Saudi Arabia Business Case

Doing Business in Saudi Arabia

2009

Contents

1. Introduction................................................................................................... 2

2. Businessenvironment .................................................................................. 4

3. SettingupaBusiness.................................................................................... 6

4. ForeignInvestment....................................................................................... 9

5. Settingupabusiness.................................................................................. 10

6. Labour .......................................................................................................... 14

7. Taxation........................................................................................................ 15

8. Accounting&reporting............................................................................. 22

9. UHYfirmsinSaudiArabia ....................................................................... 23

10. UHYofficesworldwide ............................................................................. 23

Copyright2009UHYInternationalLtd 1

1. Introduction UHYisaninternationalorganisationprovidingaccountancy,businessmanagementandconsultancyservicesthroughfinancialbusinesscentresinover70countriesthroughouttheworld.Businesspartnersworktogetherthroughthenetworktoconducttransnationaloperationsforclientsaswellasofferingspecialistknowledgeandexperiencewithintheirownnationalborders.Globalspecialistsinvariousindustryandmarketsectorsarealsoavailableforconsultation.ThisdetailedreportprovidingkeyissuesandinformationforinvestorsconsideringbusinessoperationsinSaudiArabiahasbeenprovidedbytheofficeofUHYrepresentatives:UHYSafdar&ZufariCPAsP.O.Box14114Jeddah21424SaudiArabiaTel +96626691540Fax +96626690015Email khaled@uhysa.comYouarewelcometocontactKhaledZufariforanyinquiriesyoumayhave.Informationinthefollowingpageshasbeenupdatedsothattheyareeffectiveatthedateshown,butinevitablytheyarebothgeneralandsubjecttochangeandshouldbeusedforguidanceonly.Forspecificmatters,investorsarestronglyadvisedtoobtainfurtherinformationandtakeprofessionaladvicebeforemakinganydecisions.ThispublicationiscurrentatFebruary2009.WelookforwardtohelpingyoudobusinessinSaudiArabia.UHYSafdar&ZufariCPAsisamemberofUHY,aninternationalassociationofindependentaccountingandconsultancyfirms,whoseorganizingbodyisUrbach


HackerYoungInternationalLimited,aUKcompany.EachmemberofUHYisaseparateandindependentfirm.ServicesdescribedhereinareprovidedbyUHYSafdar&ZufariCPAsandnotbyUrbachHackerYoungInternationalLimitedoranyothermemberofUHY.NeitherUrbachHackerYoungInternationalLimitednoranymemberofUHYhasanyliabilityforservicesprovidedbyothermembers.


2. Business environment

SaudiArabiaisthebiggesteconomyintheMiddleEasthavingapopulationmorethan27millionandareaof2.15millionsquaremeters.Locatedinastrategicgeographicallocationthroughwhichmostsignificantinternationalaviationlinespasslinkingbetweenthreecontinents.Theholylandisattractingnearly10millionMuslimsyearlytovisitthemostsacredplacesMakahandMedina.

Thehillyandagriculturallandisholdingthelargestoilreserveintheworld(25%)andfourthnaturalgasreservesalongwithothernaturalreservesandresources.CurrentlySaudiArabiaisrunningthelargestmarketintheMiddleEastwithgrossdomesticproduct(GDP)exceeding300billionUSdollarsandagrowthratereaching6%duringthelast3years.ThekingdomhasbiggestfinancialmarketintheMiddleEastandtherearenocontrolsovercurrencymovement.Thekingdomalsohasanetworkofthe10biggestbanksintheMiddleEastandprovidingthelowerenergypricesworldwide.Thegovernmentisplayinganactiveroleonresearchanddevelopmentprogramstoproducehighskilledlabours.

TheIslamickingdomisruledbyaRoyalFamilyandhasnoexistenceoflocaldisputes,strikes,andpoliticalillwillduetoitspoliticalsovereignty.Thepoliticalstabilitygivesrisetobusinessandcompetitiveenvironmentduetoitssimple,transparentandpredictablenature.

Area 2.149.790squaremeter

Population 27.019.731million(2006)

DensityofPopulation 2.18%(2006)

Capital Riyadh

MainCities Riyadh(Thecapital)Makkah(ThemostsacredplacetoMuslims,andtheirprayingdirection)AlMadinah(Secondmostsacredplace)Jeddah(Saudicapitalofbusiness,animportantport,andamajorgatewaytopilgrims).Dammam(CapitalofEasternregion,welloffoil,andanimportantport).Dhahran(Amilitarycity,thelocationofSaudiAramcosheadquarterwhichisthelargestoilcompanyintheworld.ArAr(CapitalofNorthernregion)


OverviewofSaudiArabia

SaudiArabiaislocatedintheSouthwestofAsia.Boundedbytheredseafromthewest.Jordan,Iraq,andKuwaitfromtheNorth.ArabianGulf,Bahrain,Qatar,andUnitedEmiratesfromtheEast.YemenandOmanfromtheSouth.

