Problems relating to Trade and Investment on Saudi Arabia

14. Taxation Systems
Issue	Issue details	Requests	Reference

(1) Nebulous Procedures under the Tax Treaty	- Now that the tax treaty is in place, a firm enquired with major accounting offices (Deloitte, KPMG, etc.) on practical procedures for filing tax returns (including the tax refund method, etc.) However, it appears no substantive disclosure is available.	- It is requested that GOSA discloses the substantive procedures for filing tax returns in detail (such as requisite documents, time, and place).
	(Improvement) - Coming into effect in September 2011 of the Bilateral Tax Treaty for Avoidance of Double Taxation between Japan and Saudi Arabia has enabled Japanese enterprises to file tax refund application to the Department of Zakat & Income Tax (DZIT) in Saudi Arabia for double tax paid after January 2012. According to DZIT, Japanese enterprises requesting refund for the double tax paid in Saudi Arabia (the Claimant) may file refund application for the excessive amount of tax paid, attaching the followings: (1) Letter from the recipient (non-resident, corresponding body such as Japanese taxation authority, etc.) of the payment, requesting refund of the excessive tax paid. (2) Certificate issued by the taxation authority in the jurisdiction, certifying that the beneficiary (Japanese affiliated enterprise in Saudi Arabia) is a resident in of the payment in concern and that the payment was made in accordance with the tax law of the country in concern. (3) Copy of the document showing the payment of the withholding tax and its bank's receipt.

(2) Prolonged Tax Return Assessment

- After the end of fiscal term falling by the end of March, a firm must file tax returns not later than the end of July, when the taxation authority's assessment begins. However, the tax return certificate after completion of assessment reaches the firm only in October in each year.

- It is requested that Department of Zakat and income tax (DZIT) expedites its assessment of the tax return.

(3) Withholding Tax Levy

- Pursuant to Japan/Saudi Arabia tax treaty, the withholding tax rates applicable to non-resident without permanent establishment in Saudi Arabia are as follows:
-- royalty-----5%
-- interests, dividends-----5%
-- technical fees, airfreight, ocean freight, international call---5%
-- consideration for other services-----15%
-- management fee-----20%
- By virtue of Japan-Saudi Arabia tax treaty, tax has been exempted in Saudi Arabia on consideration for service rendered payable to non-resident. Consequently, Saudi Arabian taxation authority requires either of the following for tax exemption:
(1)After first collecting withholding tax in Saudi Arabia, receives tax refund by filing the refund request.
(2)Filing in advance an application for withholding tax exemption.
While the taxation authorities shows the procedures for withholding tax exemption, the requisite documents are profuse, requiring much work to prepare. Moreover, it takes much time for the grant of exemption. It is quite possible that the tax authorities, who give exemption, could question the taxpayer's failure to observe the withholding tax obligations, which could lead to penalty in the end in the worst case.

- It is requested that GOSA reduces withholding tax rate to zero percent, especially strongly requested as regards withholding tax rate on royalty, interests and dividends.
- It is requested that GOS streamlines the withholding tax exemption procedures, especially as regards the alternative (2).

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