Keeping abreast of tax developments is essential for any business hoping to optimise its financial position. In Saudi Arabia, Deloitte & Touche Bakr Abulkhair & Co. maintains a continuous dialogue with the Department of Zakat and Income Tax (DZIT) to ensure that we offer our clients the best advice possible. Additionally, through roundtables and road shows across the kingdom we share the latest tax information with private sector stakeholders in a bid to help the business community stay on top of any new updates. One notable development in 2012 was the confirmation from the DZIT that from the end of February 2012, the procedure for updating taxpayer information can be performed online.

Recent DZIT clarifications have included useful tips such as the importance of submitting financial statements at the same time as the Zakat/tax return, in order to obtain the tax certificate. When the financial statements are not submitted with the Zakat/tax return, the return can still be accepted to avoid a delay penalty for failure to submit it. However, no certificate will be issued until financial statements have been submitted. It is worth noting that this ruling is not applied on 100% foreign-owned companies. Additionally, the DZIT may take up to three weeks to issue certificates starting from the date of submission of financial statements.

All attachments in the tax return must be submitted even if the amounts are nil (all schedules must be stamped). It is important not to use brackets to denote negative amounts when filling the returns, but to instead use the negative sign. Attaching the social insurance and annual withholding tax returns is also important, as is filling statement 4 of the return (depreciation) as per the Tax Law. For holding companies and their subsidiaries where they are owned 100% directly or indirectly, and with the exception of companies owned by father and sons, it is important to prepare the Zakat declaration based on the consolidated financial statement. A difference in the point of view of the taxpayer and the DZIT with respect to filing the return results in differences in Zakat liabilities, which will block the process of issuing the certificate. Thus, the taxpayer should settle the differences (while preserving his right to object), in order to obtain the certificate.

Deloitte Middle East continually enhances its tax services offering in anticipation of our client needs and market demands. Zakat Advisory, for example, is a recently introduced service offered by Deloitte to calculate Zakat payable at an individual and/or company, business, or family office level. We have the unique ability to determine the Zakat payable according to the four main schools of Islamic jurisprudence, or in accordance with the views preferred by contemporary Islamic scholars, as required by the client.

In the area of capital gains tax, Deloitte put the following scenario to the DZIT: a non-resident foreign company has an associated company registered in Saudi Arabia. This foreign company would like to transfer its physical location without any changes in partners, managers or executives, and also without any change to the name of the foreign shareholder. The main activity will remain the same and there will be no selling of the company’s assets. The DZIT provided clarification that if only the location of the foreign shareholder changes and the shares of the partners in the foreign shareholder did not move to other partners (meaning there is no change in the ownership of the partners’ share in the foreign shareholder), then this transfer will not result in capital gains and no capital gains taxes will be imposed on the company.

Recent and upcoming tax treaties worth taking note of are the Japan treaty which became effective from January 1, 2012, the Singapore treaty which became effective in Saudi Arabia from January 1, 2012 and effective in Singapore from January 1, 2013 and a new treaty with Bangladesh, which is not yet in force. In order to perform effective tax planning, it is important to be aware of key areas that are common to all three treaties. These include articles on residency, permanent establishment, business profits, dividends, income from debt claims, royalties, capital gains and directors’ fees.