Climate ContinentalweatherSummer:Hotwithtemperatureinsomeareasreaching49C(120F).Winter:Coolerwithanaveragetemperatureof23C(74F)inJeddahand14C(58F)inRiyadh.

JudicialLaw TheconstitutionofSaudiArabiaisQuranandSunnah;alllegislativeregulationshavebeenderivedfromthesetwosources.TheregimeinSaudiArabiaisa(monarchysystem).TheKingandtheCouncilofMinistersformtheexecutiveandthelegislativeauthority.TheStateConsultativecouncilhasthemissionofgivingitsopiniononanygeneralissuesubmittedtothecouncilbytheprimeminister.

Language Arabic

Currency SaudiRiyal

NationalDay 23rdSeptember(1932A.D)

Symbol Twocrossedcurvedswordswhichsymbolizestrengthandjustice.Apalmtreeonthetopsymbolizesprosperity.

Timing GMT+3:00

PhoneCode +966

InternationalMembership

CooperationCouncilFortheArabStatesoftheGulfArabLeagueWorldTradeOrganizationMemberstatesandobserversof:OrganizationoftheIslamicConferenceOrganizationofthePetroleumExportingCountriesMonarchiesAfroAsiaticSpeakingNations


3. Setting up a Business

ThebusinessenvironmentoftheSaudiArabiaisattractivetoeverytypeofinvestorduetoitsstableandpredictablenature.TherearenobarrierstoentryintheSaudimarket,buttheinvestorsneedtotakeresearchandstudiesbeforeenteringorlaunchingtheirproductsinthiscompetitiveandgrowingmarket.Thebusinessenvironmentanalysiscandoneusingstrategicmodels(PESTanalysis,Portersfiveforces,ValueChainanalysis,SWOTanalysisetc)sothattheycanaccesstheirstrengths,weaknesses,opportunities,threats,customers,suppliers,substituteproducts,stateofrivalry,socialandeconomicfactors,politicalandlegalfactors,technologicalfactorsetc.Thesefactorsvaryfromindustrytoindustryandtheinvestorsneedtounderstandthesefactorsbytakingathoroughresearchandstudiessothattheycanenterinthemarketwithsuitablestrategiesandplans.

Generallyspeaking,investmentinSaudiArabiarealizeshighprofitratiosforlocal,foreignandsharedprojects,withlowriskexposures,andasimpleformoftaxesandpropertyregistrationfees.TheKingdomgloballyoccupiesthefifthpositionregardingtaxesandforthinpropertyregistrationcosts,accordingtobusinessperformancereports2006/2007issuedbytheInternationalBank.

AccordingtoacomprehensivestudypublishedbyArabForbesMagazinesinlate2006assessingtheperformanceof(1616)jointstockcompaniesintheArabworld,thefirstthreepositionswereSaudicompanies,andamongthebest50companies,22wereSaudicompanies,includingSaudiandjointcompanies,applyinganumberofstandardssuchas:operationalefficiency,marketvalue,sales,revenues,dividends,returnonequity,returnontwolastyearassets(20042005),inadditiontothecompanyexpectedgrowth.

SaudiArabiahasrelativelyhighadvantagesinsomestrategicsectorsatregionalandgloballevels,whichmakeitattractiveforinternationalinvestment.

Forexample,theKingdomisrankedfirstwithregardstopricesofenergyprovidedforinvestmentprojects.

AnotherexampleinthebankingservicessectoristhatthetenSaudibanksareofthebestbanks,mostgrowingandprofitrealizingintheArabworld.TheseSaudibankscomfortablyrestwithinthelistofbiggest1000banksoftheworld,accordingtotheFinancialTimes2006.Alsothe3biggestbanksintheArabworldareSaudi.


TheKingdomofSaudiArabiaisthebiggestfreeeconomicmarketintheMiddleEast.Itacquires25%ofgrossnationalArabproductandhasthebiggestoilreserveintheworld(26%).SaudiArabiaisthemostidealenvironmentforprojectsdependingonenergyconsumptionbecauseitprovidesenergyforinvestmentprojectswiththeleastpricesatgloballevel.

