ArabNet Riyadh 2014: The workshop is designed for individuals with no previous or little accounting and finance skills but realize that they need information to help them understand basic accounting concepts as well as Saudi regulations in the areas of accounting and zakat/tax.

1. Accounting and Tax/Zakat in
Saudi Arabia
11 November 2014

2. Index
Section Page no
Objectives 3
Workshop presenters 4
Doing business in Saudi Arabia 5
Compliance calendar for a Saudi entity 7
Elements of Financial Statements 8
Accounting standards 14
Overview of Saudi Arabian tax regulations 15
Requirements for bookkeeping in Saudi
26
Arabia
GOSI regulations 28
Areas where EY can assist 29
Contact details 31
Page 2 Accounting and Tax/Zakat in Saudi Arabia

3. Workshop Objectives
To provide participants with the understanding of the following:
► Business structure available in Saudi Arabia
► Process to set-up an entity in Saudi Arabia
► The basic structure of financial statements
► Accounting, Tax and other compliance regulations in Saudi Arabia
Page 3 Accounting and Tax/Zakat in Saudi Arabia

4. Workshop Presenters
► Imran Iqbal, Senior Principal, Tax services
► Imran is a tax partner with Ernst and Young’s Middle East practice based in Riyadh.
► Imran is a Chartered Accountant and fellow member of the Institute of Chartered Accountants
of Pakistan
► Imran has more than 20 years post qualification experience. During his professional career,
Imran has gained extensive experience in audit and tax consulting services.
► Vinu Mallya, Director, Assurance services
► Vinu is our designated Financial Accounting and Advisory Leader in Riyadh office
► Vinu is a fellow member of the Institute of Chartered Accountants of India
► Vinu has more than 15 years post qualification experience. During his professional career,
Vinu has worked with a large portfolio of clients operating in a wide range of industries and
include banking, insurance, telecom, services, contracting and others.
Page 4 Accounting and Tax/Zakat in Saudi Arabia

5. Doing business in Saudi Arabia
Key considerations
► Legal structures available in Saudi Arabia:
► Sole proprietorship
► Partnerships or Joint Ventures
► Saudi Arabian branch of a foreign company
► Limited Liability Company (LLC) with or without a Saudi partner
► Joint Stock Company (JSC)
► Minimum capital required: The level of capital for each entity is determined by
SAGIA and Ministry of Commerce and Industry (MOCI) based on the nature of the
underlying project and activities.
► Foreign Ownership: 100% foreign ownership is permitted unless carrying on
“Engineering Services & Trading Activities” in which case minimum 25% Saudi share
required.
► Negative list: Certain activities not permitted by SAGIA eg: Manufacturing of
explosives, audiovisual and media services etc.
Page 5 Accounting and Tax/Zakat in Saudi Arabia

6. Doing business in Saudi Arabia
Step-wise entity registration overview
1 Obtain investment license from Saudi Arabian General Investment Authority
(SAGIA) (only applicable to foreign investment)
2 Obtain approvals from other relevant Ministries and governmental bodies (e.g.
Ministry of Health, Labor etc.)
3 Inject capital contribution – SAGIA sets minimum requirement for each industry
sector
4 Register/incorporate entity with Ministry of Commerce and Industry (MOCI) and
obtain commercial registration (CR).
5 Register with Department of Zakat & Income Tax (DZIT)
6 Register with General Organization for Social Insurance (GOSI) and local
Municipalities.
7 Comply with tax and other regulatory requirements
Page 6 Accounting and Tax/Zakat in Saudi Arabia

