Objections and Appeals

Article 60

1.  A taxpayer has the right to object to an assessment or reassessment made by the Department within the legally prescribed period of 60 days of receipt of the assessment or reassessment letter. The objection must be in a memorandum stating reasons for objection and be addressed to the notifying Department. If the end of the objection period falls within an official holiday, the objection shall be accepted if filed during the first working day immediately after such a holiday.

2.  The Department shall consider the objection. If reasons and documents presented are satisfying, the Department may accept the objection, in full or in part, and notify the taxpayer of the reassessment accordingly. If dispute continues between the Department and the taxpayer, the Department shall refer the objection to the Preliminary Committee.

3. The objection is not considered accepted in form unless the taxpayer has paid due amounts for undisputed items or unless an agreement has been made to make payment in installments. Making payment, and requesting installment arrangement and obtaining approval on it, should be done within the legally prescribed period for objection.

4. The Department and the taxpayer may appeal to the Appeal Committee the Preliminary Committee resolution within 60 days of notice of such resolution.  If the end of the appeal period falls within an official holiday, the appeal shall be accepted if filed during the first working day immediately after such a holiday. Both parties may also appeal the resolution by the Appeal Committee to the Board of Grievances within 60 days of notice of such resolution.

Article 61

 1. Preliminary Committees shall be formed for settlement of tax disputes between the Department and taxpayers. Each Preliminary Committee shall consist of a chairman and at least three members specialized in accounting, law and taxation; one member shall be from the Department. The grades of members will not be less than grade 10 or equivalent grade in accordance with Civil Service Regulations.

2. A Preliminary Committee shall be changed every four years provided that one member or more is (are) retained for one more term or longer.

3.  The Committee’s Chairman shall inform the Department and the taxpayer of the date of the Committee’s hearing session where the two parties can present their positions, reasons and documents; a copy of the Department’s memorandum presented to the Committee on the taxpayer’s objection shall be attached with the notice to the taxpayer. If the objecting taxpayer is a foreign entity with no representative in the Kingdom, the taxpayer shall be informed of the date of the session at least 90 days before that date through the Kingdom’s Ministry of Foreign Affairs.

4. If either party or both parties fail to attend the session, the Preliminary Committee may issue its resolution based on circumstances and documents presented to it. The session could be postponed for compelling reasons satisfying to the Committee but no more than twice.

5. Presence of majority of the Preliminary Committee members, including the Chairman or Deputy, is required to convene a session.

6. Before examining the substance of the objection, the Committee shall examine the objection if proper formalities are met: submission of the objection during the legally prescribed time, proper legal representation by the two parties, and payment of due amounts by the taxpayer on agreed upon items.

7.  The Preliminary Committee issues its resolution by majority after hearing the two parties and considering their reasons. If the vote is in tie, the Chairman’s vote shall win.

8. The tax payable per the resolution should be neither less than the amount declared by the taxpayer/ representative nor more than the tax assessed by the Department.

9. The Committee shall inform the Department and the taxpayer of its resolution by a registered official letter or by other means that provide receipt of delivery. The Preliminary Committee resolution is final unless either party appeals it within 60 days of receipt.

10. The Department must implement the Preliminary Committee resolution, reassess accordingly and inform the taxpayer of the new reassessment, even if the resolution has been appealed.

11. If the taxpayer wants to appeal the Preliminary Committee resolution, the taxpayer has to comply with the following:

a. Payment of tax liability due to the Department as per the Preliminary Committee resolution, or submittal of a bank guarantee of the full payable amount, valid for at least one year, automatically renewable, cashable after the final resolution at the exclusive discretion of the Department and compatible with the format approved by the Saudi Arabian Monetary Agency. This is a condition to accept the appeal in form.

b. Submittal to the Appeal Committee of a memorandum stating grounds for appeal, any additional documents, payment receipt or a copy of the bank guarantee in order to register the appeal in the  Appeal Committee’s record within the legally prescribed period.

c. The bank guarantee shall not be released nor cash payment refunded unless final resolution is issued on the dispute.

Article 62

 1. It should be considered in the proposal for forming the Appeal Committee stated in Article 67(b) of the Law that the Committee should consist of a chairman and at least four members specialized in law, accounting and taxation.

2. Presence of majority of the Appeal Committee members, including the Chairman or Deputy, is required to convene a session.

3. Before examining the substance of the appeal, the Committee shall examine the appeal if proper formalities are met: submission of the appeal during the legally prescribed time, proper legal representation by the two parties, payment of due tax amounts by the taxpayer on items not appealed and submittal of a bank guarantee on disputed items in a format compatible with the format approved by the Saudi Arabian Monetary Agency.