TheSaudiRiyalisoneofthemoststablecurrenciesintheworld.Therehasbeennosignificantchangeinitsexchangevalueduringthelastthreedecades.Therearenorestrictionsonforeigncurrencyexchangeandoutgoingmoneytransfers.InflationratesinSaudiArabiaareverylowandtheKingdomisendeavouringtosignbilateralagreementswithanincreasingnumberofcountriesregardinginvestmentencouragement,protectionandarrangementoftaxationissues.

SpecificreasonsforinvestinginSaudiArabia

Availabilityoflowpricefacilitiesandservices Lowcostgovernmentalfinancingopportunities No.1inexportsandimportssizeintheArabworld Withinthefirst7countriesofleastinflationratesintheworld

(IMD)

Withinthefirstbest8countriesinexchangeratepolicies(IMD) BiggestfinancialmarketinMiddleEast Withinthefirst25countriesintotalcashsavings(indexof

EconomicFreedom)

Withininthefirst24countriesofleastcostloansfromSaudiIndustrialDevelopmentFund

Lossescarryoverforcomingyearsregardingprofittaxes ProvisionofassistanceandconsultancybytheGeneralInvestment

Authority

Withinthebest3countriesintheworldasofproprietorshipregistrationcost

BestcountryintheMiddleEastasofexchangerateindex(DoingBusiness2006)


BiggestforeigninvestmentbalanceintheArabworldsincemanyyearstillnow(ArabInvestmentGuaranteeCorporationReports)

Withinthefirst6countrieshavingtheleastcompanytaxesintheworldaccordingto(IMD)report.

Fourthnaturalgasreserveintheworld Highincomesandpurchasingpower Nonexistenceofmultipletaxation(exceptprofittaxesonforeign

companiesamounting20%,allowingcarryingoverthelossesofunlimitedinvestments)

Withinthefirstfivecountriesintheworldhavingeasiestlabourrecruitmentandworkhoursflexibility

Nonexistenceofworkstrikes Availabilityofenergywiththeleastpricesintheworld Anetworkofadvancedbankswithhightechnologyandefficiency Bestintheworldregardingfinancialsolvencyindex.


4. Foreign Investment ForeignerswishingtoconductanytypeofthebusinessinSaudiArabiamaydosoinanyofthefollowingways: Byestablishinganincorporatedentity Byenteringintoapartnership Byestablishingabranchoffice Byestablishingarepresentativeoffice Byengagingaserviceagent.In2000,SaudiArabiaimplementedtheForeignInvestmentAct,whichliberalizestheforeigninvestmentlawsintheKingdom.TheSaudiArabianGeneralInvestmentAuthoritywascreatedundertheAct,whichhasresponsibilityforlicensingallnewforeigninvestmentinSaudiArabia.UnderthenewAct,foreignpersonsandentitiesarepermittedtoinvestinallindustriesandservicesexceptforthosewhicharespecificallyexcludedfromforeigninvestment.Theexemptedindustriesincludethoserelatedtothemanufactureofmilitarymaterials,equipmentandexplosives;oilexplorationandproduction;servicesrelatedtosecurity,insuranceandrealestatebrokerage;wholesaledistributionandretailservices;telecommunicationsservices;andland,air,andspacetransport,amongothers.AftertheissuanceofthenewandattractiveSaudiArabianForeignInvestmentsAct2000,SaudiArabiahasbecomeamajorbusinesshubinMiddleEasttohaveacompetitivepositioninthismarketwhichhasaGDPofnearly300BillionUSDollarsandhasa6%growthrate.AftertheKingdomsentryintoWTO(on11thofDecember2005),theenvironmenthasbecomemoretransparentandpredictablefortradeandforeigninvestments.ThekingdomssteptointegratetheSaudieconomywiththeglobaleconomyhasincreaseddomesticandforeigninvestmentsandhasincreasedtheaccessofSaudiproductsandservicestointernationalmarket.Foreigninvestorsmayalsoobtainmorethanonelicensesoastoenablethemtoparticipateinmorethanonebusinessventure.


