In the Kingdom of Saudi Arabia, the income tax is applied to individuals, companies, and institutions in accordance with the Income Tax Law issued by Royal Decree No. (M/1) dated 1/1/1425 AH (corresponding to 22/2/2004).
Let’s explore how to file the Income Tax Return in Saudi Arabia, what constitutes the taxable base, and applicable tax rates.
Filing the Income Tax Return
Filing the Income Tax Return is mandatory for the following:
A. A resident capital company with non-Saudi partners.
B. A non-Saudi resident natural person engaged in activities within the Kingdom.
C. A non-resident individual conducting business in the Kingdom through a permanent establishment.
D. A non-resident earning taxable income from sources within the Kingdom.
E. Any person engaged in natural gas investment activities.
F. Any person involved in oil and hydrocarbon production.
The Taxable Base
A. For a resident capital company, the taxable base is the share of income attributable to non-Saudi partners, after deducting allowable expenses as per the law.
B. For a non-Saudi resident individual, the taxable base is their income generated within the Kingdom, after deducting recognized expenses.
C. For a non-resident individual operating through a permanent establishment, the taxable base is the income from the activities of that establishment, minus deductible expenses.
D. The taxable base for a natural person is calculated independently.
E. The taxable base for a capital company is calculated independently from its shareholders or partners.
For detailed guidelines, you can refer to the official Zakat, Tax and Customs Authority (ZATCA) website.
The Income Tax Return and Applicable Tax Rates
A. The tax rate on the taxable base for a resident capital company, a non-Saudi resident individual, and a non-resident operating through a permanent establishment is 20% of taxable income.
B. The tax rate for those investing in natural gas is 30%.
C. The tax rate for entities engaged in oil and hydrocarbon production is 85%.
The Fiscal Year
A. The fiscal year aligns with the state’s financial year.
B. A taxpayer may adopt a different 12-month period subject to regulatory conditions.
C. If the taxpayer changes their fiscal year, the period between the last complete tax year and the new one is treated as a short and separate fiscal period.
Filing the Income Tax Return and Tax Payment
Taxpayers must pay their due taxes as declared in the Income Tax Return within 120 days from the end of their fiscal year.
Payment in Advance Installments
A. Taxpayers with annual revenues exceeding SAR 2 million must pay in three advance installments on set dates.
B. Installments are calculated based on a percentage of unpaid taxes. The amount can be reduced if the current year’s income is significantly lower than the previous year’s.
C. Paid installments count as partial payments toward the total tax liability for the year.
Penalties
A. A penalty of 1% of total revenues (up to a maximum of SAR 20,000) is imposed for failure to comply with the Income Tax Return filing requirements.
B. Delays in filing result in increased penalties depending on how late the submission is.
C. Penalties are based on the unpaid tax difference and are subject to the same collection and enforcement procedures as the tax itself.
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