Ultimate guide on GCC Taxation. Павел Игоревич Герасимов

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СКАЧАТЬ Bank allocations to a reserve fund for doubtful debts are allowable deductions. However, a bank must submit a certificate from the SAMA stating the amount of doubtful debts and the amount of doubtful debts collected during the year that should be reinstated in the tax base of the year of collection.

      ● Insurance/reinsurance companies may deduct, based on industry standards, a reserve for unearned premiums and for unexpired risks, provided that it is reported in the tax base of the following year. A reserve for unearned premiums means a part of premium amounts collected or stated in books that covers risks related to the future tax year(s). A reserve for unexpired risks mean the amount of compensation claimed or reported, but for which the payment process falls short of completion during the tax year.

      ● A taxpayer may reduce its book profit by the amount of reserves used during the year that had been readjusted when made to increase income or decrease expenses in the year of formation. Examples of such reserves are end-of-service awards, doubtful debt, and drops in prices. Such amounts are deductible, provided the following conditions are met:

      ○ The used amount was paid or accrued during the year, and it is supported by documentation.

      ○ The reserve had been adjusted in the year of formation to increase the tax base.

      SCHOOL FEES

      School fees paid by taxpayers for their employees’ children are deductible expenses, provided they meet the following conditions:

      ● They are paid to a local licensed school.

      ● This benefit is stated in the employment contract.

      PENSION FUND

      Employers’ contributions to employees’ pension funds or savings funds established under Saudi Arabia’s rules and regulations are deductible, provided that such contribution, one payment or in aggregate, is not in excess of 25 % of the employee’s income before the employer’s contributions and that the fund meets the following criteria:

      ● The fund is established according to special provisions that clearly stipulate conditions of subscription and rights of subscribers.

      ● Such obligation is stated in the employment contract or in the Articles of Association of the establishment.

      ● The fund has a character independent of the establishment and has separate accounts audited by an independent CPA.

      A capital company is allowed to deduct its contribution to a retirement fund, a social insurance fund, or any other fund established for the purpose of settling employee end-of-service benefits or to meet staff medical expenses, provided they meet certain conditions. It should be noted that there is a notification requirement to the GAZT in order to claim any deduction of the contribution.

      RESEARCH AND DEVELOPMENT (R&D)

      A deduction is allowed for R&D expenditure incurred during the tax year in connection with the generation of income that is subject to tax. Such expenditure relates to technical, scientific, and engineering experiments; computer systems; or similar research. This provision does not apply to the acquisition of land and facilities, or to equipment used for research. Such facilities and equipment are subject to depreciation under the law.

      FINES AND PENALTIES

      Fines and penalties related to income tax, paid or payable in Saudi Arabia or to other countries, are not deductible.

      Financial fines or penalties paid or payable to any party in Saudi Arabia, such as traffic fines or fines for causing damage to public utilities, are also not deductible.

      Fines or penalties paid for breach of contractual obligations, such as fines on delayed or defaulted completion of contracts, are deductible, provided they are documented by the contracting party and the income from such penalties is reported in the year of recovery.

      TAXES

      Income taxes are not deductible.

      NON-DEDUCTIBLE EXPENSES

      The following expenses are non-deductible:

      ● Wages, salaries, and whatever is so deemed, in cash or in kind, paid to an owner, partner, or shareholder, or to a member of their families, being a parent, spouse, sons/daughters, and siblings (this provision does not apply to stockholders in a stock company).

      ● Compensation in cash or in kind paid to a partner, shareholder, or to a family member, including a parent, spouse, sons/daughters, and siblings, for a property or service to the extent that the compensation is higher than the fair market value of such property or service at time of transaction.

      ● Entertainment expenses incurred for events such as parties, sports competitions, entertainment trips and activities, etc.

      ● Expenses of a natural person for personal consumption, such as personal withdrawals, dependants’ cost of living, or education.

      ● Any bribe or similar payment, which is considered an illegal practice in Saudi Arabia, even if paid abroad.

      ● Insurance commission in excess of 3 % of total premiums collected in Saudi Arabia through an agent or others and regardless of whether or not the agent is a partner.

      NET OPERATING LOSSES

      A taxpayer may carry forward operational losses, as adjusted, to the years following the loss year until the cumulative loss is fully offset. The maximum profit percentage of any year that could be used to offset cumulative losses should not exceed 25 % of the year’s taxable profit as reported in the taxpayer’s return. Carryback of losses is not allowed.

      PAYMENTS TO FOREIGN AFFILIATES

      Payments made to head offices located abroad by local branches are not deductible. Such payments include:

      ● royalties or commissions

      ● loan charges (interest expense) or any other financial fees (except loan charges paid by branches of foreign banks in Saudi Arabia to their non-resident head offices, which are considered as tax deductible expenses), and

      ● indirect administrative and general expenses allocated on an estimated basis.

      The value of goods or services delivered to the taxpayer by related parties is not deductible to the extent that it is in excess of an arm’s-length value.

      CORPORATE – GROUP TAXATION

      The income tax rules in Saudi Arabia do not allow for consolidation or grouping of taxpayers. For Zakat purposes, the concept of consolidation is acceptable, and relief may be obtained for wholly owned subsidiaries by Saudi/GCC companies that are subject to Zakat.

      Note that an entity operating in Saudi Arabia that has undertaken more than one project under the same commercial registration is required to consolidate the results of such projects into the financial statements of that entity and subject them to taxation as a single operation.

      TRANSFER PRICING

      On 15 February 2019, the GAZT published the Transfer Pricing By-Laws (the By-Laws) in final form as well as an accompanying frequently asked questions (FAQs) document.

      The СКАЧАТЬ