5. Setting up a business TherearemanywaysofsettingupabusinessinSaudiArabia.ForeignerswishingtoconductbusinessinSaudiArabiamaydosobyestablishingapermanentpresenceinSaudiArabiaorbyenteringintoanagencyrelationshipforthedistributionandsaleoftheirproducts.BelowisasummaryofthebusinessformsavailableunderSaudilaw:

InvestmentLicense

Inordertoqualifyforaninvestmentlicense,theproposedinvestmentactivityshouldnotbementionedinthelistofexcludedactivities;theproductstandardsandproductionprocessesmustbeinaccordancewiththeprevailinglawsintheKingdomor,intheirabsence,thelawsoftheEuropeanUnionortheUnitedStatesofAmerica.Aforeigninvestormayobtainmorethanonelicensetopracticethesameactivityordifferentactivities.TheminimumcapitalrequirementsforprojectsundertheActare:

Activitytype

Minimumcapitalrequired

(SaudiRiyals)1US$=3.75S.R.

Serviceslicense 100,000

Industriallicense 2,000,000

Agriculturallicense 5,000,000

CommercialRegistrationCompaniesoperatinginSaudiArabiamustregistertheirbusinesseswiththeMinistryofCommerceandIndustryandobtainaCommercialRegistration(CR)number.


FormsofDoingBusiness

LimitedLiabilityCompany(LLC)

ThisisthemostcommonformforenteringintojointventureswithSaudipartners;however,aSaudipartnerisnotrequiredsincetherearenolegallimitationsonthepercentageofforeignownership.TheminimumcapitalinvestmentrequiredtoestablishanLLCisSR500,000.AnLLCmusthavebetween2and50shareholdersandismanagedandrepresentedbyoneormoremanagers.ThereisnoBoardofDirectors,althoughshareholdersoftenprovideforaBoardandothermanagementarrangementsintheMemorandumofAssociation.TheLLCmustalsohaveanauditorand,whereithasmorethattwenty(20)partners,itmustestablishaBoardofControllers.

Partnerships

ForeigncompaniesseekingtodobusinessintheKingdommayenterintoalimitedpartnership.Thelimitedpartnership,orsharikattawsiyabaseetah,isaseparatebusinessentitycomprisedofseveralindividualsorcompanies,includinggeneral(atleastone)andlimitedpartners.Thegeneralpartnersareliableforpartnershipdebtstothefullextentoftheirpersonalassetswhilethelimitedpartnersareliableonlytotheextentoftheircapitalcontributions.

JointStockCorporation

AJointStockCorporation(JSC)isanentitywithatleastfiveshareholdersholdingtransferableshares.TheminimumcapitalrequirementsareSR2millionforaprivateJSCandSR10millionforapublicJSC.Liabilityofshareholdersislimitedtotheparvalueofeachshareholderssharecapital.TheJSCmustbeapprovedbylicenseorRoyalDecreepublishedintheSaudiOfficialGazette.Additionally,itmustberegisteredwiththeMOCCompaniesDepartmentandtheMOCCommercialRegistry.

BranchOffices

ForeigncompaniesmayregisterawhollyforeignownedSaudibranchoffice,providedthattheyobtaintherequisitelicense.Thebranchofficemayengageinanygovernmentcontractorprivatesectorworkwithinthescopeofitslicense.Branchofficesaresubjecttotherequirementsofthe


GovernmentTendersRegulations,whereapplicable.BranchofficeregistrationfollowsthesamegeneralprocedureasfortheregistrationofanLLC.

SponsorshipandTemporaryCommercialRegistration

Asanalternativetoformingoneoftheaboveentities,foreigncontractorshaveinthepastperformedisolatedprivatesectorprojectsunderthesponsorshipoftheirSaudicustomerandincontractswiththeSaudigovernment;theforeigncontractormayperformitsobligationunderatemporarycommercialregistration(TCR).Withrespecttosponsorships,theycanbeintwoforms.Thefirstiswheretheforeigncontractorobtainsabusinessvisa,sponsoredbytheSaudicustomer.ThesecondformofsponsorshipiswheretheforeigncontractorsecondsitsemployeestotheemploymentandsponsorshipoftheSaudicustomer.IfaforeigncontractorisawardedaprojectwiththeSaudigovernmentanditdoesnothavearegisteredpresenceinSaudiinoneoftheabovediscussedforms,itmustobtainaTCR(CommerceMinistryResolutionNo.680dated10October1978).AnapplicationforTCRmustbefiledwithin30daysofobtainingthecontract,alongwithacopyofthecontract.Additionally,aserviceagentmustbeidentifiedpursuanttotheSaudiServiceAgentRegulations.TCRsarelimitedinscopeanddurationtothesubstanceandtermofthegovernmentcontractforwhichtheyareissued.

