Over the course of past weeks, the General Authority of Zakat and Tax (ZATCA) has released a number of public consultations outlining the proposed amendments to a series of tax legislations. As an overall comment, this is a welcoming move and should be closely monitored as and when the proposed amendment is formally introduced in the relevant legislation.
Below is a high-level summary of the proposed amendments to the relevant tax legislations in KSA.
Consistent Amendments to Zakat, Corporate Tax, VAT and RETT Legislations
Across the proposed amendments in the consultations, there are a number of consistent amendments including:
- An extension in the number of dates to file the Zakat and Corporate Tax return from 120 days to 180 days, after the financial year-end
- A reduction in the statute of limitation from five years to three years
- Guidelines and/or explanatory rulings that are issued by the ZATCA would not be applicable retrospectively and will be binding on ZATCA (subject to certain conditions).
Amendments to KSA VAT Executive Regulations
The ZATCA recently issued proposed amendments to the KSA VAT Executive Regulations which will be open for public consultation until 13 June 2023 (view here).
The most notably proposed VAT amendments are as follows:
- Enhance Article 8(8) to enforce online shops to mandatorily display their VAT registration certificate in a manner visible to the public (i.e., perhaps on the online landing page).
- Expand the ambit of the exempt supplies in Article 29(7) to include fees, commissions or any commercial discount which may be payable in exchange for the provision or transfer of a life insurance contract or reinsurance of a life insurance contract. It is unclear from the proposed amendment if the exemption will apply to investment-linked insurance products with both life insurance coverage and investment components.
- Increase the limit to correct any identified error resulting in tax differences in the next tax return, from SAR 5,000 to SAR 15,000 (resulting in less voluntary disclosures to be submitted) and decrease the statutory limitation for VAT from five years to three years as set out in the proposed amended Article 63(3).
Amendments to the KSA VAT Law
The ZATCA also proposed making the following amendments to the KSA VAT system, which will be open for public consultation until 28 June 2023 (view here):
- Addition of the ability to pay tax due, in installments.
- Addition of Article 50 of the VAT Law, the ZATCA:
- Will issue additional guidance and tax bulletins to make adhering to the VAT Law and Executive Regulations easier on taxpayers.
- May issue a private or public interpretative decision to clarity tax treatment of any transaction and indicate the period to which it applies.
- Will abide by the content of the interpretative decisions, guidelines and tax bulletins from the date of publication.
- Will clarify in its written ruling how the regulations shall apply to a particular circumstance involving a specific set of facts only.
Amendments to the RETT Executive Regulations
The ZATCA recently issued proposed amendments to the RETT Executive Regulations which will be open for public consultation until 13 June 2023 (view here):
- Corporate Restructuring: Amendment of subparagraph (16) of paragraph (a) of Article III Exemption: Real estate disposal by a natural person of a company or investment fund established in KSA and this person owns – directly or indirectly – all of the company’s shares, shares or fund units, including the case that the percentage of full ownership of natural persons in the property and the entity disposing of it matches and provided that there is no change in the percentage of ownership of the company or fund disposed of for a period of not less than five years from the date of real estate disposition.
- Real estate disposal in exchange for shares in company or real estate fund units: Amendment of subparagraph (17) of paragraph (a) of Article III Exemption: Real estate disposal between one company and another two institutions in KSA, one of which owns – directly or indirectly – all of the shares or shares of the other company, real estate disposal between a company and an investment fund established in the Kingdom and the company owns – directly or indirectly – all of the units of the fund, and real estate disposal between companies or investment funds established in the Kingdom whose shares, shares or units are owned – directly or indirectly – by the same persons. In all cases, all of the disposed shares, shares or units of the disposed fund shall remain owned, directly or indirectly, by the same persons for a period of not less than five years from the date of the real estate disposition.
- Addition to Article VI:
- Paragraphs (3) – (5): The Article places a time limit of three years of statutory limitation from the date of the real estate disposition for the ZATCA
- Paragraph (6): The periods mentioned in this Article shall not affect the Authority’s right to claim payment of the due tax in cases where the time restrictions specified in Article III of the Regulations are violated.
- Addition of Article XI bis, the ZATCA:
- Commits to issue additional guidance and tax bulletins to make adhering to the RETT Executive Regulations easier on taxpayers.
- May issue a private or public interpretative decision to clarity tax treatment of any transaction and indicate the period to which it applies.
- Will abide by the content of the interpretative decisions, guidelines and tax bulletins from the date of publication.
- Will clarify in its written ruling how the regulations shall apply to a particular circumstance involving a specific set of facts only.
Proposed Amendments to Zakat Law
There are no other amendments put forward to the Zakat Law, other than those mentioned above with respect to the general administration of Zakat.
Proposed Amendments to the Corporate Income Tax Law and By-Law
The consultation documents propose the following key changes:
- An adjustment to the force of attraction rule such that there is an economic and commercial justification for income that is derived by a non-resident from a similar activity to the non-resident’s current permanent establishment in KSA.
- The related party definition in the Corporate Income Tax Law would be defined according to the Transfer Pricing guidelines.
- For the purposes of calculating the deductible amount of interest (using the prescribed formula) capitalized loan charges would not be included.
- A reduction in the withholding tax rate on related party charges (15% down to 5%) for technical and consulting services, as well as international telecommunication services.
To speak with us in relation to any of the above amendments to KSA tax, or any tax matters or issues more generally, please contact one of the team members below.
