40 percent Above one million 45 percent Corporate profits that have been subject to tax under this Law shall not be taxed again. Article 12 Net profits of companies subject to tax are all gross receipts minus deductions as defined and allowed by this Law. Article 13 Gross Receipts Gross receipts subject to tax under this Law are as follows: All receipts, profits and gains of any type and in any form of payment resulting from all types of industry and commerce, or from purchase, sale or any financial or commercial transactions. This also includes receipts, profits and gains resulting from transactions and investments in oil, other minerals and movable or immovable properties. It also includes all receipts from commissions, dividends, securities and guarantees, and any profit or gain resulting from commercial transaction undertaken for profit, and gain from any source of wealth. Gross receipts of a company incorporated outside the Kingdom that exercises business both inside and outside the Kingdom at the same time are all local receipts received from any source within the Kingdom. Gross receipts also include the portion of income received and resulting from operation both inside and outside the Kingdom and attributable to local sources. For the purpose of this law, the term “The Kingdom of Saudi Arabia” implies the Kingdom’s rights in the two neutral zones between the Kingdom and either Iraq or Kuwait. Article 14 Allowed Deductions Allowed deductions under this Law are as follows: 1. All ordinary and necessary expenses required by a trade or outfit and incurred during the year inclusive of reasonable amount for employees salaries or any rewards incurred in return for personal services. 2. Business travel expenses. 3. Rental amounts of business properties. 4. Any loss incurred by the business and not recovered by other means. 5. Reasonable amount for depreciation of business assets. Article 15 Information (Data) Companies subject to this Law are required to file a declaration on the official form and to make payment of the amount shown thereon to the official designated for that purpose by the Ministry of Finance. The required declaration should be filed and the shown amount should be paid on or before the fifteenth day of the 3rd month following the end of the year, which the declaration represents. Failure to make timely filing and payment results in imposition of a delay penalty. There is a five-day grace period after the legally prescribed period. A delay not to exceed 10 days after the grace period is subject to a10 percent delay penalty. A delay further than that is subject to a 25 percent delay penalty. Article 16 Income Rules The taxpayer is required to account for all general receipts received and deductions (except for depreciation and losses) of a given year in the same year. When the taxpayer proves correctness of records and that they truly reflect general receipts and deductions, he may file a declaration based on these records. A declaration based on accounts of any tax year that is certified by an internationally recognized chartered accountant is considered to be correct. A taxpayer who keeps clear accounting records and has a financial year other than a calendar year may request from the Ministry of Finance permission to file on the base of its year. In this case, the taxpayer shall file and make payment on or before the fifteenth day of the third month following the taxpayer’s financial year. Delay provisions as mentioned in article 15 shall apply. Article 17 Tax Exemption This Law exempts from tax the following: a. |
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Brief Information on DZIT
