DBI Saudi Arabia_ Booklet A5 2012_39023:DBI Saudi Arabia_ Booklet A5 2012_39023

DOING
BUSINESS SAUDI
ARABIA
IN

HLB Otain | Mudaiheem

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doing business
in Saudi Arabia

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foreword
This booklet has been prepared for the use
of clients, partners and staff of HLB
International member firms. It is designed
to give some general information to those
contemplating doing business in Saudi
Arabia and is not intended to be a
comprehensive document. You should
consult us, therefore, before taking further
action. HLB Otain Mudaiheem CPAs and
HLB International cannot be held liable for
any action or business decision taken on
the basis of information in this booklet.
HLB Otain Mudaiheem CPAs
August 2012

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about HLB International

Formed in 1969, HLB International is a
world-wide network of independent
professional accounting firms and
business advisers. The network
comprises member firms in over 100
countries who, collectively, have 1,900
partners plus 14,500 staff in 500
offices. Member firms provide clients
with a comprehensive and personal
service relating to auditing, taxation,
accounting and general and financial
management advice.
Up-to-date information and general
assistance on international matters can
be obtained from any of the member
firm partners of HLB Otain Mudaiheem
CPAs listed in this booklet or from the
Executive Office in London.
HLB International
Executive Office
21 Ebury Street
London SW1W 0LD
UK
Telephone +44 (0)20 7881 1100
Fax +44 (0)20 7881 1109
Email: mailbox@hlbi.com
Website: www.hlbi.com

HLB International is a world-wide network of

independent professional accounting firms and
business advisers, each of which is a separate and
independent legal entity and as such has no liability
for the acts and omissions of any other member. HLB
International Limited is an English company limited
by guarantee which co-ordinates the international
activities of the HLB International network but does
not provide, supervise or manage professional
services to clients. Accordingly, HLB International
Limited has no liability for the acts and omissions of
any member of the HLB International network, and
vice versa.
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contents
FOREWORD

AUDITING

11

ABOUT HLB INTERNATIONAL

GENERAL INFORMATION
Climate
Population
Currency
Measures and Weights
Calendar
Language
Government
Legal System
Macroeconomic Conditions
Economy
International Organizations
Transportation
Other Information

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TAXATION
Reporting period
Tax rates
Persons subject to tax
Concept of residency
Permanent establishment
Sources of income
Individual taxation
Withholding tax
Withholding tax rates
Tax Agreements

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HLB IN SAUDI ARABIA

15

INVESTMENT FACTORS
Governmental policy and incentives
Regulatory incentives
Custom Duties
Sources of finance
Import and export of goods

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Immigration law for foreign

employee and investors

Employment regulations
Visas
Health Insurance
Cultural and Lifestyle

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9

TYPES OF BUSINESS
ORGANISATIONS
Limited liability Company
Joint Stock Company
Branch Office
Other forms of business
General requirements for foreign
investments in Saudi Arabia

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general information
Saudi Arabia is officially known as
the Kingdom of Saudi Arabia which
was founded by Abdul-Aziz bin Saud
in 1932. The kingdom is sometimes
called "The Land of the Two Holy
Mosques" in reference to the Grand
Mosque (in Makkah) and The
Prophet's Mosque (in Medina), the
two holiest places in Islam.
Saudi Arabia Area: Total area is
2,149,690 sq km 830,000 sq mi.

Measures and Weights

The metric system is generally used in
Saudi Arabia for measures and the
Kilogram for weights.
Calendar
The Hijri calendar starts on the day
that the Prophet Mohammed (Peace be
upon Him) migrated from Makkah to
Madinah and it is the official calendar
in Saudi Arabia.

Climate
Language
The climate of Saudi Arabia varies
from one region to another because
of its diverse topographical features.
The main cities are marked by high
temperatures in summer. Winter
temperatures in the northern and
central regions may drop to below
freezing.
Rainfall, from none at all for up to
10 years in the Rub Al-Khali, to 20
inches a year in the mountains of
Asir Province.
Population
It is estimated to be 27 million
including over 8 million expatriates.
The population was nomadic but
due to the rapid economic and urban
growth, most of the population now
is settled. Saudi Arabia's population
is characterized by rapid growth and
a large cohort of youths. The
expatriates are manly from Arab and
Asian countries.
Currency
The official currency of Saudi Arabia
is the Saudi Riyal (SR). It is pegged
to U.S. dollar ($1=SR3.75).

