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Updates on withholding tax

[WHT] matters
Saudi Arabian Tax/Zakat Seminar
December 2014

Hanif Khatri
Topics covered

Ministerial Resolution 1776 and WHT implications

WHT updates during the year

Online filing of withholding tax returns

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Ministerial Resolution 1776 and WHT
implications

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Ministerial Resolution 1776

MR 1776 was issued on 18.5.1435H (19 March 2014)


MR was issued to make certain amendments in the by-
laws to the Saudi income tax laws
This MR is effective from the date of its issuance i.e. 19
March 2014 and is applicable on the cases where
assessments has not been finalized including those under
appeal

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MR 1776 and WHT implications

Technical and consulting services paid to non-resident


affiliates
International telecommunication services fee paid to non-
resident affiliates
Loan fee (interest) paid to non-resident banks for
interbank deposits

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WHT on rates given in the law and bye-laws
prior to MR 1776
WHT rate given in Article 68 (a) WHT rate given in Article 63 (1)
of NCITR: of bye-laws:
Type of payment Rate Type of payment Rate
Rent 5% Management fees 20%
Royalty or proceeds 15% Royalties or proceeds; payments 15%
Management fees 20% for services to a HO / affiliate
Payments for airline tickets, air 5% Payments for rent; payments for 5%
or maritime freight technical and consulting
Payments for international 5% services; air tickets, air freight
telecommunications services and maritime freight; for
Any other payments specified 15% international tele-
in the Regulations, provided communications services;
that the tax rate does not dividends; loan charges;
exceed insurance or reinsurance
premiums
Other payments 15%

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WHT on technical and consulting services
prior to MR 1776
WHT rate of 5% for technical and consulting services given in
the bye-laws
The DZIT assessed 15% WHT on technical and consulting
services paid to non-resident affiliate
During 2013 HAC has issued the decision confirming 5% WHT
rate for technical and consulting services paid to non-resident
affiliate instead of 15% as imposed by the DZIT
HAC has issued their decision on the grounds that WHT rate
for technical services is separately mentioned in the bye-laws
to the NCITR
The DZIT filed appeal with BOG against HACs decision

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WHT on technical and consulting services
subsequent to MR 1776
MR 1776 has amended the bye-laws and increased the WHT
rate on technical and consulting services paid to non-resident
affiliate to 15%
Prior to MR 1776, WHT rate of 5% given in the bye-laws
without any reference to affiliate or non-affiliate

Following the issuance of MR 1776, the HAC has issued the


decision upholding DZITs assessment of 15% WHT on payments
made to non-resident affiliates for technical and consulting services
The HAC however ruled that delay fine should be calculated from
the date of issuance of the final decision. i.e. from the date of
appeal decision not from the date of payment
Taxpayer has filed appeal with BOG against retroactive application

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MR 1776 - other WHT implications

International telecommunication services fee paid to non-


resident affiliated entities is subject to WHT @ 15%
WHT rate of 5% given in Article 68 (a) of NCITR for international
telecommunication services

Loan fees (interest) on interbank deposits paid to a non


resident bank will be exempt from withholding tax, if
deposits are held for a period of 90 days or less

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MR 1776 - Retroactive application

MR 1776 was issued in March 2014 and is applicable for


all the open years for which assessments are not finalized
including those under appeal
Taxpayer requested Minister of Finance [MOF] to
reconsider the retroactive application of MR 1776 in
respect of imposition of WHT @ 15% on payment of
technical services to affiliated entities
MOF rejected the request and mentioned that MR 1776 is
issued to clarify certain provisions of bye-laws and as
such it does not make any amendments in the bye-laws.

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Other updates on withholding tax

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WHT on freight and insurance on import
of leased equipment
The HAC upheld the PACs decision and rejected the DZITs
practice of imposing WHT on freight and insurance charges
paid on import of leased equipment
The HAC ruled on the grounds that freight and insurance paid
on import of assets whether owned or leased should not
constitute as Saudi source income
The HAC decision is against the clarification issued by the DZIT
in respect of WHT on freight and insurance charges on leased
equipment

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WHT on freight

PAC has cancelled the WHT assessment for payment of freight


for transportation of equipment from a foreign location up to
Saudi ports on the grounds that such payments are not subject
to WHT based on tax laws and bye-laws

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WHT on lump sum mobilization fee

PAC upheld the DZTs assessment of WHT @ 15% on payment


of lump sum mobilization fee
Mobilization fee was paid to cover transportation outside Saudi
Arabia and lease rental of equipment while the equipment
under mobilization

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WHT imposed on Capital Gain

The company settled capital gain tax on sale of shares in


accordance with the requirements of tax laws and bye-laws
The DZIT has computed withholding tax on capital gain on sale
of shares on the grounds that gain on sale of shares is a
taxable income and accordingly subject to WHT in line with
dividend
The taxpayer has filed an appeal against the DZITs treatment

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WHT on services entirely performed abroad

A branch office of a foreign entity contested imposition of WHT


on film shooting held abroad on grounds that it is not a
technical and consultancy service as the non-resident entitys
role was to provide facilities and equipment to the branch and is
performed entirely OOK
HAC upheld the PACs decision and the DZITs assessment of
WHT as a technical and consultancy service in accordance with
Articles 5, 6 and 63 of the Bye-Laws
The HAC did not comment on taxpayers contention that this
activity is akin to manufacturing work carried out offshore,
which is not subject to WHT

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WHT on travel and accommodation expenses

Company pays travel and accommodation charges to Non-


resident consultants
These expenses are billed separately from technical
consultancy charges
The DZIT has clarified that payment to non resident
consultants for travel and accommodation expenses is subject
to WHT
Based on Article 63 (8) of the bye-laws, full amount paid to non-
resident is subject to WHT without any deduction for expenses

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WHT on other direct and indirect management
services
The DZIT published a clarification in its website that payment to
head office or related parties for other direct and indirect
management services is subject to WHT @ 15%

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Online filing of withholding tax returns

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Online filing of withholding tax returns

The DZIT has announced that manual filing of monthly WTRs


(Form Q7) will no longer be accepted at the DZITs offices and
must be filed electronically with immediate effect from 1
Muharram 1436H
Organizations filing monthly WTRs must immediately register
with the DZIT for online filing, if not already registered (100%
Saudi/GCC owned companies)
Once registered, WTRs can be filed electronically using login
details
Payment of WHT through certified cheque can only be made by
providing ticket number which is generated once WTR is
submitted online

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