Latest KSA Tax Developments

1. The General Authority of Zakat and Tax (“GAZT”) issues VAT guidelines on employee benefits in English

GAZT has published an English translation of VAT guidelines relating to employee benefits. These guidelines confirm that salaries are not subject to VAT and provide clarification on the VAT treatment of:

(i) benefits made available to employees;

(ii) the reimbursement of employee expenses; and

(iii) the recoverability of VAT incurred on employee related expenses.

GAZT also confirmed that it will take a broad interpretation of the term “employee” and individuals will be considered employees for VAT purposes where the substance of the arrangement is similar to an employer-employee relationship.

2. The Kingdom of Saudi Arabia signs BEPS Multilateral Convention

KSA has signed the Multilateral Convention to implement tax treaty related measures to prevent base erosion and profit shifting, becoming the 84th signatory to the Convention. The Multilateral Convention is the first multilateral treaty of its kind.

This will allow KSA to modify its existing treaties without the need for time consuming bilateral renegotiations and enable it to close gaps in the existing international tax rules which are used by companies to artificially shift profits to low or no tax jurisdictions where there is little or no economic substance or activity.

3. Formation of new disputes resolution committees

In 2017, certain provisions of the KSA income tax law were amended by Royal Decree M/113 to modify the current structure for resolving tax disputes by the establishment of two new committees – a committee for tax violations and disputes resolution and an appellate committee for tax violations and disputes resolution.  According to the amendment, the appellate committee is required to prepare the detailed procedural rules for both these committees within 60 days from the appointment of the members. The detailed rules are expected to set out the formalities in relation to submitting an appeal against an assessment or appeal order and the transitional rules on resolving disputes currently being dealt with by the Preliminary Appeals Committee and the Higher Appeals Committee.  GAZT had previously clarified that the current appeal procedures would remain in force until the new committees are formed.

His Highness King Salman Bin Abdul-Aziz has now approved the appointment of the heads and members of these two committees.  As such, the operational rules are expected to be prepared before the end of year before being issued by royal decree. Once the changes to the tax law come into force, the time permitted to submit an appeal against an assessment or an appeal order will be reduced from 60 days to 30 days and the appellate committee’s decision will be considered final (under the current rules, the decisions can be appealed to the Board of Grievances).

It is not clear at this stage whether disputes in relation to Zakat will come under the jurisdiction of these committees and this is expected to be clarified in the future.

What should you do next?

• Businesses should consider the implications of VAT guidelines on their transactions to ensure that the correct VAT treatment is applied to their employee benefits.
• Multinational companies should consider the implications of this Convention on their global operations to ensure that their business structure would not be adversely affected.
• Companies should review the deadlines of their ongoing appeals and ensure that they adhere to the prescribed timelines.

How can we help?

Al Tamimi can:

• assess the impact of VAT guidelines, and advise on the VAT treatment of your employee benefits;
• analyse the implications of the Multilateral Convention, and advise on any potential impact on your international business structures; and
• negotiate on your behalf with GAZT and represent you in relation to any tax disputes before GAZT and tax dispute resolution committees.

Al Tamimi has a strong regional tax practice and are well placed to advise in relation to income tax, Zakat, VAT, excise tax and customs issues.

Please do not hesitate to contact Al Tamimi’s Tax Team if you require any assistance.