Saudi Arabia’s Minister of Finance issued Resolution No. 25 of 26 July 2023, which became effective from its date of publication on 15 September. The resolution amends certain provisions of the income tax and zakat regulations to provide more clarity and certainty to taxpayers.
In respect of expenses allowable for deduction, the resolution clarifies that capitalised interest relating to capital assets is not to be considered in calculating the interest expense limitation. It also amends the definition of ‘unfunded obligations’ as the amount of an employer’s contribution at the beginning of the fiscal year that remains unpaid at the end of that fiscal year.
The disparity in the rates for withholding tax between payments to related and unrelated parties for technical and consulting services and for international telecommunication services has been removed. The resolution reduces the higher withholding tax rate of 15% to 5%.
The amendments to the zakat regulations mainly relate to guidelines and rulings issued by the Zakat, Tax and Customers Authority (ZATCA) under Article 30. Zakat guidelines and rulings are now to be binding on ZATCA officials, except in the following situations:
- Where actual facts, activities and transactions are different than those stated in the application for a ruling.
- Where there are omissions or misrepresentations of material facts.
- Where transactions do not meet assumptions or requirements set out in the guidelines and rulings.
The Zakat guidelines and rulings will also be applied prospectively from the date of issuance, publication or amendment, and will be issued only to provide clarity to Zakat payers. Zakat guidelines and rulings may not provide any exception, exemption, privilege, deduction, or any other advantage, other than those provided in Zakat regulations.
Contact PPG Saudi Arabia – James Elliot-Square, Regional Business Development Manager at PRO Partner Group below.