Saudi Listed Companies must now consider their shareholders portfolio when filing their Zakat and Tax declarations.
The General Authority for Zakat and Tax (GAZT) issued Circular No. 6768/16/1438 dated 5/3/1438H (corresponding to 4 December 2016) which changes the way Saudi listed companies are currently accounting for their zakat and tax liability.
According to the Circular, listed companies on Tadawul will now have to file their zakat and tax declarations based on the actual shareholders portfolio at year-end and pay on the shareholdings of Saudi/GCC shareholders and tax on their foreign shareholders percentage. Prior to the issuing of this Circular, listed companies were subject only to zakat except for listed companies where there is a founding foreign shareholder for which tax should be settled.
Companies, which are wholly owned by Saudi/GCC nationals, are subject to Zakat at a rate of 2.5% instead of income tax. Companies owned by Saudi and non-Saudi (and non-GCC) nationals pay tax on the portion of income attributable to non-Saudis (and non-GCC) and Zakat on the portion of income attributable to Saudi/GCC nationals. Residents from countries belonging to the Gulf Cooperating Council (Bahrain, Kuwait,
Oman, Qatar, and the United Arab Emirates) and companies from these countries doing business in Saudi Arabia are generally subject to Zakat and not income tax.
Based on the above, the key element for determining if the company is subject to zakat or tax is the nationality of shareholders.
In case of listed companies where the shareholders may change several times during the year, including the change of ownership between GCC and non-GCC shareholders, it was not possible to identify the mix of shareholders (GCC and non-GCC) in order to accurately calculate the zakat base for GCC shareholders and the adjusted taxable profits for non-GCC shareholders.
Therefore, prior to the Circular, the GAZT ignored the shareholding mix of listed companies and subjected listed companies to zakat, except for listed companies where the founding foreign shareholder can be identified.
The key highlights of the new Circular can be summarized as follows:
The circular will apply to tax year which ends after the issuance of this Circular. With respect to declarations already submitted based on ownership percentages reflected in the Articles of Association, the tax years would be assessed based on the information, which were available at that time.
The circular could have significant impact on how listed companies will be taxed going forward. The following issues should be considered:
The circular clearly changes the way listed companies will be subject to tax and zakat going forward and may result in additional costs to the listed companies such as the tax liability on the no-GCC shareholders and the additional cost of compliance. Companies should start preparing in advance for the impact of the additional costs and compliance requirements.
For additional details with respect to this Alert, please contact the following:
Head of Tax
T: +966 11 874 8579
Head of International Tax, Jeddah Office
T: +966 12 698 9595
Tareq Al Sunaid
Tax, Khobar Office
T: +966 13 887 7241