The official and common language of

most of the people of Saudi Arabia is
Arabic. English is widely spoken in urban
areas. English is taught in schools from
the elementary school level.
Government
The King of Saudi Arabia is both head of
state and head of government (Prime
Minister). The Council of Ministers is the
direct executive authority in the
Kingdom. The Council of Ministers has
the power to set down the nation's
internal, external, financial, economic,
educational, and defense policies.
Legal System
Islamic Shari'ah, derived from the Qur'an
and the Sunnah, forms the basis of
Saudi Arabia's legal system. The current
Saudi court system is composed of a
Supreme Court, Courts of Appeals, and
First-Instance Courts (General Courts and
Summary Courts). Saudi Arabia also has
an administrative judicial body known as
the Board of Grievances which stands
alongside the Courts System and is
affiliated directly with the King. Litigation
in Saudi Arabia is not a common practice.

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Arbitration is favored over litigation.

However, grievances, including those
related to government administrative
decisions and commercial disputes
protested before the Board of Grievances
in accordance with the regulations.
Decisions issued by the Board of
Grievances are appealable to the audit
committees of the Board of Grievances.
Decisions involving public funds are
automatically audited.
Macroeconomic Conditions
In 2011 Saudi Arabias GDP stood at USD
576.9 billion, a growth of 6.8%, while per
capita GDP was at USD 20,244.
According to World Bank/IFC Doing
Business Project (Economies are ranked
on their ease of doing business, from 1
183. Saudi Arabia 2012 figures are:
Starting a Business 10, Registering
Property 1, Getting Credit 48, Protecting
Investors 17, Paying Taxes 10, Trading
Across Borders 18, Enforcing Contracts
138, Resolving Insolvency 73.
Economy
Saudi Arabia's economy is booming
thanks to oil exports and heavy
government spending.
The non-oil private sector provides less
than 50 percent of GDP. The Saudi
government is undertaking huge
initiatives to transform its economy.
Some of these initiatives are:
- Higher Education: more than 20
universities are inaugurated in the last
4 years. Each one is building stat of
the art campus and huge expansion for
old universities campuses is also
taking place. The King approved a
program to send thousands of Saudi
youth to study abroad each year. The
number of Saudi with overseas
scholarships is over 150,000 by
early 2012.
- Health Care: More than 100 new
hospitals and 5 specialized medical

Doing Business in Saudi Arabia

cities are under construction.

- New economic cities: The Kingdome is
building new 5 economic cites. One of
them, King Abdullah Economic City
near Jeddah is expected to have a
population of more than 2 million by
2020. Also new financial center is
being built in Riyadh with estimated
cost of more than $8b.
International Organizations
Saudi Arabia is a member of the World
Trade Organization (WTO) and several
other international and regional economic
associations, including the Gulf
Cooperative Council (GCC), a political and
economic union that includes another five
countries in the Arabian Peninsula.
Transportation
Air: Saudi Arabia has 28 civilian airports
(Jeddah airport is being expanded with
an $8b contract) and its national airlines
(Saudi Airlines) are upgrading its fleet. A
new initiative has been announced to
allow none Saudi companies to operate
local flights. Real network: Two major
projects under construction. One from
north of Saudi to a port in eastern Saudi
(mainly for transportation of mining
products) already in final stages and one
high speed project linking Makkah with
Medina passing through Jeddah. Two
other projects are on the pipeline. One
linking Eastern Saudi with its Western
part and one linking the Kingdome with
other GCC countries. Road: Saudi Arabia
has invested heavily in building its
national highway network. Thousands
of kilometers in new highways are under
construction.
Other Information
Saudi Arabia is three hours ahead of
Greenwich Mean Time (GMT +3).
Government business hours are
07.30 14.30, while most private
business operate between 9:00 18:00.

