Income Tax Law [2004] continued (2):
Chapters Eleven to Sixteen


 

The English version of this document is for guidance only.
The Arabic version is the governing text.
 


Chapter Eleven:

General Provisions

 

Article 56 : Tax Administration

The Department is the body responsible for the administration, examination, assessment, and collection of income tax.

 

Article 57 : Taxpayers' Registration

(a) Every person subject to tax in accordance with this Law shall register with the Department before the end of its first fiscal year.

(b) The provisions of this Article do not apply to taxpayers subject only to final withholding tax in accordance with Article 68 of this Law.

(c) A fine not less than one thousand riyals (SR 1,000) and not exceeding ten thousand riyals (SR 10,000) shall be imposed for failure to register. The Regulations shall specify the restrictions and amount of fine on different categories of taxpayers.

 

Article 58 : Books and Records

(a) A taxpayer, other than a non-resident with no permanent establishment in the Kingdom, shall maintain in Arabic the necessary commercial books and accounting records for precise determination of the tax payable by it.

(b) The Department has the right not to allow a deduction if the taxpayer is unable without reasonable excuse to produce a document of the expense or evidence supporting the legitimacy of its claim for the deduction.

 

Article 59 : Confidentiality of Information

(a) The Department and all its staff shall maintain confidentiality of information pertaining to taxpayers which they have access to in their official capacity. As an exception, they may disclose information only to the following bodies:

  1. employees of the Department in the course, for the purpose, of carrying out their duties under the law;
  2. employees of the Customs Authority, for the purpose of enforcing the Customs Law;
  3. the General Audit Bureau, in its official capacity, for the purpose of auditing and reviewing;
  4. the tax authorities of foreign countries in accordance with treaties to which the Kingdom is a party;
  5. law enforcement agencies, for the purpose of the prosecution of tax offenses;
  6. any judicial body in the Kingdom, upon its order, in a case under review, to determine a taxpayer's tax liability, or in any other administrative or criminal matter under review.

(b) A person receiving information under paragraph (a) of this Article shall be required to maintain its confidentiality, and not to use it except for the purpose for which it is required.

(c) Information concerning a taxpayer may be disclosed to another person with the taxpayer's written consent.


Chapter Twelve:

Filing of declarations, assessments, and
procedures of objection and appeal

Article 60 : Declarations

(a) Every taxpayer required to file a declaration shall file it in the prescribed form, include its identification number, and pay the tax due thereon to the Department.

(b) The tax declaration shall be filed within one hundred and twenty days following the end of the taxable year for which the declaration was made.

(c) The following taxpayers shall be required to file a tax declaration:

  1. a resident capital company.
  2. a non-resident with a permanent establishment in the Kingdom.
  3. a resident non-Saudi natural person who conducts business.

(d) A taxpayer who ceases business activity is required to notify the Department and to present within sixty days from the cessation date a tax declaration for the short taxable period ending with the date on which it ceases business.

(e) A taxpayer whose taxable income exceeds one million riyals (SR 1,000,000) shall have a certified accountant licensed to practice in the Kingdom certify the correctness of the declaration.

(f) A partnership shall file an information declaration in accordance with Article 36 of this Law, on or prior to the sixtieth day following the end of its taxable year.

 

Article 61 : The Department's Right to Information

(a) All persons and government bodies shall provide the Department with any information related to tax requested by the Department for taxation purposes stipulated in this Law.

(b) The Department may conduct a filed examination of the taxpayer's books and records during working hours to ascertain the correctness of the taxpayer's tax liability.

(c) All persons and government bodies shall provide the Department with information on any contracts concluded with the private sector within three months of the date of conclusion of the contract. The information shall include names and addresses of the two parties, subject of contract, its value and financial terms, and execution and completion dates. A person who does not provide the Department with what is required under this paragraph, or does not notify the Department of the date of cessation of work stated in the contract, is jointly liable for any tax claim due on the contract. The Regulations shall specify restrictions and procedures required to implement this obligation.

 

Article 62 : Examination and assessment procedures

(a) The Department may correct and adjust the tax shown on the declaration to make it conform to the provisions of this Law, and it may perform tax assessment if the taxpayer does not file its declaration.

(b) The Department shall notify the taxpayer of tax assessment under paragraph (a) of this Article and the tax due on it by registered official letter or by any other means that provides its receipt of the notification.

