Transaction Pricing in Saudi Arabia: The Pricing Guidelines

Transaction Pricing in Saudi Arabia has been regulated by the Zakat, Tax and Customs Authority to organize transactions between related parties through the principle of the arm’s length price.

In today’s article, we will explore Transaction Pricing in Saudi Arabia, highlighting the main features of the official guideline issued by the Authority.

Transaction Pricing in Saudi Arabia

The Zakat, Tax and Customs Authority (ZATCA) in Saudi Arabia issued the official guidelines for Transaction Pricing in Saudi Arabia, following a decision by the Board of the Authority in 1440H.

These guidelines aim to provide clear instructions and practices for transaction pricing within the Kingdom.

The Authority defined the entities subject to transaction pricing as those liable for income tax or zakat.

Those subject to income tax include:

A non-Saudi resident individual conducting activities in the Kingdom.
A non-resident operating through a permanent establishment in Saudi Arabia.
A non-resident earning taxable income from Saudi sources.
Individuals involved in natural gas investment or oil and hydrocarbon production.

The importance of transaction pricing lies in maintaining a neutral pricing approach between related parties or those under common control.

The Transaction Pricing Guidelines

To ensure proper tax compliance, ZATCA has published an extensive guideline on Transaction Pricing in Saudi Arabia.

The guideline includes detailed information on the application of transaction pricing principles, as well as the obligations imposed on relevant taxpayers.

ZATCA has made the guideline available on its official website to facilitate access and enhance understanding. You can access it via their official portal.

Key highlights of the guideline include:

Clarification of core principles for transaction pricing.
Detailed explanation of the arm’s length principle that governs Transaction Pricing in Saudi Arabia.
Identification of entities subject to transfer pricing rules.
Documentation requirements for taxpayers.
Discussion on disclosure forms as part of tax return filing.
Guidance on financial transactions and risk prevention.
Application of the arm’s length principle to intangible assets and permanent establishments.
Addressing business restructurings.
Explanation of transfer pricing adjustments.

It is important to note that this guideline is for advisory purposes only and does not encompass all relevant rules or applications.

Transfer Pricing Instructions

As previously mentioned, ZATCA introduced these transfer pricing instructions to clarify transaction conditions between related parties.

The instructions address situations where the financial terms between related parties differ from those between independent entities.

This is critical because income tax is calculated based on the profits that would have been realized if transactions followed arm’s length terms.

Related parties often structure their transactions differently from independent entities, leading to distortions in taxable income.

In contrast, transactions between independent parties are shaped by market conditions and economic factors, ensuring fairness.

Therefore, the transfer pricing rules were introduced to ensure that related parties price their transactions in line with how unrelated parties would.

Need Expert Help?

If you need expert assistance in managing your tax obligations or applying transaction pricing principles, we at Business Pillars Company is here to help.

We provide a wide range of accounting and legal services, including zakat and tax services, especially transaction pricing compliance.

Our qualified team can assist you in preparing transfer pricing documentation and implementing transfer pricing policies.

In conclusion, we have reviewed the essentials of Transaction Pricing in Saudi Arabia, its implementation process, and its significance in ensuring fair taxation.

We also explored the key points in the official guidelines and the detailed instructions issued by the Authority.

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