Saudi Arabia – GAZT postpones tax and zakat requirements for listed companies

Saudi Arabia – GAZT postpones tax

KPMG in Saudi Arabia explains pending guidelines that clarify the country's new tax and zakat requirements for listed companies.

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On 4 December 2016, the General Authority for Zakat and Tax (GAZT) issued a circular7 requiring Saudi companies listed on Tadawul to calculate tax and zakat based on the nationality of shareholders at year-end, for financial years ending on or after 31 December 2016. However, due to uncertainties about the mechanics for implementing the circular, GAZT issued a second circular which postponed8 the implementation to the financial year ending 31 December 2017 and future years. The GAZT will also issue guidelines regarding the mechanics and the procedures for implementing the circular.

As a result, listed companies on Tadawul will prepare their zakat and tax declarations for the year ended 31 December 2016 similar to previous years. Companies that already prepared their financial statements based on the circular should consult with their auditors to determine the impact of postponing the circular on their zakat and tax provisions.

Once in effect, the circular could significantly affect how listed companies are taxed. The following issues should be considered:• Listed companies may no longer be able to rely on Ministerial Resolution 1005 to consolidate fully owned subsidiaries. Accordingly, subsidiaries may be required to file separate zakat and tax declarations, which could result in a higher zakat and tax cost at the group level in addition to the increasing administrative and compliance costs.

  • Listed companies will be subject to the provisions of income tax law, which were not applicable as zakat payers. Certain tax provisions limit the deductibility of expenses such as interest, repairs and maintenance.
  • Listed companies may need to update their GAZT registration system (ERAD) annually to reflect the correct shareholding percentages between GCC and non-GCC shareholders.
  • The availability of details regarding the residency status of shareholders through the Tadawulaty system will put pressure on listed companies to comply with the withholding tax regulations and deduct/remit withholding tax on dividends paid to nonresident shareholders.
  • Listed companies will be required to calculate a tax provision to account for their non-GCC shareholders. The calculation of tax provision for interim reporting may be challenging since tax is determined based on ownership at year-end.

In addition to changing how listed companies are subject to tax and zakat going forward, the circular may result in additional costs due to, for example, the tax liability on the non-GCC shareholders and extra compliance costs. Companies should start preparing in advance for the impact of the additional costs and compliance requirements.

7 Circular No. 6768/16/1438.

8 Letter No. 12097/16/1438 dated 19/4/1438H (corresponding to 17/1/2017).

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