(c) Subject to Article 65 of this Law, if it becomes clear to the Department that the tax it previously accepted is incorrect, the Department may make an additional assessment on the taxpayer. The Department shall notify the taxpayer of the additional assessment and the reasons therefore. The taxpayer may object to the assessment as stipulated in the rules of objection.

 

Article 63 : Anti Tax-Avoidance Measures

(a) For the purpose of tax determination, the Department may:

  1. disregard any transaction with no tax effect;
  2. re-classify transactions whose form does not reflect their substance and put them in their real form.

(b) The Department may make assessment due on the taxpayer using the estimated tax method according to facts and circumstances pertaining to the taxpayer if the taxpayer fails to file its declaration on time or keep precise accounts and records, or to comply with the form, pattern and method required in its books and records.

(c) The Department may re-allocate revenues and expenses in transactions among related parties or parties under the same body, so as to reflect the returns that would have resulted if the parties were independent and unrelated.

(d) A taxpayer may not deduct a loss resulting from the transfer of properties between it and party related thereto. Unless otherwise provided for by this Law, the loss deduction is suspended until the related party disposes of the properties to another unrelated party.

(e) If an individual taxpayer splits its income and divides it with another person, the Department may adjust the tax base of the taxpayer and the other person to prevent any reduction in the due tax.

(f) For the purpose of this Article, income splitting means:

  1. transfer of income, directly or indirectly, from one person to another related thereto;
  2. transfer of properties, including money, directly or indirectly, from one person to another related thereto which leads to the other person's realization of an income from such properties, if the reason or one of the reasons for the transfer is to lower the total tax due upon the income of the transferor or the transferee.

(g) In determining whether the taxpayer is seeking to split income, the Department may consider the value given by the transferee.

 

Article 64 : Related Persons and Persons under Common Control

(a) A natural person is considered related to another natural person if the latter is a spouse or an in-law, or a relative up to the fourth degree.

(b) A natural person is considered related to companies of any type in the following circumstances:

  1. If he is a partner in a partnership and he, either alone or together with a related person or persons under this Article, controls fifty percent (50%) or more of the rights to its income or capital, either directly or indirectly through a subsidiary company or companies of any type.
  2. If he is a partner in a capital company and he, either alone or together with a related person or persons under this Article, controls fifty percent (50%) or more of the voting rights or its value, either directly or indirectly through a subsidiary company or companies of any type.
  3. As for agencies administering properties endowed for specific purposes, a natural person is deemed related thereto if he benefits or is capable of benefiting from them, either alone or with a related person or persons, in accordance with this Article.

(c) Companies and agencies are deemed under common control if the same person or related persons control fifty percent (50%) or more according to this Article as follows:

  1. With respect to partnerships, control means the ownership of rights to its income or capital, either directly or indirectly through a subsidiary company or companies of any type.
  2. With respect to capital companies, control means the ownership of the voting rights therein or its value, either directly or indirectly through a subsidiary company or companies of any type.
  3. With respect to agencies that administer properties endowed for specific purposes, control means the possession of a beneficial interest in their income or assets.

 

Article 65 : Statutory Period of Tax Assessment

(a) The Department may, with a reasoned notification, make or amend a tax assessment within five years from the end of the deadline specified for filing the tax declaration for the taxable year, or at any time, upon a written consent of the taxpayer.

(b) The Department may make or amend an assessment within ten years of the deadline specified for filing the tax declaration for the taxable year if a taxpayer does not file its tax declaration, or it is found that the declaration is incomplete or incorrect with the intent to tax evasion.

(c) A taxpayer may request a refund of opeverpaid amounts at any time within five years from the end of the overpaid taxable year.

 

Article 66 : Objection and Appeal

(a) The taxpayer may object to the Department's assessment within sixty days of receipt of the assessment letter. The assessment shall be final and the tax payable if the taxpayer agrees to the assessment or does not object to it within the said period.

(b) An objection shall not be considered valid unless the taxpayer has paid the dues for undisputed terms within the period specified for objection, or has obtained an approval to pay the tax in installments in accordance with Article 71 of this Law.

(c) The tax shall be payable upon a decision by the Preliminary Objection Committee, and shall be considered final unless the decision is appealed by the taxpayer or the Department within sixty days from receiving it.

(d) The Department and the taxpayer may appeal the decision of the Preliminary Objection Committee before the Appeal Committee within sixty days from the date of receiving the decision.