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The "weekend" in Saudi Arabia is

Thursday and Friday and most people
pray five times a day. By law shops
needs to close during prayers time.
During the month of Ramadan (fasting
month), businesses slow down
noticeably. While none Muslims are not
expected to fast, they should refrain from
eating in public and in the presence of
those who are fasting. The international
dialing code for telephone calls is +966.

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investment factors
Governmental policy and incentives

Sources of finance

Saudi Arabia possesses about 25 percent

of the worlds proven oil reserves. It is
one of the worlds 25 largest economies,
and No.1 in the MENA region. It is also
the top foreign investment destination in
the Arab world and among the top 20
globally. The government is encouraging
foreign investments and promoting Saudi
products to be exported.

Foreign investors have access to regional

and local financial institutions. Loans are
extended on commercial terms, and
Islamic forms of funding are also
accessible.

Regulatory incentives
The government is committed to reducing
bureaucracy at all levels and transforming
government departments in an effort to
support foreign investment. For Example,
The Saudi Arabian General Investment
Authority (SAGIA), through its
Comprehensive Service Centers have
representation from all relevant
government departments, in order to
assist foreign investors in the application
and approval process for operating in
Saudi Arabia.
Custom Duties
Most basic consumer products are
duty-free, e.g. sugar, rice, tea, unroasted
coffee, cardamom, barley, corn, livestock
and meat (fresh or frozen). Customs
duties of 20% are imposed on some
imported commodities for the protection
of infant industries within the Kingdom.
Import duty on other items is 5% ad
valorem on the cost, insurance and
freight (CIF) value. A limited number of
items are subject to customs duties
calculated on the basis of metric weight
or capacity rather than ad valorem; the
rates for these items are fairly low.
Foreign exchange control
There is no foreign exchange
control in Saudi Arabia

Doing Business in Saudi Arabia

Import and export of goods

For 2010, Saudi imports amounted to
$107 billion, whereas exports for the
same year amounted to $251 billon.
The monetary values of Saudi exports
are largely affected by the fluctuation in
oil prices and world demand. The main
trade partners are USA, Japan, South
Korea, Germany, India, China, Singapore,
Taiwan, United Arab Emirates, Italy,
United Kingdom, France and Holland.
Immigration law for foreign employee
and investors
Investors may apply for and obtain
commercial visa to visit any SAGIA
business center in Saudi Arabia. Visit
visas issued to investors are upgradeable
to residence permits after the investment
license is granted and the employer
identification number is received.
Foreign employees require work visa in
order to work in Saudi Arabia. Issuance
of employments visa is largely conditional
upon business needs and compliance
with nationalization requirements.
Labor issues
Although one third of its population
consists of expatriates and their families,
Saudi Arabia requires businesses to
maintain a minimum percentage of Saudi
nationals. Citizens from Gulf Cooperative
Council are treated similar to Saudis as
regards employment.
Securing viable private sector
employment for Saudi nationals has been
an issue for many years. In recent years,

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this has become a priority for the

government. The Ministry of Labor has
therefore implemented some
nationalization policies that require
private companies in Saudi Arabia to
have a certain percentage of Saudi
national employees. To achieve this goal,
certain jobs are reserved exclusively for
Saudi nationals.
At present, the principal penalty for not
achieving "adequate" nationalization of the
work force is for the Ministry of Labor to
refuse to grant work visas for new
foreign nationals for employment in Saudi
Arabia by the non-complying company.
Employment regulations
The Labor and Workmen Law regulate all
matters relating to Labor in Saudi Arabia.
The Labor Law does not allow the
formation of labor and trade unions in the
Kingdom. Disputes between employers
and employees are referred to the
"Commission for Settlement of Disputes
which has the exclusive jurisdiction to
render decision on such matters. The law
provides for inspection of business
premises by inspectors from the Ministry
of Labor to ensure compliance with its
provisions.
The law stipulates the maximum working
hours to be 8 per day or 48 hours per
week in all months of the year with the
exception of Ramadan (the Muslim holy
month of fasting) when the maximum
number of working hours is restricted to
6 per day or 36 hours per week. In the
case of businesses such as hotels,
restaurants, seasonal enterprises and
where approval has been granted by the
Minister of Labor, the maximum number
of daily working hours may be increased
to nine. Similarly the number of daily
working hours may be reduced for people
employed in industries or operations
classified as hazardous or harmful by the
Minister of Labor.