4. The Appeal Committee issues its resolution after hearing the two parties and after considering their documents and reasons. In the absence of consensus, the resolution shall be issued by majority. The resolution should be neither less than the amount declared by the taxpayer/ representative nor more than the tax assessed by the Department.

5. The Appeal Committee may seek the advice of experts or consultants at a fee to be determined on case-by-case basis and should be specified in the assignment letter.

6.  The Appeal Committee shall provide the Department and the taxpayer with a copy of its resolution by a registered official letter or by other means that provide for receipt of delivery.

7.  The Appeal Committee resolution is final and binding to the two parties unless appealed to the Board of Grievances.

8. A Ministerial Resolution will be issued to determine awards to chairmen, members and assistants of Preliminary and Appeal Committees.

Withholding Tax

Article 63

1. A non-resident with no permanent establishment in the Kingdom is subject to tax for any amount realized from a source in the Kingdom and the tax is withheld at the following rates of gross amount:

2. “Management fees” means payments for management services contracts, such as hotel management contracts, ship management contracts, etc.

3. “Technical and consulting services’ means any type of technical, technological and scientific services, including studies and research on different fields, surveying work of scientific, geological and industrial nature, consulting or supervisory services, or any type of engineering services including relevant designs.

4. “Payments for air tickets, air freight and maritime freight” means any payment for air tickets, air freight and maritime freight paid in the Kingdom to air and maritime transport companies, their agents or representatives in the Kingdom, excluding payments for freight of goods from outside to the kingdom’s ports.

5. “Payments for international telecommunications services” means any amounts paid to a non-resident party in return for services related to provision of international telecommunications services from the Kingdom.

6. “Dividends” means any distribution by a resident company to a non-resident shareholder, and any profits transferred by a permanent establishment to related parties; the following should be considered:

a. Dividends by companies engaged in natural gas investment, oil and hydrocarbons are not subject to withholding tax.

b. Partial or full liquidation of a company is deemed to be dividends for payments in excess of paid-in capital.

c. Subjection of a distributing company to income tax shall not preclude imposition of withholding tax on its dividends.

7. “Other payments” means payments from a source in the Kingdom to a non-resident for services other than services mentioned in this Article (1) above.

8. The withholding tax as of rates stated in this Article (1) shall be imposed on total amount paid to the non-resident notwithstanding expenses incurred to make the income, and notwithstanding full or partial allowance/disallowance, as a deduction, of such payment; it shall also be even imposed on payments attributed to contracts concluded before the effective date of the Law.

9. The withholding person must comply with the following:

a. Submittal of a monthly withholding statement on the form prescribed by the Department during the first 10 days of the month following the month of payment to the recipient.

b. Filing withholding information for each fiscal year on the form prescribed by the Department not later than 120 days of the end of the fiscal year, and not later than 60 days of the end of the  fiscal year for partnerships.

c. Maintenance of relevant records to prove compliance with withholding provisions. Such records shall at least include name and address of a recipient, type and amount of payment and amount withheld. These records shall be kept for at least ten years after payment unless the case is still under consideration by the Department or by any other competent Committees in which case the records should be kept until the consideration is over or a final resolution is issued.

Advance Payments of Tax

Article 64

1. “Advance payments of tax” as stipulated by Article 70 of the Law means,  notwithstanding Article 60(b) and Article (69) of the Law, advance payments of tax by the taxpayer for the tax year at the legally prescribed early dates under the following controls:

a. The taxpayer has earned income during the year.

b. An advance payment is 25 percent of the resultant of the taxpayer’s tax liability based on the previous year return minus withheld tax on the taxpayer for the previous year.

 “Tax liability for the previous year” means tax liability under the provisions of the Law and these Regulations.

 “Withheld tax,” means tax withheld at source on the taxpayer’s activity under Article 68 of the Law.

c. Three equal advance payments of tax on the last day of the sixth, ninth and twelfth months of the tax year.

d. Late payment of an advance payment is subject to a delay penalty of 1 percent of payment amount for every 30 days of delay.

e. Collection and recovery provisions of the Law apply to late payment of advance payment of tax.

2. The Department may reduce advance payments in proportion with the drop in income if it is satisfied that the taxpayer’s income for the tax year will be at least 30 percent less than the amount of income for the preceding tax year.

3.  A taxpayer may request reduction of advance payments in a written request to the Department showing reasons thereof and attaching supporting documents provided that the taxpayer has made the first advance payment in full and on time. The Department has to make a decision in regard to the request within 30 working days of the date of receipt of such request.

4. The provisions of this Article are without prejudice to respective effective arrangements with companies engaged in production of oil and hydrocarbons.