(e) The taxpayer who wants to appeal the decision of the Preliminary Objection Committee shall fine the application for appeal within the prescribed period and pay the due tax according to the mentioned decision or submit an accepted bank guarantee of the amount.

(f) The Appeal Committee's decision shall be final and binding unless appealed before the Board of Grievances within sixty days from the notification of the decision.

 

Article 67 : Formation/Jurisdiction of Preliminary Objection and Appeal Committees

(a) Preliminary Objection Committees with jurisdiction to settle tax disputes shall be formed by a decision of the Minister.

(b) The Council of Ministers shall issue a resolution, pursuant to a recommendation by the Minister, to from an Appeal Committee to review the taxpayer's or the Department's appeals to tax-related decisions issued by the Preliminary Objection Committees.

(c) The Regulations shall specify the powers, jurisdictions and work procedures for Preliminary Objection Committees and Appeal Committees and their members academic and professional experience and remuneration.

 


Chapter Thirteen:

Collection of Tax

 

Article 68 : Tax Withholding

(a) Every resident, whether or not a taxpayer according to this Law, and any permanent establishment of a non-resident in the Kingdom which pays an amount to a non-resident from a source in the Kingdom, shall withhold tax from the paid amount according to the following rates:

  1. Rent - 5%
  2. Royalty - 15%
  3. Management fee - 20%
  4. Payments for air tickets, air freight and maritime freight - 5%
  5. Payments for international telecommunications services - 5%
  6. Any other payments specified in the By-Law - Not to exceed 15%

In the case of amounts paid by a natural person, the conditions for withholding stipulated under this Article shall apply to the payments pertaining to his activity.

(b) A person withholding tax under this Article shall comply with the following:

  1. registering with the Department and paying the amount withheld to the Department within the first ten days from the month following the month of payment to the beneficiary.
  2. providing the beneficiary with a certificate stating the value of the amount paid to him and the value of the tax withheld.
  3. providing the Department, at the end of the taxable year, with the name, address, and the beneficiary's registration number (identification number), if available, along with any additional information the Department may require.
  4. maintaining records required to prove the correctness of the withheld tax as specified by the Regulations.

c) The person responsible for withholding tax under this Article is personally liable to pay the unpaid tax and any delay fines resulting therefrom, in accordance with paragraph (a) of Article 77 of this Law, if any of the following cases applies to him:

  1. If he fails to withhold tax as required.
  2. If he withholds tax, but fails to pay the tax to the Department as required.
  3. If he fails to report withholding statements to the Department as stipulated under subparagraph (3) of paragraph (b) of this Article.

(d) In addition to what is stated in paragraph (b) of this Article, if tax is not withheld in accordance with the provisions of this Article, the beneficiary remains indebted to the Department for the amount of the tax and the Department may recover it from him, his agent or sponsor.

(e) Without prejudice to paragraphs (f) and (g) of this Article, if an amount is paid to a non-resident and tax is withheld for it in accordance with the provisions of this Article, that tax shall be final, taking into consideration that no further tax shall be imposed on the income from which the tax was withheld, and not to refund any amount paid as tax in accordance with this Article.

(f) If the amount referred to in this Article is paid to a non-resident who conducts business in the Kingdom through a permanent establishment, and the amount paid was directly connected with the business of that establishment, such amount shall be calculated in determining the tax base of the non-resident.

(g) If tax is withheld for an amount paid to a taxpayer which is included in its tax base, the tax withheld shall be deducted from the tax due on the taxpayer against the tax base.

(h) For purposes of this Article and Article 5 of this Law, “services” shall mean any work performed for compensation, except for the purchase and sale of goods or any other properties.

 

Article 69 : Tax Payment

A taxpayer shall pay its due tax in accordance with the declaration within one hundred and twenty days from the end of its taxable year.

 

Article 70 : Advance Payments of Tax

(a) without prejudice to paragraph (b) of this Article, a taxpayer who realizes income in the taxable year shall pay three advance payments of tax on or prior to the last day of the sixth, ninth and twelfth months of the taxable year. The amount of each payment is the result of the following equation:

25% x (A – B)

where A is equal to the taxpayer's tax for the preceding year according to its declaration; and B is equal to the amount of tax paid in the preceding year by withholding from the source in accordance with Article 68 of this Law.

(b) A taxpayer shall not be obligated to make advance payments under paragraph (a) of this Article if the result of the above equation is less than five hundred thousand Saudi riyals (SR500,000).