7. Compliance calendar for a Saudi entity
Statutory compliance requirement Deadline
Maintenance of books and records in Arabic Quarterly attestation by a licensed accountant
Registration with the DZIT Before end of first fiscal year/period or first
taxable payment made to the non-resident entity
Filing of annual audited financial statements with the MOCI and
SAGIA 180 days from year-end
Filing of annual tax/zakat declaration with the DZIT 120 days from year-end
Certification of tax declaration (if annual revenue exceeds SR 1
million) 120 days from year-end
Filing of monthly withholding tax return with the DZIT 10 days from end of month in which payment
made
Filing of annual withholding tax return with the DZIT 120 days from year-end
Filing of monthly return with the GOSI (Saudi Social Insurance) 15 days from the end of the month
Filing of annual return with the GOSI (Saudi Social Insurance) 15 February of the following year
Contract filing with DZIT
Within 3 months of signing the contract or
amendments to the contract.
Within 1 month of suspension of contract
Page 7 Accounting and Tax/Zakat in Saudi Arabia

8. Elements of financial statements
► Balance sheet
► Statement of income
► Statement of changes in equity
► Cash flow statement
► Notes and other information
Page 8 Accounting and Tax/Zakat in Saudi Arabia

9. Elements of financial statements
Balance Sheet
► Shows financial POSITION of an entity at one point of time
Elements of a Balance Sheet
► Assets
► Liabilities
► Equity
Assets Liabilities & Equity
Page 9 Accounting and Tax/Zakat in Saudi Arabia

10. Elements of financial statements
Income Statement
► Shows financial PERFORMANCE for a certain period of time e.g. one year
Elements of the Income Statement
► Revenue
► Costs
► Gains
► Expenses
► PROFIT! (or loss…)
Page 10 Accounting and Tax/Zakat in Saudi Arabia

11. Elements of financial statements
Statement of changes in equity
► Shows details of changes in equity during a certain period
Elements of the SoCE
► Dividends paid and proposed
► Some fair value movements
► Transfers to statutory reserves
Page 11 Accounting and Tax/Zakat in Saudi Arabia

12. Elements of financial statements
Cash flow statement
► Shows sources and uses of cash during a certain period
► “CASH IS KING”
► “CASH IS THE BLOOD OF A BUSINESS”
Elements of Cash Flow Statement
► Cash flows from operating activities
► Cash flows from investing activities
► Cash flows from financing activities
► Opening and closing balance of cash and cash equivalents
Page 12 Accounting and Tax/Zakat in Saudi Arabia

13. Elements of financial statements
Notes
Elements of Notes
► Activity note
► Accounting policies
► Other explanatory notes
Page 13 Accounting and Tax/Zakat in Saudi Arabia

14. Accounting standards
► Companies should comply with the accounting standards issued by the Saudi
Organization of Certified Public Accountants (SOCPA).
► In case no SOCPA standards exist, International Financial Reporting Standards (IFRS)
to be followed
► SOCPA has recently mandated that companies should prepare their financial
statements in accordance with IFRS:
► all listed companies starting 1 January 2017 and
► all other companies starting 1 January 2018
► Financial statements prepared in Arabic should include:
Auditor’s report Balance sheet
Statement of income Cash flow statement
Changes in the shareholders’ equity Notes to the F/S
Page 14 Accounting and Tax/Zakat in Saudi Arabia

15. An overview of the Saudi Tax regulations
Corporate income tax, WHT and Zakat
Corporate income tax Zakat Withholding tax
Who is liable?
► Resident company in respect
of non-GCC share of profit
► Resident non-GCC natural
person with business activities in
the Kingdom
► Non-resident with a branch/PE in
the Kingdom
► Companies incorporated
in Saudi Arabia with respect
to share owned by Saudi or
GCC nationals/companies
Page 15 Accounting and Tax/Zakat in Saudi Arabia
► A non-resident not having
a PE in Saudi Arabia, in
respect of income earned
from a source in the Kingdom
Rate
► 20% – capital companies,
branch and PE
► 30% to 85% – companies
engaged in the field of natural
gas investment
► 85% – companies engaged
in production of oil and other
hydrocarbons
► 2.5% of the Saudi/GCC
shareholder’s share of ‘net
assessable funds’ or share
of adjusted profits, whichever
is higher
► 5% to 20% depending
on the nature of payment
► Dividends subject to 5% WHT
Bases of
calculation
► Gross income less allowable
deductions (net adjusted profit)
► 'Net assessable funds'
comprises capital employed
and long-term financing, less
fixed assets,
long-term investments and
deferred costs, plus/minus net
adjusted profit/loss for the
year
► Gross amount paid
to non-resident regardless
of any costs incurred
by the non-resident