duration may be cancelled for a valid

reason by either party to the contract
provided a 30 days prior notice is given if
the employee is paid on monthly basis.
For other employees a 15 days prior
notice is necessary.
On the expiry of specified-term contracts
or the termination of unlimited duration
contracts by employers, employees are
entitled to a service award of half a
month's salary for each of the first five
years of service and one month's salary
for each year thereafter. The current rate
of pay is taken as the basis for
computation of the service award. If an
employee with an unlimited
duration contract resigns, he is entitled to
one-third of the specified-term award if
his period of service is between two and
five years; it is two-thirds of the
specified-term award if his service period
is more than five and less than ten years;
and the full specified-term award if his
service period is more than ten years.
The rates of pay in the Kingdom vary
considerably from industry to industry
and between nationalities. The Labor Law
provides for the minimum overtime rate
as 150% of the normal rate. Bonuses are
payable at the discretion of the employer.
It is, however customary for banks and
petrochemical companies to pay their
staff annual bonuses.
Social insurance in the Kingdom is
administered by the General Organization
for Social Insurance. Employers are
required to make contribution at the rate
of 9% of salary (including benefits in kind)
for Saudi employees who are required to
contribute same percentage of their
salary in respect towards pension. In
addition, employers are required to
contribute 2% of the basic salary of both
Saudi and non-Saudi employees to cover
the job hazards risks (provisional branch).
Visas

A labor contract entered into for a

specified term terminates upon the expiry
of its term. If both parties mutually agree
to apply the contract thereafter then it is
deemed to have been renewed for an
unlimited duration. Contracts of unlimited

A visa is required to travel to Saudi Arabia.

The passport should be valid for at least 6
months or the entire period of your stay,
whichever is longer. Saudi Arabia doesnt
recognize dual citizenship, so you should
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avoid carrying two passports with you at

any time, as one of them will be
confiscated if discovered.
The applications should be addressed to
the nearest Saudi Embassy or Consulate
in your legal country of residence. Certain
requirement needs to be fulfilled in order
to be granted a visa, which vary
according to the purpose of your visit and
nationality. The Saudi Embassy or
Consulate will be able to provide you
with detailed information.
Visas are granted to business, academic
or diplomatic visitors and their family
members. For religious purposes visas
are issued to Muslims with some
restrictions. The Kingdom of Saudi Arabia
does not issue tourist visas except for
some specified reasons or chartered trips.
Health Insurance
Health insurance is a mandatory for
employees and there are many
international and local insurance
companies to provide coverage plans.
Cultural and Lifestyle
In Saudi Arabia, interaction between men
and women are severely limited, even in
business settings. It is recommended not
to offer a hand shack for a lady unless
you know she is OK with it. Most ladies
would accept a friendly smile instead. In
Saudi Arabia alcohols are strictly
prohibited, also there are no cinemas or
theaters; this is the main reason
shopping centers stay open till late.

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types of business organisations

Most of the business activities are
permitted to foreign investors in Saudi
Arabia except for certain activities that are
limited to Saudis and GCC citizens. Most
types of legal business entities permitted
under the Company Law are available for
foreign investment. However, the most
popular types are as follows:
Limited liability Company
Limited Liability Companies are the most
common foreign entities operating in
Saudi Arabia. It may be wholly owned
by foreigners, may have one or more
managers, with no requirement for any
manager to be a Saudi national and may
choose the start date of the fiscal year.
Joint Stock Company
Joint Stock Companies may be wholly
owned by foreigners; shares are freely
transferable, with the exception of
founders shares and may have
nominative or bearer shares and preferred
shares. The proposed Articles of
Association of Joint Stock Companies
should follow a model issued by the
Ministry of Commerce and Industry. Joint
Stock Companies must also have a board
of directors that is composed of at least 3
persons. An ordinary shareholders
meeting must be held at least once a
year, but no later than 6 months after the
end of the companys fiscal year.
Extraordinary shareholders meetings can
also be convened in order to amend the
companys Articles of Association.

