Zakat and tax services are considered one of the fundamental pillars of the financial system in the Kingdom of Saudi Arabia, as they contribute to strengthening financial compliance and achieving economic development. These services include providing guidance and facilitation to taxpayers regarding their Zakat and tax obligations, monitoring the implementation of regulations, and safeguarding the rights of both the state and taxpayers. This, in turn, enhances transparency and efficiency within the financial sector.
Learn About Zakat and Tax Services
Zakat
Zakat is levied in the Kingdom of Saudi Arabia on Saudi or GCC individuals, as well as on companies in relation to the shares of Saudi or GCC partners who meet the residency conditions in the Kingdom, and the shares of non-Saudi partners in resident companies listed on the Saudi financial market.
Corporate Income Tax
Income tax is imposed on resident companies in the Kingdom of Saudi Arabia in respect of the shares of non-Saudi partners, regardless of whether such shares are held directly or indirectly. This excludes the cases mentioned above related to companies listed on the Saudi financial market. Income tax is also imposed on legal and natural persons (individuals), as well as non-resident companies—even if they are Saudi nationals—who provide services within the Kingdom through a permanent establishment, as defined in the regulations issued by the Zakat, Tax and Customs Authority regarding when a permanent establishment is deemed to exist.
Withholding Tax
Withholding tax applies to non-residents, whether Saudi or non-Saudi, on amounts derived from sources within the Kingdom, according to the prescribed rates. This does not apply to exemptions stipulated in the regulations or cases covered by applicable double taxation treaties, if any.
Value Added Tax (VAT)
Value Added Tax is an indirect tax applied to all persons generating income through economic activity in the Kingdom. It is ultimately borne by the final consumer of goods or services, while the role of the taxpayer or business before the Authority is to collect the tax from the consumer and remit it to the Authority. Exceptions apply as stated in the regulations, such as entities that do not exceed the mandatory registration threshold.
Real Estate Transaction Tax (RETT)
Real Estate Transaction Tax is imposed on any real estate transaction, whether for land or residential property, in whole or in part, even if the property is not officially documented. The purpose of the transaction does not affect the tax rate, which is 5%, except for exemptions specified in the Real Estate Transaction Tax regulations.
The tax base and calculation of Zakat and each type of tax differ in terms of components, applicable rates, penalties for non-compliance with regulations issued by the state and their updates, as well as the timing for filing returns and remitting each type of tax.
When Does the Zakat or Tax Year Begin for a Taxpayer?
Typically, when a commercial registration is issued, an account is automatically created with the Zakat, Tax and Customs Authority, as it is electronically linked with the Ministry of Commerce. The taxpayer may subsequently adjust the Zakat year if it differs from the commercial registration date, such as the date stated in the articles of association or the actual commencement date of business activity, provided that this is duly substantiated and approved by the Authority.
Estimated Return vs. Accounts-Based Return
There are two approaches used, subject to applicable regulations, in determining the Zakat base, Corporate Income Tax, and Value Added Tax:
- Either an estimated return is submitted, which applies to taxpayers who do not maintain formal accounting records and meet the conditions for exemption from preparing statutory financial statements.
- The other type is an accounts-based return, which applies to taxpayers who maintain proper accounting books and records and have financial statements certified by a Certified Public Accountant.
The Authority relies on the data presented in audited financial statements for verification purposes; therefore, an estimated return cannot be used by taxpayers who are required to maintain formal accounting records. Likewise, taxpayers submitting estimated returns are not permitted to claim deductions for expenses, as no costs or purchases are deductible under the estimated assessment method.
In estimated assessments, the Authority determines revenue, profit, and capital forming the tax or Zakat base using multiple data sources, including, for example, revenues declared under Value Added Tax, import records, transactions with third parties, and other relevant financial indicators.
After Submitting the Tax Return
After submitting the return within the prescribed deadline, the Authority may review the return if deemed necessary at its discretion. It then issues an assessment or adjustment to the return, which may include imposed penalties. The taxpayer is granted a specific timeframe to file an objection against such adjustments, if any.
Upon submission of the objection, the Objections Department at the Zakat, Tax and Customs Authority first reviews the objection memorandum from a procedural (formal) perspective. If it is deemed complete in form, the review proceeds to the substantive stage, where the taxpayer’s arguments and supporting evidence are examined.
A decision is then issued either as full acceptance, partial acceptance, or full rejection. Following the decision, the taxpayer is granted a specific period to escalate the objection to the First Instance Committee under the supervision of the General Secretariat of the Tax Committees. The taxpayer submits a memorandum to the committee, while the Authority also submits a counter memorandum presenting its position.
After the First Instance Committee issues its decision, both parties—the Authority and the taxpayer—have the right to accept or appeal the decision before the Appeal Committee, following the same procedural steps. The Appeal Committee’s decision is considered final and enforceable.
During the objection process before the committees, the taxpayer may also submit a settlement request to be heard by the Settlement Committee in order to discuss the disputed items and reach a mutually acceptable agreement. If approved, the Authority schedules a hearing session to review the case.
Important Considerations When Requesting Zakat, Tax, or Objection Services
When engaging Zakat and tax services or filing objections, it is essential to ensure that the service provider possesses the necessary qualifications, regulatory knowledge, and practical experience to handle such cases effectively, given the procedural and legal complexities involved.
so that the service beneficiary can fully benefit and receive the service in the correct manner, the following points should be considered:
- The provider of Zakat and tax services must hold a valid and officially approved license.
- Full knowledge and understanding of tax regulations, Zakat rules, and all related legal frameworks.
- Awareness of previous first-instance and appellate committee decisions when handling tax objection services or Zakat objection filings.
- Understanding of double taxation agreements between countries.
- Availability of a qualified team with the required professional experience and competencies.
- Strong knowledge of accounting standards and practical accounting expertise, as a significant part of the objection memorandum is closely linked to accounting treatment.
- The memorandum must be written in a professional and clear manner, without any wording that could distort meanings or interpretations.
- Familiarity with transfer pricing regulations and principles.
Important considerations when requesting Zakat or tax objection services include:
- In cases where there are disputed or debatable items not explicitly addressed by regulations, it is necessary to rely on alternative sources and prior Authority practices in similar cases, and appropriately align them with comparable precedents when applicable.
- Objections should not be filed against items that are clearly established under the regulations and within the Authority’s right to adjust, as such actions may lead to unnecessary costs and wasted time for the taxpayer.
- Reliance should not be limited to a single source; rather, multiple references should be considered, including regulations, laws, committee decisions, accounting perspectives, accounting standards, guidance manuals, interpretations, and prior practices.
- The objection memorandum must be drafted in a proper structure and logical sequence to ensure clarity and effectiveness.
The representative acting on behalf of the taxpayer before the committees must have full and comprehensive knowledge of all relevant matters, in order to be able to properly explain, interpret, and present arguments in a clear and persuasive manner.