CommercialAgencies

AgenciesanddistributorshipsaregovernedbytheCommercialAgenciesRegulationsandtherelatedImplementingRules(RoyalDecreeNo.M/11,asamendedbyRoyaldecreeNo.M/32;MinistryofCommerceDecisionNo.1897).TherulesandregulationsreserveamonopolyforSaudinationalsandwhollyownedSaudientitiesontradingactivities.Tradingactivitiesincludetheimportandlocalpurchaseofgoodsforresale.Therefore,foreigncompaniesengaginginsuchactivitiesmustuseSaudicommercialagentsanddistributors,whomustregistertheiragencyagreementswiththeMOCagencyregister.TheagentmustholdavalidSaudicommercialregistrationpermittinghimtoactasanagentordistributorandthedirectorsandauthorizedrepresentativesoftheagentmustbeSaudinationals.TheCommercialAgencyRegulationsboardappointmentofagentsisindirectlyownedorcontrolledbytheforeign


principal,therefore,theSaudiagentmustbeindependentfromtheforeignprincipal.


6. Labour Employeeincomesvaryaccordingtothestatus,positionandexperienceoftheemployeeaselsewhereintheworld.ThemajorityoftheSaudiArabiapopulationisyoungwhichiscontinuouslyincreasing,thepopulationthatislessthan1yearto15yearsrepresentabout45%oftotalSaudipopulation.TheGovernmenthasbeenactivelyimprovingthehumanresourcedevelopmentpatternwhichincludestheestablishmentofmanypublicandprivateEducationalInstitutions,TechnicalInstitutions,ResearchInstitutions,TrainingInstitutionsetc.tomeetthedemandsofthegrowingmarket.Itprovidesinvestorsmoreopportunitiestoselecttheskilled,semiskilledandtechnicallabourfortheirrequiredprojectsatdifferentratesvaryingaccordingtotheirrespectivestatus.AfterthemembershipofWTOandtheissuanceoftheForeignInvestmentAct2000,theindustryhasbecomemoreattractivefortheinvestorsandthegovernmentalsohasactiveplanstoproducethemoreskilledandtechnicallabourtomeettheindustrydemands.

Recently,theHumanResourcesDevelopmentFundlaunchedtotrainandrecruitSaudisandprovidemanyincentivesforcompaniesthatemploynationalsthrough:

Provisionofaidsandsupportforactivitiesrelatedtoqualifying,trainingandrecruitmentofSaudilabourinprivatesector

ContributionintheprivatesectorSaudilabourersqualificationandtrainingcosts

CoveringapercentageofthesalaryofSaudilabouremployedbytheprivatesector

SupportingprogramsaimingtoimprovethepossibilityofSaudilabourrecruitmentandreplacementofforeignlabour

FinancingprivatesectorcorporationsthattrainandqualifySaudilabourthroughgrantingnecessaryloanstoenablethemexpandtheiractivitiesandusemoderntechnologies.

ThenewForeignInvestmentRegulationgrantsforeigninvestorstherightinhavingtheirownemployeessponsorshiponthelicensedprojects.


7. Taxation TherulesandregulationsregardingthetaxationinSaudiArabiaareverysimpleascomparedtotheEuropeanandothercountriesintheworld.BelowisthelistofthefewmainrulesandregulationsforunderstandingthetaxationinSaudiArabia.Forfurtherjustificationandclarificationpleaseyoumaycontactwithusatourgivennumbers.

PersonssubjecttoTaxation: AresidentcapitalcompanyonnonSaudishares AresidentnonSaudinaturalpersonwhocarriesactivitiesin

Kingdom

AnonresidentpersonwhocarriesactivitiesintheKingdomthroughapermanentestablishment

AnonresidentpersonwhohasotherincomesubjecttotaxfromsourceswithintheKingdom

Apersonengagedinnaturalgasinvestmentfields Apersonengagedinoilandotherhydrocarbonproduction.

ConceptofResidency

AnaturalpersonisresidentintheKingdomforataxableyearifhemeetsanyofthefollowingconditions:

o HehasapermanentplaceofabodeintheKingdomandisphysicallyresidingintheKingdomforaperiodinaggregatenotlessthan30daysduringthetaxableyear.

o HeisphysicallyresidingintheKingdomnotlessthan183daysinthetaxyear.Forthepurposeofthisparagraph,residenceintheKingdomforpartofadayisconsideredresidenceforthewholeday.ResidenceincaseoftransitbetweentwopointsoutsidetheKingdomisnotconsidered.

Acompanyisconsideredaresidentcompanyifitmeetsanyofthefollowingconditions:


o ItisformedundertheRegulationsforCompanies.

o ItsheadofficeissituatedwithintheKingdom.