scientific office to support its products

and services.
Other forms of business
Other forms of business such as
partnerships are also available to foreign
investors.
Doing business through agents and
distributors is available to foreign
investors. It may not require legal
registration; however, in some instances
it may create a permanent establishment
to the non-resident.
General requirements for foreign
investments in Saudi Arabia
- Obtaining the Foreign Investment
License (SAGIA).
- Obtaining approval of the Companies
Department at the Ministry of
Commerce and Industry (MOCI)..
- Registration with the Companies
Department of the MOCI.
- Registering the Company with the
Commercial Registry at the MOCI and
obtaining its Commercial Registration
Certificate (CR).
- Registration with the Chamber
of Commerce.
- Registration with the Department of
Zakat and Income Tax Department
(DZIT).
- Registration with the General
Organization of Social Insurance
(GOSI).
- Registration with the Municipality.
- Registration with Labor Office.

Branch Office
Companies registered outside Saudi
Arabia may establish a temporary branch
to execute a single contract with the
Government, or a permanent branch to
carry out business in Saudi Arabia with
the government or private sector, or a
non-revenue generating technical

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Auditing
In accordance with the Saudi Regulations
for Companies, limited liability and joint
stock companies are required to have
their annual financial statements audited
by independent auditors. Joint stock
companies are also required, by the
Capital Market Authority, in addition to
the annual audit, to have their quarterly
financial statements reviewed. Banks,
which are all Saudi joint stock companies,
are required by the Banking Control Law
to appoint two independent joint auditors.
Accounting and auditing in the Kingdom
are governed by the accounting standards
and standards on auditing issued by the
Saudi Organization for Certified Public
Accountants (SOCPA).
21 accounting standards have been
issued by SOCPA in total. In comparison
to International Financial Reporting
Standards (IFRS):
- 15 currently effective IFRSs have direct
corresponding SOCPA accounting
standards.
- 14 currently effective IFRSs are
partially covered by SOCPA accounting
standards.
- 9 currently effective IFRSs have no
corresponding SOCPA accounting
standards, including IAS 19, IAS 26,
IAS 29, IAS 31, IAS 32, IAS 40, IFRS
1, IFRS 4, and IFRS 6.
- 3 SOCPA accounting standards have
no corresponding IFRSs.
SOCPA undertook a project on IFRS vs.
SOCPA gap analysis, and review of
existing accounting standards issued by
SOCPA and bringing them in line with
IFRS. The Accounting Standards
Committee of SOCPA formed a committee
to look into a strategic decision whether
to continue developing Saudi Accounting
Standards or to migrate to IFRS, and have
recently resolved to gradually transform
into IFRS in a manner that takes into
consideration local factors, and ensures
the improvement of the quality of
financial reporting.

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Taxation
Saudi Arabia's tax regime is comprised of
(i) Islamic zakat, which is applicable to
resident Saudis entities and resident GCC
entities and citizens and (ii) income tax
and/or withholding tax, which are
generally applicable to income derived by
non-residents from a Saudi Arabian
source.
The current income tax regulation was
issued in 2004 by Royal Decree (M/1). As
delegated under the tax regulation, the
by-laws to the tax regulation were issued
by the Minister of Finance Resolution No
(1535). A number of revisions to the bylaws were subsequently issued by the
Minister of Finance.
The zakat, income tax and withholding
tax systems are administered by the
Department of Zakat and Income Tax
(DZIT), which has its head office located
in Riyadh, with several branches around
Saudi Arabia. As under the previous tax
regulation, the DZIT keeps playing a
major role interpreting and shaping the
provision and application of the tax
regulation through published
clarifications, circulars, rulings issued on
specific questions raised by the
taxpayers, etc.
The DZIT has the right to verify the tax
returns, and inspect the taxpayers books
and records by visiting taxpayers
premises during office hours in a process
known as the field inspection. The
DZIT may issue a notice given the reason,
raise or amend a tax assessment within
five years of the end of the statutory
deadline for filing the tax declaration for
the taxable year, or at any time with the
written agreement of the taxpayer. The
DZIT may also raise or amend an
assessment within ten years of the end of
the statutory deadline for submission of
the tax declaration for the taxable year if
the taxpayer did not file his tax
declaration or if the tax declaration is
found to be incomplete or incorrect with
the intent of tax evasion