16. An overview of the Saudi Tax regulations
Common disallowable expenses
► Expenses not related to a tax year.
► Capital expenses, e.g. furniture, equipment etc.
► Entertainment and recreation expenses.
► Fines and penalties unless it is contractual.
► Bribes or similar payments which are considered as a criminal offence in the
Kingdom.
► Bad debts written off without proof of adequate attempt to recover.
► Provisions or reserves of all kinds.
► Compensation to a partner against services in excess of market prices
► Income tax or related fines or penalties paid in the Kingdom or to another
state.
► Commissions paid to insurance company agents in excess of 3% of the total
premium earned in the Kingdom.
Page 16 Accounting and Tax/Zakat in Saudi Arabia

17. An overview of the Saudi Tax regulations
Common disallowable expenses
► Payments for overseas pension fund, social insurance or saving and
provident funds.
► Employee’s share in retirement fund established in Saudi Arabia e.g. pension
fund
► Payments to head office by foreign branches for:
► Royalty or commission
► Loan proceeds or any financial fees
► Indirect administrative and general expenses allocated on an estimated basis
► Cost of repairs or improvements of fixed assets in excess of 4% of the
remaining value of the related asset group at year-end
► Depreciation of fixed assets in excess of the depreciation rates stipulated by
the DZIT unless operating conditions support higher rates.
► Limitation on the allowability of loan interest up to 50% of income less
expenses before interest income and interest expense.
Page 17 Accounting and Tax/Zakat in Saudi Arabia

18. An overview of the Saudi Tax Regulations
Tax computation proforma
60%- Non- Saudi/Non-GCC shareholders
40%- Saudi/GCC shareholders
Details SR
Gross Income A 300
Less: Expenses B 280
Net profit (loss) for the year C=A-B 20
Add: Disallowable expenses: D 10
Less: Tax claims E 5
Total of disallowed expenses and tax claims F=D-E 5
Tax adjusted profit (loss) for the year G=F+C 25
Non-Saudi/Non-GCC share of adjusted profit (60%) H=60%*G 15
Tax @ 20% I=20%*H 3
Share of profit after tax J=H-I 12
Withholding tax @ 5% on remittance of dividends K=5%*J 0.6
Total tax suffered L=K+I 3.6
Page 18 Accounting and Tax/Zakat in Saudi Arabia

19. An overview of the Saudi Tax Regulations
Zakat computation proforma
60%- Non- Saudi/Non-GCC shareholders
40%- Saudi/GCC shareholders
Add: Balances at the beginning of the year SR
Share capital A 100
Statutory reserve B 20
Retained earnings / (Accumulated Losses) C 50
Other reserves D 50
Provisions E 20
Loans which have completed one year F 30
Adjusted profit/losses for zakat purposes G 25
Gross assessable funds H=A to G 295
Less: Balances at the end of the year
Fixed assets I 50
Long-term investments J 100
Total deductions K=I+J 150
Net assessable funds L=H-K 145
Saudi/GCC shareholder share (40%) M=40%*L 58
Zakat due @ 2.5% N=2.5%*M 1.45
Page 19 Accounting and Tax/Zakat in Saudi Arabia

20. An overview of the Saudi Tax regulations
Capital gain tax
► Capital gains on transfer of shares in a Saudi Company by nonresident shareholder is
subject to 20% tax
► Change in legal form of a non-resident shareholder abroad not treated a taxable event
► Transfer of shares by a nonresident shareholder in a Saudi company as a result of
internal restructuring or transfer of shares between group companies is a taxable event
► Capital gains arising to non-resident foreign investors on disposal of listed securities
are exempt from tax
► The seller should inform the DZIT and pay capital gain tax and income tax until the date
of sale, within 60 days of the sale of shares
Page 20 Accounting and Tax/Zakat in Saudi Arabia