ConceptofpermanentEstablishmentApermanentestablishmentofanonresidentintheKingdom,unlessotherwiseprovidedbythisArticle,consistsofthepermanentplaceofactivityofthenonresidentthroughwhichhecarriesoutbusiness,infullorinpart,includingbusinesscarriedoutthroughanagent.Thefollowingareconsideredapermanentestablishment:

Constructionsites,assemblyfacilities,andtheexerciseofitsrelatedsupervisoryactivities;

Installationsorsitesusedforsurveyingfornaturalresources,drillingequipment,orshipsusedforsurveyingfornaturalresources,andtheexerciseofitsrelatedsupervisoryactivities;

Afixedlocationwhereanonresidentnaturalpersoncarriesoutbusiness;

AbranchofanonresidentcompanywhichislicensedtocarryoutbusinessintheKingdom.

AplaceisnotconsideredapermanentestablishmentofanonresidentintheKingdomifitisusedintheKingdomonlytodothefollowing:

Store,display,ordelivergoodsorproductsbelongingtothenonresident;

Keepaninventoryofgoodsorproductsbelongingtothenonresidentonlyforthepurposesofprocessingbyanotherperson;

Purchaseofgoodsorproductsonlyforthecollectionofinformationforthenonresident;

Performanyotheractivitiesthatarepreparatoryorauxiliaryinnaturefortheinterestsofthenonresident;

Preparecontractsrelatingtoloans,supplyofproductsorperformtechnicalservicesforsignature;


ExecutinganygroupoftheactivitiesmentionedinthesubparagraphsNo.1toNo.5ofthisparagraph.

AnonresidentpartnerinaresidentpersonalcompanyisconsideredanownertoapermanentestablishmentinKingdomintheformofashareinapersonalcompany.SourcesofIncomeThefollowingareconsideredasthesourcesofincomeintheKingdom,ifitis:

DerivedfromanactivitythisoccursintheKingdom; IfderivedfromimmovablepropertylocatedintheKingdom,

includinggainsfromthedisposalofaninterestinsuchimmovablepropertyandfromthedisposalofsharesofpartnershipinterestsinacompany,thepropertyofwhichconsistsdirectlyorindirectlyprincipallyofinterestsinsuchproperty;

Ifderivedfromthedisposalofsharesorapartnershipinterestinaresidentcompany;

IfderivedfromtherentalofmovablepropertyusedintheKingdom;

IfderivedfromthesaleorlicensetouseindustrialorintellectualpropertyusedintheKingdom.6.Sharesprofitsormanagementfee,ordirectorsfeepaidbyaresidentcompany;

Apaymentforservicesmadebyaresidentcompanytothecompanysheadofficeortoanaffiliatedcompany;

AmountsforexploitationofanaturalresourceintheKingdom; Iftheincomeattributabletoapermanentestablishmentofanon

residentlocatedintheKingdom,includingincomeattributabletosalesintheKingdomofgoodsofthesameorsimilarkindasthosesoldbyanonresidentthroughapermanentestablishment,andincomearisingfromrenderingservicesortheperformanceofotheractivityintheKingdomofthesameorsimilarnatureasactivityperformedbyanonresidentthroughapermanentestablishment.

b)Indeterminingthesourceofincome,theplaceofpaymentoftheincomeisnottakenintoaccount.


c)ForpurposesofthisArticle,apaymentmadebyapermanentestablishmentofanonresidentintheKingdomisconsideredtobemadebyaresidentcompany.

TaxBasea)ThetaxbaseofaresidentcapitalcompanyisthetotalofnonSaudi

sharesinitsincomesubjecttotaxfromanyactivitywithintheKingdomlessanydeductionallowedunderthisLaw.

b)ThetaxbaseofaresidentnonSaudinaturalpersonishisincomesubjecttotaxfromanyactivitywithintheKingdomlessanydeductionallowedunderthisLaw.

c)ThetaxbaseofanonresidentwhoexercisesactivitywithintheKingdomthroughapermanentestablishmentishisincomesubjecttotaxarisingfromorrelatedtotheactivityofsuchestablishmentlessanydeductionunderthisLaw.

d)Thetaxableincomeofeachnaturalpersonisdeterminedseparately.e)Acapitalcompanyistaxableonitstaxbaseseparatelyfromits

shareholdersorpartners.TaxRates

Thetaxbaseofeachofthefollowingissubjecttotaxattherateof20%:

o Aresidentcapitalcompany

o AnonSaudiresidentnaturalpersonwhocarriesactivities

o AnonresidentpersonforactivitiesperformedinKingdomthroughapermanentestablishment.