Payment of Tax in Installments

Article 65

1.  A taxpayer may request payment of payable amounts of tax and penalties in installments according to the following:

a. A taxpayer should submit a written request for installments showing: amount of tax liability, the respective financial period(s), reasons for inability to pay on time, supporting documents thereof, and a specific installment plan proposal ( number of installments, installment amount, and advance payment (if any)). The Department should consider the taxpayer’s request and respond to it within 30 days.

b. The installment period should not exceed the year(s) for which the accumulated tax is due.

c. The installments should not include any taxes and penalties withheld at source by the taxpayer to transfer to public treasury under Article (68) of the Law.

d. The installment approval shall be revoked if a taxpayer fails to make timely payment of two consecutive installments, or if it becomes clear that public treasury is vulnerable to loss. The taxpayer shall be notified in an official letter from the Department of the revoke of installment approval, in which case the taxpayer shall be required to make immediate full payment of remaining balance of amount payable by the taxpayer.

2.  A delay penalty shall be imposed on installed tax from the due date according to Article 77(a) at 1 percent of underpayment of tax.

3.  Collected amount shall first offset tax payable, then penalties. This provision also applies to other payments on accounts.

4. The Department’s Director General has the authority to approve payment in installments of payable taxes and penalties up to one million Saudi Riyals.

Refund of overpayment

Article 66

1. The taxpayer is entitled to request refund of any overpayment made under the provisions of the Law within five years of the year for which the overpayment was made. The refund request should be submitted by the taxpayer or by a duly authorized representative.

2. The Department should consider the refund request, verify overpayment and conclude refund procedures within 30 days of date of receipt of the refund request.

3.  A refund request shall not be considered if there are due returns not filed with the Department by the taxpayer.

4. A refund request for overpayment in regard to objection or appeal cases shall not be considered unless a final resolution confirming the entitlement of the taxpayer to the amount has been issued and the taxpayer has submitted a request.

5. If the Department is late in making refund of verified overpayment, the taxpayer shall be compensated at 1 percent of the overpayment for every 30 days of the delay starting 30 days from the receipt date of the refund request to the date of refund. A period less than 30 days shall not be considered for compensation.

Penalties

Article 67

1. Penalty for failure to file shall apply in the following cases:

a. Failure to file the return within 120 days of the end of the fiscal year.

b. Failure to use the legally prescribed return form notwithstanding timely filing of return.

c. Failure to pay payable tax per return notwithstanding timely filing of the legally prescribed return form.

d. Failure to notify the Department of cessation of activity and to file the return and pay accordingly within 60 days of cessation.

e. Failure to file the information return by a partnership within 60 days of the end of its fiscal year.

2. In case of failure to file the return within the legally prescribed period, the higher penalty of the following two penalties shall apply:

a. An amount equal to 1 percent of the taxpayer’s gross receipts and not to exceed 20.000 Saudi riyals.

b. According to the following schedule:

-         5% of the underpayment of tax if the delay is for up to 30 days after the due date;

-         10% of the underpayment of tax if the delay is more than 30 and no more than 90 days after the due date;

-         20% of the underpayment of tax if the delay is more than 90 and no more than 365 days after the due date;

-         25% of the underpayment of tax if the delay is more than 365 days after the due date.

3. The underpayment of tax is the difference between the amount of tax determined to be due under this Law, inclusive of any adjustments made by the Department that have become final as stated in Article 71(2) of these Regulations, and inclusive of objection cases; penalty is calculated from the legally prescribed date for filing and payment.

Article 68

1. In addition to the penalties mentioned in the previous Article, 1 percent of underpayment of tax for each 30 days of the delay shall be added in the following cases:

a. Delay in payment of tax payable per the return.

b. Delay in payment of tax payable per the Department’s assessment.

c. Delay in payment of advance payments due at the end of the 6^th, 9^th and 12^th months of the taxpayer's fiscal year.

d. Delay in payment of tax approved to be paid in installments from due date as stipulated under Article 71 of the Law.

e. Delay in paying over of tax, required to be withheld, after the first ten days of the month following the month during which payment subject to withholding provisions under Article 68 of the Law was made to a recipient and whose payment ( to the Department) is the obligation of the withholder.

2. The delay penalty of 1 percent of underpayment shall not apply if the delay period is less than 30 days of the due date.

3. Making an estimated assessment on a taxpayer shall not preclude application of the non-filing penalty and the delay penalty if application conditions exist.

Article 69

The provisions of fraud penalty as stipulated under Article 77(b) of the Law shall apply to a withholding taxpayer who conceals information or presents incorrect information and who is obligated to make payment of withheld tax.

Writing off tax liability and penalties

Article 70

For purposes of Article 79(d) of the Law, tax liability and penalties shall be written off per a resolution by the Minister in the following cases:

1- Bankruptcy of a taxpayer per a judicial ruling.

2- Death of a natural person with a proof that no property left to recover debt.