21. An overview of the Saudi Tax regulations
Operating losses
► Foreign shareholder’s share of loss can be carried forward indefinitely
► No carryback of losses allowed
► Maximum carry forward loss allowed for adjustment in a year restricted to 25% of
current year adjusted profit
► Change of ownership of 50% or more may result in disqualification for carry forward of
losses
Penalties
► Penalty for the non-submission of tax-return is the higher of:
1% of the total revenue, not to exceed SR 20,000
OR
5% to 25% of the underpayment of tax due depending on the period of delay.
► Late payment of tax penalty of 1% of the unpaid tax for each 30 days delay.
► Penalty of 1% shall not be payable if 30 days delay period from due date is not
complete.
► Tax evasion penalty of 25% is imposed on additional tax resulting from evasions
Page 21 Accounting and Tax/Zakat in Saudi Arabia

22. An overview of the Saudi Tax regulations
Tax filing requirements
► An entity or a PE must file their tax declarations within 120 days of the year-end based
on accounting books and records maintained in Arabic and in Saudi Arabia.
► If a taxpayer’s income exceeds SR 1 million, the tax declaration must be certified as
correct by an independent accountant who is licensed to practice in Saudi Arabia.
► Audited financial statements required to be submitted along with the tax return for
mixed and Zakat entities
Contract information filing
► Any contract entered with the private sector or their amendments for a value of SR
100,000 or more should be reportable to the DZIT
Page 22 Accounting and Tax/Zakat in Saudi Arabia

23. An overview of the Saudi Tax Regulations
Withholding tax
Who is subject to WHT?
► Non-residents not having a permanent establishment in Saudi Arabia in respect of income earned
from a source in the Kingdom.
Who is responsible to withhold and settle to the DZIT?
► A Saudi Arabian resident entity whether or not a taxpayer
► A permanent establishment (PE) of a non-resident in the Kingdom
Other rules relating to WHT:
► WHT is paid on the entire amount paid to the non-resident regardless of any costs incurred by the
non-resident. (i.e., out of pocket expenses).
► WHT is payable on the taxable amount even if this amount is disallowed.
WHT returns and payment
► Monthly return and payment - within 10 days from the end of the month
► Annual WHT return and the tax declaration - within 120 days from the end of the fiscal year
Delay fines
► Delay in payment of WHT: Fine of 1% for each 30 days of delay
► Evasion of WHT : 25% of unpaid taxes
Page 23 Accounting and Tax/Zakat in Saudi Arabia

24. An overview of the Saudi Tax Regulations
Withholding tax
Payment by Saudi entity to parties
based outside Saudi Arabia
Against supply of goods Against taxable payments
Page 24 Accounting and Tax/Zakat in Saudi Arabia
Considered as Saudi
Non- residents residents (viz., a PE)
No WHT subject to
availability of customs
clearance documents
No WHT subject to
availability of CR and tax
certificate
Affiliates for services
Third party 15% WHT
Services rendered
wholly/partly inside Saudi
Arabia
Services rendered offshore
WHT based on applicable
WHT rates
Technical & Consulting
services
Other services
5% WHT
No WHT
WHT determination chart

25. An overview of the Saudi Tax Regulations
Withholding tax
Withholding Tax rates
Nature of payment Withholding tax
Page 25 Accounting and Tax/Zakat in Saudi Arabia
rates (%)
Loan fees (interest) 5
Rents 5
Air tickets 5
Air freight or marine shipping 5
Technical and consulting services (non-related company) 5
International telecommunications services 5
Dividend payment, profit remitted to head office 5
Insurance and reinsurance premiums 5
Royalties 15
Payments for services made to the head office or a non-resident related party
(50% or more ownership) 15
Management fees 20
Any other payments 15

26. Requirements for book keeping in Saudi Arabia
Current regulations for maintenance of ABR:
► According to MOCI, business entities with capital > SR100,000 must maintain their
books of accounts in Arabic
► Books should be maintained in Saudi Arabia. Computer server should be based in the
Kingdom.
► Original supporting documents should be kept in the Kingdom
► The Company should maintain books of accounts in accordance with Saudi GAAP
► The following books should be maintained in Arabic:
► Journal (Prime book for entry)
► General ledger
► Inventory book
► Attestation on a quarterly basis by a licensed public accountant
Page 26 Accounting and Tax/Zakat in Saudi Arabia

