Basic Concepts in Saudi Income Tax

Before jumping into Income Tax Law and implementation in Saudi Arabia we must read and understand Basic Concepts in Saudi Income Tax that provides basic Introduction to Saudi income tax law.

Here are the Basic income tax concepts in Saudi Arabia:

Who are considered Taxpayers in Saudi Income tax Law

Persons Subject to Taxation

A resident capital company with respect to shares of non-Saudi partners.
A resident non-Saudi natural person who conducts business in the kingdom.
A nonresident who conducts business in the kingdom through a permanent establishment.
A nonresident with other taxable income from sources within the kingdom.
A person engaged in the field of natural gas investment.
A person engaged in the field of oil and hydrocarbons production.

Who is Resident person in Saudi income tax

Natural Person

A natural person is considered a resident in the Kingdom for a taxable year if he meets any of the two following conditions:

1.He has a permanent place of residence in the Kingdom and resides in the Kingdom for a total period of not less than thirty (30) days in the taxable year.

2.He resides in the Kingdom for a period of not less than one hundred eighty three (183) days in the taxable year.

Company

A company is considered resident in the Kingdom during the taxable year if it meets any of the following conditions:

1.It is formed in accordance with the Companies Law.

2.Its central management is located in the Kingdom.

Permanent Establishment

To understand Saudi income tax laws one must have knowledge of how Saudi Taz Law acknowledges the permanent establishment of a nonresident in the Kingdom of Saudi Arabia where Saudi income tax basics for expats comes handy.

A permanent establishment of a nonresident in the Kingdom is a permanent place of the nonresident’s activity through which it carries out business, in full or in part, including business carried out through its agent. This may include the following:

1.Construction sites, assembly facilities, and the exercise of supervisory activities connected therewith.

2.Installations, sites used for surveying natural resources, drilling equipment, ships used for surveying for natural resources as well as the exercise of supervisory activities connected therewith.

3.A fixed base where a nonresident natural person carries out business.

4.A branch of a nonresident company licensed to carry out business in the Kingdom Saudi income tax for small businesses

Permanent Establishment – Exceptions

As we explore beginner’s guide to Saudi income tax, we must also keep in mind the “Exceptions” to Permanent Establishment on what does not constitute Permanent Establishment, see below: –

A place is not considered a permanent establishment of a nonresident in the Kingdom if used for the following purposes:

1.Storing, displaying or delivering goods or products belonging to the nonresident.

2.Keeping a stock of goods or products belonging to the nonresident for the purpose of processing by another person.

3.Purchasing goods or products for the sole purpose of collection of information for the nonresident.

4.Carrying out other activities of preparatory or auxiliary nature for the interests of the nonresident.

5.Drafting contracts for signature in connection with loans, delivery of goods or activities of technical services.

NOTE: A nonresident partner in a resident partnership is considered an owner of a permanent establishment in the Kingdom, in the form of an interest in a partnership.

Permanent Establishment – Agent

One of the Essential concepts of Saudi income tax Agents is that a dependent agent who has any of the following authorities:

a) Negotiate on behalf of a non-resident,

b) Conclude contracts on behalf of a non-resident,

c) Has a stock of goods, owned by a non-resident, on hand in the Kingdom to supply the clients’ demands on behalf of the non-resident.

In case of insurance and/or reinsurance activities carrier out by non-resident in the Kingdom of Saudi Arabia through an agent will be considered as a permanent establishment of the non-resident even though the agent is not authorized to negotiate and conclude contracts on behalf of the non-resident.

For more training courses on Tax/ VAT click here and following are other taxation related training programs for Saudi Arabia: –