Thetaxbaseofataxpayerengagedonlyinnaturalgasinvestmentfieldsissubjecttotaxattherateof30%.

Thetaxbaseofataxpayerengagedinoilorotherhydrocarbonproductionissubjecttotaxattherateof85%.

ThewithholdingtaxratesarestipulatedunderArticle68ofthisLaw.IncomesubjecttoTaxGrossincomesubjecttotaxincludesallincome,profitsandgainsofanytypeandofanyformofpaymentresultingfromcarryingoutactivities,includingcapitalgainsandanyincidentalincome,netofexemptincomeandtheallowabledeductionsandcontributions.


ExemptIncomeThefollowingincomeisexemptfromincometax:

CapitalgainsrealizedfromthedisposaloffinancialpaperstradedontheSaudistockmarket,inaccordancewiththeguidelinesspecifiedbytheByLaws.

Gainsonthedisposalofpropertyotherthanassetsusedintheactivity.

Taxable Thetaxableyearisthesameasthegovernmentfinancialyear. Thetaxpayermayuseanother12monthperiodasprescribedin

Paragraph(a)ofthisArticleasthetaxableyearsubjecttotheconditionsasprescribedintheBylaws.

Wherethetaxableyearforataxpayerchanges,theperiodbetweenthelastfulltaxableyearpriortothechangeandthedateonwhichthechangedtaxableyearcommencesshallbetreatedasaseparateshorttaxableyear.Thefirstyearofanewlyestablishedtaxpayerorthelastyearofataxpayerthatliquidatesshallalsobeashorttaxableyearifnotcoincidingwithafullyear,unlessitisalongtaxableyearinconformitywiththeCompaniesLaw.

Groupsofrelatedcompanies,asdefinedinArticle64ofthisLaw,mustutilizethesametaxableyear.

MethodofAccountingAtaxpayersmethodofaccountingmustclearlyreflectthetaxpayersincomeandheisrequiredtoquotethemethodofaccountingwhichhasbeenusedincalculatingtheTaxBase.Theaccountingmethodsarestatedasfollows:

CashBasisAccountingAcashbasistaxpayermusttakeincomeintoaccountwhenreceivedormadeavailable,andmusttakedeductionsintoaccountwhenpaid. AccrualBasisAccounting

a)Anaccrualbasistaxpayermusttakeincomeanddeductionsintoaccountwhenaccrued.b)Anamountispayabletothetaxpayerwhenthetaxpayerbecomesentitledtoreceiveit,evenifthetimefordischargeofthe


entitlementispostponedortheentitlementispayablebyinstalments.c)Anamountistreatedaspayablebythetaxpayerwhenalltheeventsthatdetermineliabilityhaveoccurred.

WithholdingTaxa)Anyresident,whetherornotthatpersonisataxpayerunderthis

Law,andanypermanentestablishmentofanonresidentintheKingdom,whomakesapaymenttoanonresidentthatisfromasourceintheKingdomshallwithholdtaxfromsuchpaymentaccordingtothefollowingrates:

Rent(lease) 5%Royalty 15%Managementfees 20%Paymentsforairticketsorairfreightandshipping

5%

Paymentsforinternationaltelecommunicationsservices

5%

PaymentsasdeterminedbytheByLaws Nottoexceed15%

Inthecaseofpaymentsmadebyanaturalperson,thewithholdingrequirementunderthisArticleappliesonlytopaymentsmadeinthecourseofthepersonsbusinessactivity.b)ApersonwithholdingtaxunderthisArticleshallbeobligedtodothefollowing:

1.ToregisterattheDepartmentandpaytheamountwithheldduringthefirst10daysofthemonthfollowingthemonthofpaymenttothebeneficiary.

2.Toprovidethebeneficiarywithacertificatestatingtheamountofthepaymentandtheamountoftaxwithheld.

3.ToprovidetheDepartmentattheendofthetaxyear,thename,address,andwhereappropriate,thetaxpayersidentificationnumberofthebeneficiaryreceivingthepayment,alongwithanyadditionalinformationtheDepartmentmayrequire.

4.MaintaintherecordsthatarerequiredtoascertainhiswithholdingobligationsasrequiredbytheByLaws.

c)ApersonrequiredtowithholdtaxunderthisArticleispersonallyliableforthepaymentoftheamountoftaxoutstandingandanydelaypenaltiesinaccordancewithparagraph(a)ofArticle67ofthisLawinanyofthefollowingcircumstances:

1.Failstowithholdtaxasrequired.