27. Requirements for book keeping in Saudi Arabia
Requirement for computerized books:
► Data maintained in computers should be retrievable for inspection
► The periodical printouts for attestation should be paged, dated and should cover all
data entered
► Data appearing in computer printouts should be supported with written paper
documents
► System documentation required if the computer program was developed internally
► Auditable physical security of the computer equipment
► Effective control over computer programs and data
Page 27 Accounting and Tax/Zakat in Saudi Arabia

28. GOSI regulations
GOSI (Social insurance)
► GOSI contributions are computed on basic salary and the housing allowances
► Saudis are subject to 20% GOSI contribution (11% employer share and 9% employees share) to be
paid by the employer
► Non-Saudis/Non-GCC are subject to 2% GOSI contribution to be paid by the employer
► Nationals of GCC are also subject to GOSI contributions.
► Monthly GOSI return required to be filed online within 15 days of the month end. Annual GOSI return
are required to be filed online by February 15th every year.
► Late payments of contributions for Saudi nationals only are subject to a fine of 2% per month of
delay. Delay fine restricted to 100% of unpaid GOSI contribution
Unemployment insurance (SANID)
► A new unemployment benefit insurance scheme already effected from 1 September 2014
► Contribution of 2% of monthly GOSI contribution paid equally by the employer and employee (1%
each)
► Applicable on all Saudi employees below the age of 59.
► Should be paid together with GOSI contribution within 15 days of the month end.
Page 28 Accounting and Tax/Zakat in Saudi Arabia

29. Areas where EY can assist
Challenges for companies We can help you achieve:
► Lack of resources and key skill sets
► Obstacles when trying to free up
finance resources to engage in
more value-added tasks
► A lack of GAAP/Zakat/Tax
knowledge to address changing and
complex local reporting rules and
regulations
► Disruptions or penalties due to
missed deadlines
► Visibility, access to and monitoring of
local finance processes and statutory
reporting
► On demand reports on the financial
position and results of the Company
► Cost and process efficiencies
by utilizing EY qualified and skilled
professionals who are available all
year round
► The level of technology needed to
monitor reporting status centrally and
enable the rapid escalation and
resolution of identified issues
Page 29 Accounting and Tax/Zakat in Saudi Arabia

30. Areas where EY can assist
► Assistance in setting up an entity in Saudi Arabia
► Statutory reporting (statutory financial statements/statutory annual accounts)
► Bookkeeping services to assist financial functions which includes period
close help, trial balance compilation, reconciliations, data gathering/analysis
► Payroll services include all aspects of processing and administering the
payroll to the employees including GOSI and compliance with Wage
Protection System
► Tax services includes registration with the DZIT, preparation of corporate
tax/Zakat returns, preparation of monthly withholding tax returns etc.
► Translation and attestation of Arabic books and records
► Other services to help companies to meet their accounting, tax and statutory
reporting obligations
Page 30 Accounting and Tax/Zakat in Saudi Arabia

31. Questions
Page 31 Accounting and Tax/Zakat in Saudi Arabia

32. Contact details: Riyadh office
Fahad M. Al-Toaimi
Riyadh Office Managing Partner
Direct phone: +96612159477
Mobile No. +966 505247872
E-mail: Fahad.Altoaimi@sa.ey.com
Awaiz Patni
Director
Direct phone: +96612159475
Mobile No. +966 501564011
E-mail: Awaiz.Patni@sa.ey.com
Imran Iqbal
Senior Principal
Direct phone: +96612159807
Mobile No. +966 509238995
E-mail: imran.iqbal@sa.ey.com
Vinu Mallya
Director
Direct phone: +96612159420
Mobile No. +966 568819809
E-mail: vinu.mallya@sa.ey.com
Page 32 Accounting and Tax/Zakat in Saudi Arabia

33. Thank you