December 21, 2023
Saudi Arabia tax and zakat updates for year ending 2023
As we come to the end of another exciting and challenging year, it is time to reflect on the tax year's developments around us and, as tax advisors, support clients to stay abreast of the rapidly evolving tax landscape in Saudi Arabia and the region.
Look back at 2023 through this list of EY Global Tax Alerts, along with brief summaries of the latest key developments and areas for consideration.
1. Amendments to the Income Tax Bylaws and Zakat Regulations approved
On 12 September 2023, Saudi Arabia issued a Ministerial Resolution approving certain amendments to the Income Tax Bylaws and Zakat Regulations during the year. Amendments to the Income Tax Bylaws relate primarily to interest charges on capital assets, employers' retirement fund contributions, appeals processes, and withholding tax rates. Under the amendments to the Zakat Regulations, zakat guidelines and rulings are now binding on the Zakat, Tax and Customs Authority (ZATCA), subject to certain conditions. The amendments were published in the Official Gazette on 12 September 2023.
See EY Global Tax Alert, Saudi Arabia approves amendments to Income Tax Bylaws and Zakat Regulations, dated 19 September 2023.
2. Drafts of the new Income Tax Law and Zakat and Tax Procedures Law issued for public consultation
On 25 October 2023, following recent amendments and proposals for amendments to the current tax and zakat regulations, Saudi Arabia issued a new draft Income Tax Law and a Zakat and Tax Procedures Law (together, the Draft Laws) for public consultation. Public consultation on the Draft Laws is open until 25 December 2023.
See EY Global Tax Alert, Saudi Arabia issues drafts of new Income Tax Law and Zakat and Tax Procedures Law for public consultation, dated 10 November 2023.
3. New draft Zakat Bylaws released for public consultation
On 17 September 2023, the ZATCA released the draft of the new Zakat Bylaws for public consultation. The new draft Zakat Bylaws aims to provide greater clarity and transparency on existing Zakat regulations and to consolidate all other zakat regulations/guidelines issued for specific sectors.
Public consultation on the new draft Zakat Bylaws was closed on 17 October 2023 and the final version of the new Zakat Bylaws is still awaited.
See EY Global Tax Alert, Saudi Arabia releases new draft Zakat Bylaws for public consultation, dated 28 September 2023.
4. New operating procedures of the General Secretariat of Zakat, Tax and Customs Committees approved
Saudi Arabia has promulgated new operating procedures of the General Secretariat of Zakat, Tax and Customs Committees (GSZTCC). The new operating procedures codify various practices followed by the GSZTCC and introduce specific provisions for customs-related disputes. The amendments are effective from 27 October 2023.
See EY Global Tax Alert, Saudi Arabia approves new operating procedures of the General Secretariat of Zakat, Tax and Customs Committees, dated 20 November 2023.
5. Current tax amnesty initiative extended until 31 December 2023
The ZATCA has extended the tax amnesty scheme until 31 December 2023. The extension provides a further opportunity for taxpayers and businesses to clear their applicable tax dues and avail of relevant exemptions and relief.
See EY Global Tax Alert, Saudi Arabia further extends tax amnesty initiative until 31 December 2023, dated 31 July 2023.
6. Criteria announced for taxpayers to be included in the ninth wave of Phase 2 e-invoicing integration
Taxpayers resident in Saudi Arabia, with a taxable turnover above SAR30m during the calendar year 2021 or 2022, should comply with the Phase 2 e-invoicing requirements, starting 1 June 2024.
See EY Global Tax Alert, Saudi Arabia announces ninth wave of Phase 2 e-invoicing integration, dated 21 November 2023, which also includes links to EY Global Tax Alerts highlighting the prior eight waves.
7. Clarification provided on the interpretation of service PE provisions for tax treaties
On 17 May 2023, the ZATCA released a circular on the taxation of permanent establishments (PEs). The circular clarifies the interpretation of "service PE" provisions in the double tax treaties concluded by Saudi Arabia.
See EY Global Tax Alert, Saudi Arabia clarifies interpretation of service-PE provisions in its tax treaties, dated 31 May 2023.
8. Amendments to Zakat Implementing Regulations approved
In April 2023, Saudi Arabia introduced amendments to the Zakat Implementing Regulations through a Ministerial Resolution. The amendments included changes to employees' housing ownership programs, issued sukuk and bonds, and financial guarantees that are required when submitting objections to the assessments of the ZATCA.
See EY Global Tax Alert, Saudi Arabia issues amendments to the Zakat Implementing Regulations, dated 8 May 2023.
9. Amendments to the Transfer Pricing Bylaws approved
On 7 April 2023, Saudi Arabia approved amendments to the Transfer Pricing Bylaws on the implementation of transfer pricing compliance rules for zakat payers. Further, special guidance on the transactions between related parties for zakat purposes has also been issued. Zakat payers are expected to comply with these transfer pricing regulations from 1 January 2024.
See EY Global Tax Alert, Saudi Arabia releases guidelines on related-party transactions for zakat purposes, dated 14 December 2023.
10. Special Economic Zones
During the first quarter of 2023, the Economic Cities and Special Zones Authority (ECZA) announced the launch of four new Special Economic Zones (SEZs) to capitalize on Saudi Arabia's potential as a global business hub. These new SEZs have been built upon previous free zone initiatives in the country and focus on the key growth sectors. The SEZs are King Abdullah Economic City SEZ (KAEC) (advanced manufacturing), Ras Al-Khair (maritime activities), Jazan (metal conversion/logistics) and Cloud Computing SEZ.
See EY TradeWatch | Issue 2, 2023, dated 2 August 2023.
11. Saudi Arabia offers significant tax breaks for companies establishing their headquarters in the Kingdom
The Ministry of Investment of Saudi Arabia (MISA), in coordination with the Ministry of Finance and the ZATCA, has announced a 30-year tax incentive package for the Regional Headquarters (RHQ) Program, to further streamline the process for multinational companies to establish their RHQ in Saudi Arabia.
The tax relief incentive includes a 0% rate for both corporate income tax and withholding tax related to the approved RHQ activities. The companies will benefit from the RHQ tax relief beginning the day they obtain their RHQ license.
See EY Global Tax Alert, Saudi Arabia offers 30-year tax holiday under Regional Headquarters program, dated 15 December 2023.
12. Saudi Arabia issues general guide relating to the Special Integrated Logistics Special Zone in Riyadh
On 10 December 2023, the ZATCA issued a General Guideline for the Zakat, Tax and Customs Provisions of the Special Integrated Logistics Zone (SILZ). The SILZ was previously known as the Integrated Logistics Bonded Zone or ILBZ. More details on this will follow.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Professional Services (Professional LLC), Riyadh
Ernst & Young Professional Services (Professional LLC), Jeddah
Ernst & Young Professional Services (Professional LLC), Al Khobar
EY Consulting LLC, Dubai
Ernst & Young — Middle East, Bahrain
Ernst & Young LLP (United States), Middle East Tax Desk, New York
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor