Estimated Tax in Saudi Taxation Calculation

Estimated Tax in Saudi Taxation Calculation: If branches of foreign airline, sea or land freight and transportation companies operating in the Kingdom fail to submit proof of their tax base in accordance with Tax Law, such tax base shall be determined as follows:

The tax base for branches of foreign airlines operating in the Kingdom shall be considered five percent (5 %) of the gross income realized in the Kingdom from tickets, cargo, mail or any other income.

The tax base of foreign freight, land and sea transportation companies operating in the Kingdom shall be considered five percent (5 %) of income realized in the Kingdom from charges for freight or any other income.

qThe Department may apply estimated taxation to some other activities related to world-wide expenses in the following cases:

–When the world-wide expenses and local expenses are so interrelated that it is difficult to separate those; and

–It is difficult to file separate accounts for local activities.

qThe Department may apply estimated taxation to small activities of limited income that are not required to keep books and records at a rate of 15 percent net profit of gross income.

qIn order to enforce compliance with statutory requirements and fight tax evasion, the Department may use estimated taxation based on taxpayer’s relevant facts and circumstances in the following cases:

a) Non-filing of the return during the legally prescribed time. In case of late filing of a return based on statutory books and records before the Department has issued its estimated assessment, the Department has the right to accept and consider it according to standing procedures and being subject to legal penalties.

b) Failure to keep in the Kingdom accurate books and records that truly reflect the taxpayer’s financial position.

c) Taxpayer’s failure to prove correctness of the return by supporting documents.

d) Failure to comply with format, form and manner of books and records as required by the Commercial Books Regulations.

e) Failure to translate books and records kept in a language other than Arabic into Arabic within a set time after being notified to do so by the Department.

Estimated net profit rate will be determined based on facts, evidences and indicators relevant to taxpayer’s activity, its nature and circumstances. It shall be, under no circumstances, less than the following rates of the taxpayer’s income:

Category	Activity/Profession	Profit Rate (%)
1.	Royalties and Proceeds	75
2.	Management Fees	80
3.	Technical and Consulting Services	20
4.	Professionals such as doctors, attorneys, accountants and engineers	20
5.	General Services Offices	20
6.	Stores that sell vegetables and fruit, meat, fish, birds and livestock.	10
7.	Gas Stations	10
8.	Construction Contractors	10
9.	Other activities	15

In case of Estimated tax Assessment, the deduction from the gross income is not allowed i.e. payment for the subcontractor etc.

In case of delivery contracts from abroad with in-the-Kingdom associated work whose value is not separately specified in the contract, each associated work income shall be estimated at 10 percent of the total gross value of the contract.

Capital gains from disposal of an asset in the absence of taxpayer’s (seller’s) legal accounts shall be determined as follows:

In case of disposal of financial papers, such as shares and bonds, that are not traded in the Financial Market, the sale value of such assets shall be the contract value or the market value, whichever is higher. The sale value is compared with the cost base to determine the capital gain.
In case of disposal of an interest in a capital company, the sale value of such assets shall be the contract value, the market value or the book value in the company’s books, whichever is higher. The sale value is compared with the cost base to determine the capital gain.
In case of disposal of an interest in a partnership, the sale value of such assets shall be the contract value or the market value, whichever is higher. The sale value is compared with the cost base to determine the capital gain.
In other cases, the sale value shall be the contract value or the market value, whichever is higher. The sale value is compared with the cost base to determine the capital gain, which should not be less than 15 percent of cost base.
The disposing partner should inform the Department of the sale and pay due tax on the pre-sale period profits and on the resulted capital gains within 60 days of sale transaction. The company and the purchaser are jointly liable with the seller to pay any amounts that become due to the Department as a result of this transaction.

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