The following is an overview of the most notable changes and additions under the new CIT law:
- The 'Definitions' provision is more comprehensive and introduces new terms not defined under the current CIT, including definitions of key accounting terms used for the calculation of the tax base.
- The introduction of changes to residency rules for legal and natural persons.
- The Permanent Establishment (PE) provisions introduce a minimum number of days that a nonresident's employees must be physically present in the Kingdom before a PE could arise (30 days in a 12-month period).
- The introduction of a new concept of preferential tax regimes, in addition to anti avoidance rules that imposes limits on deductions and depreciation in certain cases.
- New rules on participation exemptions that would exempt from tax dividends, distributions, and capital gains derived by taxpayers as a result of their participation in a resident entity (minimum participation is 10% for the exemption to apply).
- The introduction of new provisions on hybrid mismatches of financial instruments between jurisdictions whereby deductions and exemptions would not apply to financial instruments that have a different tax treatment in another jurisdiction from the tax treatment of that instrument in the Kingdom.
- New rules on the transfer of residence to and from the Kingdom.
- tax consequences of mergers and demergers are incorporated into the new CIT law. Some of the provisions are new but for the most part they are a codification of existing practices and principles found in ZATCA's published circulars.
- The introduction of tax incentives for green investment and research and development activities. The specifics of these incentives will be introduced in the implementing regulations to the new CIT law.
- New withholding tax (WHT) rates are introduced. While WHT remains the same on rent, dividend and income on debt (5%), the WHT for services is reduced to 10%. However, payments to a nonresident for rent, royalties, income from debt, dividends and services to a person residing in a jurisdiction with a preferential tax regime is subject to WHT at 20%.
In addition to the new CIT law, ZATCA has also published a new Tax and Zakat Procedural Law ("TPL") for public consultation. The TPL is in essence a compilation of procedural and administrative provisions from the various tax and zakat legislations. It contains provisions related to registration, deregistration, record keeping, confidentiality of information, rulings and communication between ZATCA and tax/zakat payors.
The consultation period is 60 days. The last day to submit comments on both legislations will be 24 December 2023.
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* Content prepared by Legal Advisors in association with Baker & McKenzie Limited.