Saudi Arabia: Proposed New Tax Law & Proposed New Zakat and Tax Procedures Law

In brief

A strong and unprecedented step down the way of reforming and developing the tax system and landscape has been launched by Zakat, Tax and Customs Authority “ZATCA” on Wednesday,  October 25, 2023.

ZATCA has introduced a proposed almost brand new comprehensive Tax Law and Zakat & Tax Procedures Law for public consultation through Istitlaa Portal for 60 days until Monday, December 25, 2023.

The objective of the project is to develop and update the current tax law to be in line with the international best practices, considering the best practices in the pioneering G20 countries as well as the other pioneering countries. 

Also, the proposed new income tax law has been introduced to be consistent with Kingdom’s vision and goals of encouraging foreign investment as well as domestic economic growth, in addition to supporting tax compliance and transparency and being compatible with the direction of international cooperation organizations in order reflect the Kingdom’s pioneering role in the international tax cooperation.

In detail

The proposed new tax law may be summarized as follows:

The proposed new tax law in a nutshell

In line with ZATCA’s approach of being up to date and competent with the comparative tax regulations, ZATCA has taken the initiative to propose a new tax law according to the international best practices, the proposed new tax law includes the following key updates, among others:

• Changing the tax treatment of the partnerships.

• Transparent tax treatment of the investment funds in line with their Zakat treatment.

• Stating alternative methods of tax computation for the Micro-Enterprise (i.e., infinitesimal) taxpayers.

• Stating special provisions regarding the following:

  • Transferring the residency to and out of the Kingdom as per articles 30 and 31.

  • Re-investment reserve.

  • Tax treatment of the merger and demerger transactions.

  • Cases of non-coincident tax treatment of financial instruments between different jurisdictions.

  • Tax treatment of the taxes paid outside the Kingdom.

Overview of the proposed new tax law

The proposed new tax law includes five main sections as follows:

• Section 1: General provisions.

• Section 2: Taxation of Legal Persons.

  • Chapter 1: Persons subject to tax.

  • Chapter 2: Taxable Income.

  • Chapter 3: Tax base.

  • Chapter 4: Special provisions.

  • Chapter 5: Computation of the due tax.

• Section 3: Taxation on the income of the non-Saudi natural persons.

• Section 4: Withholding tax.

• Section 5: Other provisions.