The tax assessments are contestable

within 60 days with the Preliminary Zakat
and Tax Appeal Committee (PZTAC) from
the date of receiving the tax assessment.
The PZTAC is an administrative
committee under the Ministry of Finance
whose members are appointed by the
Minister of Finance for a four-year term.
The PZTACs decisions on appeals are
appealable to the Appellate Committee for
Zakat and Tax Appeals (ACZTA) within 60
days of its date of issuance. Similarly,
ACZTA is an administrative committee
within the Ministry of Finance. ACZTAs
decisions are appealable to the Board of
Grievances, which is a court of law.
Appeal filing requirements varies and
should be fulfilled in order for the appeal
to be accepted in form.
Generally, compliance with Arabic books
requirements and tax law provisions
assist taxpayers avoid penalties, which
could be as harsh as a black ink arbitrary
tax assessment on gross revenues,
together consequential fines, and
extended years of tax appeals.
Reporting period
The tax year is effectively a calendar year.
Different tax years may be adopted under
certain conditions. Related companies, as
defined under the tax regulation, must
adopt the same tax year.
Tax rates
A flat tax rate of 20% is applicable to
taxable income, plus 5% withholding tax
will attract on dividend payments made
to non-resident partners/head office.
Taxpayers engaged in natural gas
investments are subject to tax at 30%
plus the 5% withholding tax on dividends,
whereas taxpayers engaged in the
production of oil and hydrocarbons are
subject to tax at 85%.

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Persons subject to tax

The following persons are subject to the
Saudi tax and/or withholding tax:
- a resident capital company on nonSaudi shares.
- a resident non-Saudi natural person
who does business in the Kingdom.
- a nonresident who does business in
Saudi Arabia through a permanent
establishment.
- a nonresident on other income subject
to tax from sources within Saudi
Arabia.
- a person engaged in the field of natural
gas investment.
- a person engaged in the production of
oil and hydrocarbon materials.
Concept of residency
A natural person is resident in the
Kingdom for a taxable year if he meets
any of the following two conditions:
- he has a permanent place of abode in
the Kingdom and is physically residing
in the Kingdom for a period in
aggregate not less than 30 days
during the taxable year.
- he is physically residing in the
Kingdom for a period not less than
183 days in the taxable year.
A company is considered a resident
company if it meets any of the following
two conditions:
- it is formed under the Saudi
Companies Law.
- its place of central control and
management is situated within
the Kingdom.
Permanent establishment
A permanent establishment of a
nonresident in Saudi Arabia generally
consists of the permanent place of
activity of the nonresident through which
it carries out business, in full or in part,
including business carried out through an
agent. As specifically determined by the
tax law, the following are considered a
permanent establishment:

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Doing Business in Saudi Arabia