3- No movable or immovable property of a liquidated capital company to recover debt.

4- Debt amounts with which all recovery actions were taken with no success.

Levy and Recovery Procedures

Article 71

1. A taxpayer owing final payable amounts shall be required to make payment of such amounts within 30 days of the date of the demand, being the first official demand letter, followed by a second official demand letter and another 30 days.

2. Payable amounts are considered final in the following:

a. The taxpayer has agreed with the assessment.

b. The legally prescribed period for payment has passed and the taxpayer has failed to make payment of payable amount according to the taxpayer’s return.

c. The legally prescribed period for objection to a reassessment made by the Department has passed.

d. A final resolution has been issued by the Preliminary Committee, Appeal Committee or the Board of Grievances.

3. If a taxpayer has failed to comply with the first and second demand letters, the taxpayer shall be notified in an official notice of the intention to place a levy on the taxpayer’s movable and immovable property as allowed by Shari'ah (Jurisprudence) unless the payment is made within 20 days of the date of the notice.

4. The Saudi Arabian Monetary Agency (SAMA) shall be provided with a copy of the intention to place a levy to stop any withdrawals from the taxpayer’s bank accounts.

5. To place a levy on the taxpayer’s movable and immovable property, the Department shall do the following:

a. Write to SAMA to place a levy on the taxpayer’s money in local banks to the extent of payable amount of tax and penalties in order to transfer to the Department upon request.

b. Write to Customs Department to place a levy on the taxpayer’s imports to the extent of payable amount of tax and penalties.

c. Write to Ministry of Finance to seize payments (payment orders) due to the taxpayer to the extent of payable amount of tax and penalties.

d. Write to Ministry of Justice to stop any disposal of the taxpayer’s immovable property.

6. A person who has placed a levy as requested must surrender the property in its possession to the Department when it so demands. This provision also applies to a third party who owes any amount to the taxpayer on or after the date of receipt of the notice of levy.

7. If the taxpayer in debt is a natural person, the levy shall be placed on the taxpayer’s personal movable and immovable property related to the taxpayer’s activity to the extent of the taxpayer’s liability. This provision also applies to a taxpayer who is a general partner in a partnership or in a company limited by shares. A taxpayer in debt who is a partner in a capital company shall be liable to the extent of his share in the capital of the company.

8. Once the levy procedures are complete and the notice period expires, the taxpayer’s movable and immovable property shall be sold to the extent of the taxpayer’s liability in accordance with legally effective procedures. 

9. The sales proceeds are applied first against the expenses of the levy and sale, then against the tax liability and penalties. Any excess is returned to the taxpayer.

10. Furthermore, the Department has the right to coordinate with other competent agencies to stop the taxpayer from bidding for governmental work, bringing labors into the country, obtaining or renewing licenses to carry out business.

11.  Dues to the Department on a sole proprietor who dies before payment of such dues shall be collected from the deceased sole proprietor’s property before disposal of such property. Otherwise, heirs shall be required to pay such dues in proportionate with their shares in the heritage.

12. A taxpayer shall be provided with a copy of document related to any action taken against him.

13. Upon collection of all its dues, the Department shall immediately notify all concerned agencies to stop all actions against the taxpayer.

Incentives

Article 72

The Department’s employees of outstanding performance shall be granted awards as incentives based on recommendations by the Department’s Director General according to the following criterion:

1- An exceptional performance in the review and audit of taxpayers’ returns and accounts that results in detection or saving to public treasury of final and confirmed amounts. 

2- Detection, collection, and making final delivery to public treasury, of a tax liability that was previously written off, lost or unknown. 

3- The award will be up to a three-month salary in proportionate with performance and realized saving as follows:

-  One-month-salary award for amounts saved from SR. 50.000 to 250.000.

-  Two-month-salary award for amounts saved from SR. 250.001 to 1.000.000.

- Three-month-salary award for amounts saved of more than one million SR. 

Article 73

A committee shall be formed at the Department to review cases referred for awards to evaluate performance involved and propose proper awards based on presented reasons and documents.

Law and Regulations’ effectiveness Date

Article 74

The provisions of the Income Tax Law issued by Royal Decree no. M/1, dated 15/01/1425 H come into effect as of 13/06/1425 H, corresponding to 30/07/2004 as stipulated in Article 80 of the Income Tax Law published in the Official Gazette, issue no. 3990, dated 11/03/1425 H, corresponding to 30/04/2004.  These Regulations are effective as of the effectiveness date of the Law.

The provisions of the Law and Regulations apply to tax years that start after 13/6/1425H, corresponding to 30/07/2004.

Withholding tax provisions of Article 68 of the Law apply to payments made on or after 13/6/1425 H, corresponding to 30/7/2004.