[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
Page 2 Updates on withholding tax [WHT] matters
Ministerial Resolution 1776 and WHT implications
Page 3 Updates on withholding tax [WHT] matters
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
Page 4 Updates on withholding tax [WHT] matters
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
Page 5 Updates on withholding tax [WHT] matters
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%
Page 6 Updates on withholding tax [WHT] matters
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
Page 7 Updates on withholding tax [WHT] matters
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
Page 8 Updates on withholding tax [WHT] matters
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
Page 9 Updates on withholding tax [WHT] matters
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.
Page 10 Updates on withholding tax [WHT] matters
Other updates on withholding tax
Page 11 Updates on withholding tax [WHT] matters
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
Page 12 Updates on withholding tax [WHT] matters
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
Page 13 Updates on withholding tax [WHT] matters
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
Page 14 Updates on withholding tax [WHT] matters
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
Page 15 Updates on withholding tax [WHT] matters
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
Page 16 Updates on withholding tax [WHT] matters
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
Page 17 Updates on withholding tax [WHT] matters
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%
Page 18 Updates on withholding tax [WHT] matters
Online filing of withholding tax returns
Page 19 Updates on withholding tax [WHT] matters
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