(c) The Department has the power to reduce any of the payments due under this Article if it is convinced that the taxpayer's income for the taxable year, with the exception of the income of which tax is withheld from the source under Article 68 of this Law, shall be substantially less than the amount of income for the preceding year.

(d) A payment made pursuant to this Article is considered a payment in advance against the taxpayer's total tax for the taxable year for which the payment was made.

(e) The provisions of this Law relating to collection of tax and its mandatory procedures shall apply to advance payments of tax as they apply to the tax itself.

 

Article 71 - Payment of Tax in Installments

(a) The Minister has the power to allow payment in installments for amounts due on a taxpayer whenever enough reasons and justifications exist within the framework of restrictions and conditions specified in the Regulations. The Minister may delegate what he deems fit of this authority to the Director-General of the Department. Further, he or whomever he delegates may revoke the installment arrangement if he find that the accruals of the Public Treasury are subject to loss.

(b) The payment of tax in installments in accordance with this Article shall not exempt the taxpayer from payment of the delay fine for the period of installments pursuant to paragraph (a) of Article 77 of this Law.

 

Article 72 : Refund of Overpayment

In the case of an overpayment of tax, the taxpayer is entitled to a refund of the excess amount together with a compensation at the rate of one percent (1%) for each thirty days, beginning thirty days after its claim and continuing until the taxpayer receives the amount.

 

Article 73 : Seizure of the Taxpayer's Property

(a) If the taxpayer fails to pay a tax due by the dates specified by Law, the Department may seize the taxpayer's movable and immovable properties as allowed by Shariah . The Department may continue with the procedures of seizure after the passage of twenty days from the taxpayer's receipt of the Department's noticeof its intention of seizure.

(b) Any person, including banks and financial institutions, holding in possession a seized asset, shall deliver the asset to the Department upon its request.

(c) A bank or a financial institution shall refrain from allowing withdrawals or other payments from the taxpayer's bank account after receiving notice of the Department's intention to freeze the taxpayer's account.

(d) A person not complying with the provisions of paragraphs (b) and (c) of this Article is obligated to pay the Department an amount equal to the value of the properties in its possession, not exceeding the amount for which the freezsing was made.

(e) Tools used by the taxpayer for its trade, and personal effects and furnishings, are exempt from seizure, with a maximum limit not exceeding three hundred thousand riyals (SR300,000).

 

Article 74 : Sale of seized property

(a) The Department shall, through the competent body, sell properties seized in accordance with provision of seizure.

(b) From the sales returns, the expenses of the seizure and sale shall be paid first, then tax and fines. Any remaining amount shall be returned to the taxpayer.

(c) Sale of the taxpayer's properties shall be suspended during the period of the administrative or judicial review of the assessment on the basis of which the seizure was made, except for:

  1. perishable properties
  2. properties sold by the Department upon the taxpayer's request.

 

Article 75 : Freezing of funds due to the taxpayer

(a) Following the freezing, the Department may issue notices to a third party, including the employer, banks or financial institutions, ordering direct payment to the Department of any funds that the third party owes the taxpayer on or after the date of receipt of the freezing notification.

(b) A notice may be issued on the taxpayer's employer, and its validity may be limited to a specified period.

(c) The monthly maintenance due upon the taxpayer as well as its living expenses stipulated by provisions of other laws in force are not subject to freezing.

(d) A person complying with the provisions this Article and Articles 73 and 74 of this Law shall be exempted from any obligation to the taxpayer or any other person, regarding the value of properties seized from the time of its compliance.

 


Chapter Fourteen:

Fines

 

Article 76 : Fine for failure to file the declaration

(a) A taxpayer not complying with the provisions of paragraphs (a), (b), (d) and (f) of Article 60 of this Law shall be subject to a fine of one percent (1%) of its gross income provided that the fine does not exceed twenty thousand Saudi riyals (SR20,000).

(b) In case of failure to file the declaration within the prescribed time, the following fine shall be imposed in lieu of the fine stipulated under paragraph (a) of this Article, if the fine under paragraph (a) is less than the amount specified under this paragraph:

  1. Five percent (5%) of the unpaid tax if the delay does not exceed thirty (30) days specified by Law.
  2. Ten percent (10%) of the unpaid tax if the delay exceeds thirty (30) days and does not exceed ninety (90) days of the date specified by Law.
  3. Twenty percent (20%) of the unpaid tax if the delay exceeds ninety (90) days and does not exceed three hundred sixty-five (365) days of the date specified by Law.
  4. Twenty-five percent (25%) of the unpaid tax if the delay exceeds three hundred and sixty-five (365) days of the date specified by Law.