2.Havingwithheldtax,failstopaythetaxtotheDepartmentasrequired.

3.Failstoreportsuchwithholdingunderthirdsubparagraphofparagraph(b)ofthisArticle.

d)Notwithstandingparagraph(b)ofthisArticle,iftaxisnotwithheldasrequiredbythisArticle,thebeneficiaryremainsliabletotheDepartmentforthetaxandtheDepartmentmayrecoverthetaxfromhimorfromhisagentorsponsor.

e)Subjecttoparagraphs(f)and(g)ofthisArticle,whereapaymentismadetoanonresidentandtaxiswithheldunderthisArticle,thattaxisafinaltaxandnofurthertaxliabilityshallbeimposedontheincometowhichthetaxrelatesandnorefundoftaxshallbemadeinrespectofthepaymentinaccordancewiththisArticle.

f)WhereapaymenttowhichthisArticlerefersismadetoanonresidentwhichcarriesonbusinessintheKingdomthroughapermanentestablishment,andthatpaymentiseffectivelyconnectedwithsuchbusiness,thatpaymentshallbetaxedasapartofthetaxbaseofthebeneficiary.

g)Iftaxiswithheldfromapaymentthatisincludedinthetaxbaseofataxpayer,thetaxwithheldshallbecreditedagainstthenonresidentpersonsliabilityinrespectofthetaxbase.

h)ForpurposesofthisArticleandArticle5,servicesmeansanythingdoneforconsiderationotherthanthetransferofownershipofgoodsorotherproperty.

TaxPaymentsAtaxpayermustpayhisduetaxinaccordancewiththedeclarationwithin120daysoftheendofhistaxyear.


8. Accounting & reporting Allbusinessesarerequiredtokeeptheadequateaccountingrecordsforatleast10yearsinaccordancewiththekingdomsrulesandregulations.AlltypesofthebusinessesarerequiredtopreparetheFinancialStatements(IncomeStatement,BalanceSheet,CashFlowStatement,andStatementofchangesinEquity&NotestotheAccounts)andrequireanauditfromthelegallyregisteredfirms.OnlylegallyregisteredfirmsareallowedtoactanIndependentAuditorsoftheaccountsinthekingdomofSaudiArabia.Thedetailedinformationregardingthekingdomsrulesandregulations,practices,accountingandauditingandtheotherorganisingbodiesinSaudiArabiaisgivenbelow.SOCPAIn1992SOCPAwasestablishedbytheeffortsofSaudiMinistryofCommerceandstatedthatanOrganizationshallbeestablishedunderthenameof(SaudiOrganizationforCertifiedPublicAccountantsSOCPA).ItshalloperateunderthesupervisionoftheMinistryofCommerceinordertopromotetheaccountingandauditingprofessionandallmattersthatmightleadtothedevelopmentoftheprofessionandimproveitsstatus.SOCPAstaffisabout25personals,inadditiontoitsBoardofDirectorsandTechnicalCommittees,SOCPAemploys infortheperformanceofitsactivities,manypersonsofhighqualificationsandexperienceinaccountingandauditprofessionincludinghighlyspecialized,Universitystaff,practitionersandcompaniesandgovernmentdepartmentsstaffandofficersinvariouseconomicbodiesinboththepublicandprivatesectors.


9. UHY firms in Saudi Arabia UHYSafdar&ZufariCPAsP.O.Box14114Jeddah21424SaudiArabiaTel +96626691540Fax +96626690015Email [email protected]:KhaledZufariSafdar&ZufariCertifiedPublicAccountantsandConsultantswasestablishedearly1980sandspecializesinAudit,Accountancy,Bookkeepingandoutsourcingservices,IslamicZakatandTaxservices,ForensicaccountingandLitigationsupport,GeneralbusinessadviceandStrategicplanning,Turnaround&recoveryandinsolvencyservices,FinancialArrangements,FinancialandmanagementITConsultations.PrincipalclientsareinsectorsincludingMerchandising,HotelsandRestaurants,Contracting&Construction,Manufacturing,AdvertisingandMedia,Charity&Notforprofit,printingandpublishing,Realestates,SportClubsandfinancialinstitutions.WelookforwardtohelpingyoudobusinessinSaudiArabia.

10. UHY offices worldwide ForcontactdetailsofUHYofficesworldwide,orfordetailsonhowtocontacttheUHYexecutiveoffice,pleasevisitwww.uhy.com


Documents

Saudi Arabia Business Case