- construction sites, assembly facilities,

and carrying out their related
supervisory activities.
- installations and sites used for
surveying for natural resources, drilling
equipment, and ships used for
surveying for natural resources, as well
as carrying out their related
supervisory activities .
- a fixed base where a nonresident
natural person carries out business.
- a branch of a nonresident company
which is licensed to carry on business
in Saudi Arabia.
A permanent establishment could also be
created by a non-independent agent with
certain powers or under the provisions of
certain tax treaties to which Saudi Arabia
is party.
Sources of income
Income is categorized as being
from a Saudi Arabian source if it is
derived from:
- an activity which occurs in
the Kingdom.
- immovable property located in Saudi
Arabia, including gains from the
disposal of an interest in such
immovable property and from the
disposal of shares or partnership
interests in a company the property of
which consists -directly or indirectlyprincipally of interests in such property.
- the disposal of shares or a partnership
interest in a resident company.
- the rental of movable property used in
the Kingdom.
- the sale or license to use industrial or
intellectual property in the Kingdom.
- shares, management fee, or director's
fee paid by a resident company or a
permanent establishment.
- payments for services made by a
resident company or permanent
establishment to its head office or to
an affiliated company.
- payments made by a resident or
permanent establishment for services
performed in whole or in part in the
Kingdom.
- payment for exploitation of a natural
resource in Saudi Arabia.

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- attributable to a permanent
establishment of a nonresident located
in the Kingdom, including income
attributable to sales in the Kingdom of
goods of the same or similar kind as
those sold through such a permanent
establishment, and income arising from
the rendering of services or the
performance of other activity in the
Kingdom of the same or similar nature
as activity performed via such a
permanent establishment.
Individual taxation
There is no individual income tax in Saudi
Arabia on employment income.

Withholding tax rates

Nature of payment
Management fees
Royalties/license fees
Payments to head office or a
related party for services
Technical and consulting services
paid to unrelated parties
Rents, air tickets, air cargo,
air freight / marine freight,
international telecommunications
Loan fees (mostly any payment
associated with use of fund)
Dividend payments
Insurance and re-insurance
premiums
Other payments

Rate
20%
15%
15%
5%
5%
5%
5%
5%
15%

Withholding tax
The non-resident company which does
not have a permanent establishment (PE)
in Saudi Arabia is subject to withholding
tax on taxable income derived from a
Saudi Arabian source.
Tax is required to be withheld on actual
payments made to non-residents parties
and then required to settle with the DZIT
within 10 days from the end of the
following month in which the payments
were made. The DZIT has clarified that
the payment made to the companys
parent company or to a non-resident
related party or non-resident shareholder
against provision of services will be
subject to withholding tax in Saudi
Arabia, irrespective of the place of
performance of such services, the
payments in respect of related parties will
attract 15% withholding tax. The tax law
states that companies will be considered
related if they are controlled 50% or more
by the same interest. In respect of capital
companies, control is defined as
ownership of the voting power, or value
of the company, held directly or indirectly.
It is not clear if the DZIT will apply the
control definition strictly in accordance
with the above criteria, or whether other
considerations (such as effective control
over management of a Saudi entity) also
will be a factor in determining the related
party relationships.

Where the paying entity fails to deduct or

having deducted but fails to deposit with
the DZIT any tax as required under the
new tax law, a delay fine of one percent
of the unpaid tax is computed for each 30
days of delay in settlement of tax due.
The delay period is calculated from the
tax payment due date to the actual tax
payment date.
Tax Agreements
The Saudi Arabia has signed double tax
treaty with Austria, Bangladesh, Belarus,
China, Cuba, France, Germany, Greece,
India, Italy, Japan, Malaysia, Pakistan,
Poland, Russia, Singapore, South Africa,
South Korea, Spain, Switzerland, Syria,
The Netherlands, Tunisia, Turkey United
Kingdom and Uzbekistan.
There are some tax treaties with other
countries in the pipeline.

Doing Business in Saudi Arabia

14

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HLB in Saudi Arabia

how to contact us
PO Box 18025
Riyadh 11415
Saudi Arabia
Telephone:
Fax:
Email:
Mobile:
Web:

+966 1 2002111
+966 1205 1215
otain@omcpa.com.sa
+966 50683 6268
www.omcpa.com.sa

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HLB Otain | Mudaiheem

auditors . business & tax advisors

PO Box 18025 . Riyadh 11415 . Saudi Arabia

Telephone +966 1 2002111 . Fax: +966 1205 1215 . Email: otain@omcpa.com.sa . Web: www.omcpa.com.sa

HLB Otain Mudaiheem CPAs is a member of

HLB International. A world-wide network of independent accounting firms and business advisers.

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