(c) Unpaid tax shall mean the difference between the amount of tax due under this Law and the amount paid on the date specified by Law under paragraph (b) of Article 60 of this Law.

 

Article 77 : Delay and fraud fines

(a) In addition to the penalties stipulated in Article 76 of this Law and in paragraph (b) of this Article, the taxpayer shall pay a delay fine of one percent (1%) for every thirty days of delay on unpaid tax, including delay in payment of tax required to be withheld and advance payments. It shall be calculated from the tax due date until the date of payment.

(b) In addition to the penalties stipulated in Article 76 and in paragraph (a) of this Article, the taxpayer shall be subject to a fine of twenty-five percent (25%) of the difference in tax resulting from the taxpayer's or its certified accountant's providing false information or from fraud with the intention of tax evasion, and in particular in the following cases:

  1. submitting false books, records, accounts or documents that do not reflect the true status of the taxpayer.
  2. filing a declaration on the basis of unavailability of books or records, and including therein information that contradicts what is shown in the taxpayer's books and records.
  3. filing forged or fictitious invoices or documents, or changing of purchase or sale invoices or other documents with the intention of understating profits or overstating losses.
  4. not declaring one or more of the taxable activities.
  5. destroying or hiding books, records or documents prior to the Department's examination.

 

Article 78 : Liability of Certified Accountants

Without prejudice to the Certified Accountants Law, the Department may prosecute any certified accountant proven to have presented or certified false statements, which constitutes a violation of established accounting principles with the intention of assisting the taxpayer to evade all or part of the tax.

 


Chapter Fifteen:

The Minister's Powers

 

Article 79 : The Minister's Power

The Minister shall have the following powers:

  1. Issuing the Implementing Regulations of this Law.
  2. Issuing instructions and taking measures he deems necessary for the implementation of this Law.
  3. Amending depreciation groups and rates stipulated in Article 17 of this Law.
  4. Canceling tax debt and fines that have been determined un-collectable. The Regulations shall specify the cases where collection is impossible.
  5. Granting remunerations upon recommendations by the Department's Director-General to employees for outstanding performance of their work. The Regulations shall specify the conditions and restrictions for such remuneration.

Chapter Sixteen:

Concluding Provisions

 

Article 80 : Law's Effectiveness Date

1. This Law shall be published in the Official Gazette and shall come into effect after ninety days from its publication date.

2. This Law shall apply to taxable years beginning after the date of its coming into force. As for taxable years starting on or prior to the date of its coming into force, they shall be subject to tax laws in effect prior to the issuance of this Law.

3. This Law shall nullify the Income Tax Law issued by Royal Decree No.3321, dated 21/1/1370 H [2 November 1950] and its amendments, the Law of Additional Income Tax on Companies Engaged in Production of Oil and Hydrocarbons issued by Royal Decree No.7634, dated 16/3/ 1370 H and its amendments, and the Natural Gas Investment Tax Law issued under Royal Decree No.M/37, dated 25th Jumada II, 1424 [23 August 2003] .

4. Tax withholding provisions of Article 68 of this Law shall become effective from the date of its coming into force.

 

Article 81 : Transitional provisions

1. In case of acquiring an asset in a taxable year prior to the effectiveness of this Law, the value to be added to the appropriate group shall be the cost of the asset minus any depreciation deduction previously granted to the taxpayer.

2. Operational losses incurred before the entry into force of the Council of Ministers' resolution number 3, dated 5/01/1421 H. may not be carried forward.

3. Operational losses incurred by the taxpayer during a tax exemption period may not be carried forward.


 

Government
The revitalization of Saudi Arabia's political system reflects the nation's adaptability to modern development without compromising its religious and cultural values.


Basic System of Government
The Basic System of Government identifies the nature of the state, its goals and responsibilities, as well as the relationship between the ruler and citizens.


Council of Ministers System
In 1953, King Saud bin Abdulaziz established the Council of Ministers to facilitate the Kingdom's development.


Majlis Al-Shura (Consultative Council)
The primary function of Majlis Al-Shura is to advise the King on issues of importance to the nation.

Provincial System
To further raise the efficiency of administration and to promote the continued development of the county's provinces and their extensive social services programs, King Fahd promulgated new bylaws for the Provincial System in 1992.