Others

      1. Taxpayers Registration

Question 1: Are companies with official files with DZIT under the old Income Tax Law required to register again with DZIT?

Answer: Taxpayers with official files with DZIT under the old Income Tax Law are required to up-date their information to obtain a financial number.

2. Returns:

Question 1: Are taxpayers required to file audited financial statements along with tax returns?

Answer: Article 58 (a) of the Income Tax Law states that a taxpayer, other than a non resident with no permanent establishment in the Kingdom, shall maintain the necessary commercial books and accounting records in Arabic for precise determination of the tax payable by it. This means the taxpayer is not required to file audited financial statements along with the tax return, but DZIT has the right to request them if it deems necessary. 

Question 2: Will it be satisfactory to DZIT to have the holding company file a consolidated return for all its subsidiaries or fully-owned companies, or should each company file its own separate return and pay tax accordingly?

Answer: Each subsidiary of or fully owned company to a holding company must file its separate tax return and pay due tax accordingly; the holding company tax return alone does not suffice.

Question 3: What is meant by a certificate by a chartered accountant   of correctness of a tax return if taxable income exceeds one million Saudi Riyals? What are the criterion to which a chartered accountant should adhere in his work?

Answer: A certificate by a chartered accountant of correctness of a tax return means that a chartered accountant should certify the correctness of a tax return if taxable income exceeds one million Saudi Riyals; taxable income means income before deduction of expenses. The criterion to which a chartered accountant should adhere are those of the Saudi Society for Chartered Accountants and of the Implementing Regulations of the Income Tax Law.

Question 4: Is a taxpayer required to obtain a written permit from the Department in regard to the method of computation of book cost of inventories?

Answer: A taxpayer is required to inform the Department of the method he wants to use to compute the book cost of inventories and should continue with his choice.

3. Taxation of Partnerships

Question 1: May the adjusted net profit of a foreign partner ( who has more than one activity) from a partnership adjusted with a net loss from another activity?

Answer: A foreign natural person who is a partner in a partnership may include in his return all activities he exercises in his personal capacity in the Kingdom with adjustment between profits and losses in the same return.

4. The Department's right in information

Question 1: After the issuance of the Income Tax Law with withholding tax provisions, is it still required to present a certificate by the external chartered accountant in regard to technical services performed outside the Kingdom and related to an activity in the Kingdom though withholding tax on such service is payable in any case?

Answer: The Department's right to information is confirmed by Article 61 of the Income Tax law and Article 58 of its Implementing Regulations. So, the Department may require a certificate by the external chartered accountant in regard to technical services performed outside the Kingdom and related to an activity in the Kingdom, and in such case the taxpayer has to comply and present the certificate.

5- Related Persons and Persons under Common Control

Question 1: A non-Saudi  company owns 50% of a Saudi joint company and 70% of a subsidiary company. The subsidiary company provides marketing services outside the Kingdom to the Saudi joint company. Is there a relation between the Saudi joint company and the non-Saudi company's subsidiary for tax purposes under Article 64 of the New Income Tax Law.

Answer: Under the concept of Article 69 of the new Income Tax Law, the non-Saudi company's subsidiary and the Saudi joint company are related as the non-Saudi company owns 50% or more of the two companies.

6. Payment of tax in advance installments

Question 1: Is the payment of tax in advance installments applicable to the first year of implementation of the new Income Tax Law? If yes, is the tax computed based on last year tax as per return or is the last year's tax recomputed based on the new Income Tax Law provisions, and so are the advance installments?

Answer: Article 64(1-b) of the Implementing Regulations of the Income Tax Law states that an advance payment of tax is 25 percent of the taxpayer's tax liability for the previous year as per the return. The same paragraph states that the tax liability for the previous year means tax liability under the provisions of the Income Tax Law and its Implementing Regulations. This means that the obligation to make advance payments of tax shall start as of the second year of implementation of the Income Tax Law. For example: If a taxpayer's financial year ends 31 December of every year; the taxpayer shall be obligated to make an advance payment of tax for the first time starting the 6^th month of 2006.

7. Refund of overpayments

Question 1: What are the procedures for refund of taxpayers' overpayments due to taxpayers before the effective date of the new Income Tax Law?

Answer: Refund of taxpayers' overpayments due to taxpayers before the effective date of the new Income Tax Law are subject to the old Income Tax Law provisions.

Question 2: What are the documents a taxpayer should present in order to get refunds of overpayments?

Answer: To get refunds of overpayment, a taxpayer should present a request for refund and attach proving documents of overpayment provided the taxpayer has filed all returns required. It should be noted that a refund request will not be considered in case of objection or appeal unless a final resolution has been issued proving the taxpayer's right in the overpayment.

Question 3: Shall the Department compute and pay compensation of 1 percent of the overpayment for every 30 days in case of appeals if the resolution of the Appeal Committee is in favor of the taxpayer.

Answer: The 1 percent compensation for every 30 days of delay shall be computed as of the date of the taxpayer's refund request and provided other conditions stated in Article 66 of the Implementing Regulations are met.

8. Fines (penalties)

Question 1: What are the penalties payable by the taxpayer in the following cases:

1. A capital company of gross income of one million Saudi Riyals (SR 1.000.000) and its payable tax is SR. 40.000. It has filed its return within the legally prescribed period but paid only SR. 35.000. It paid the remaining balance of SR. 5.000 after two months of the legally prescribed period.  

Answer:

1. The penalty applicable in this case is penalty for failure to file as specified in Article 70(1-c) of the Implementing Regulations of the Income Tax Law due to non-payment of tax per the return and is computed at 1 percent of gross income (1* 1.000.000 = SR.10.000) because it is higher than 10 percent of unpaid tax, in addition to 1 percent of unpaid tax for every 30 days of delay ( 5000*2% = SR. 100).

2. In the same example, two years after filing the return and 22 months after payment of the remaining tax balance of SR. 5.000, the Department did an audit of the company’s return and made a final reassessment and computed tax at SR. 70.000. In this case, the penalty applicable is for failure to file a return (SR.10.000) as it is higher than 25 percent of SR. 30.000 ( underpayment of tax), in addition to a penalty of delay of payment at 24 percent, representing 1 percent for every 30 days of delay * SR. 30.000= SR.7200.

3. Assuming the company filed an objection to the Department’s assessment within the legally prescribed period and the resolution by the Objection Committee was issued a year later ( i.e. 3 years after filing the return and 34 months after full payment of tax per the return) and tax per the resolution is SR. 60.000 instead of SR. 70.000. Based on the resolution, the penalty is SR. 10.000 ( for failure to file a return), in addition to 20.000 * 36% = SR. 7200.

Question 2: What are the penalties applicable to a capital company that has no income but incurred expenses and has failed to make timely filing of its return.

Answer: No penalties applicable to a capital company that has no income but incurred expenses and has failed to make timely filing of its return because it has realized no income.