Saudi Arabia is planning significant reforms to its income tax laws through amendments to the ‘Income Tax Law’. The country’s Zakat, Tax and Customs Authority (ZATCA) has released draft laws seeking public input on changes that aim to overhaul the tax code in line with its Vision 2030 economic agenda.
According to Jean Abboud, Partner and Head of KSA at BSA Legal, the proposed law represents a significant reform, aiming to modernize the tax system in line with global best practices.
Tax residency and filings
The draft introduces specific provisions for determining tax residency and filing requirements. It mandates tax residents and entities with taxable activities in the kingdom to adhere to stringent filing requirements. Compliance burden is expected to rise considerably under the new framework.
Income sources and exemptions
The draft law proposes that income derived from sources within Saudi Arabia forms the crux of taxable income. While exemptions remain for certain capital gains and employment income, the scope has been refined. No new categories of taxpayers are introduced.
Withholding tax changes
New withholding tax rates are proposed for various payment types to residents and jurisdictions with preferential tax regimes. For example, services payments to non-residents may be subject to a 10% withholding tax.
Deductions and incentives
The proposed reforms expand deductible expenses, including those incurred to earn income. The draft also aims to incentivize green investments and enhance Research and Development (R&D) deduction provisions.
Compliance and penalties
The statute of limitations for tax assessments is reduced from five to three years, with provisions for extensions. Penalties for non-compliance, especially tax evasion, are significantly increased. Late payments or filings would attract higher fines to promote accountability.
Transforming Saudi Arabia’s fiscal environment
These changes are pivotal for Saudi Arabia’s economic trajectory, particularly in fostering foreign investment and domestic growth as part of Vision 2030. Taxpayers, both businesses and individuals, should closely review these changes to understand their effect on compliance and tax planning. Public feedback is invited to help shape the final laws.