ZATCA extends the Tax Amnesty up to 30 June 2024
On 29 December 2023, the Zakat, Tax and Customs Authority (ZATCA) announced on its website the extension of the “Cancellation of Fines and Exemption of Penalties Initiative (the “Initiative”) for another six (6) months starting from 1 January 2024 until 30 June 2024.
The ZATCA clarified that the initiative covers fines for late registration in all tax laws, late payment, late filing of returns in all tax laws, fines for correcting VAT returns, and fines for violations of VAT field control related to applying the e-invoicing regulations and other general regulations.
To take advantage of the Initiative, the following are required:
· Taxpayers should be registered in accordance with the tax law and submit all previously unsubmitted returns to ZATCA.
· Payment of all principal tax due associated with the tax returns that will be submitted or amended to accurately disclose the outstanding tax liabilities.
· Taxpayers can request an installment payment plan from ZATCA while the initiative is in effect and all due instalments are paid within the due dates specified in the ZATCA-approved instalment plan.
It is also important to note that the initiative excludes penalties related to tax evasion violations and fines paid before the initiative’s effective date.
The ZATCA also invited taxpayers to view the simplified guideline it issued in this regard outlining the types of penalties covered, conditions for exemption, steps for installment payment, and details on field control violations (link here).
Further, the ZATCA clarified in the Guidelines that the taxpayer shall be exempted from late filing fines on tax returns which must be filed to ZATCA before the effective date of the Initiative’s extension on 1 January 2024 for all taxes (e.g., November 2023 VAT and WHT returns or Q3-2023 VAT returns).
Accordingly, taxpayers are enjoined to take benefit from the Initiative within the specified period. We shall be pleased to assist taxpayers who wish to avail of the tax amnesty benefit by reviewing their tax filing position and how best to rectify it from compliance perspective.
ZATCA proposes new income tax legislations
Amidst the recent amendments and proposed changes on the current tax and zakat regulations in the KSA, the Zakat, Tax and Customs Authority (ZATCA) published, on 25 October 2023, the draft versions of two new tax legislations, i.e., the draft New Income Tax Law (ITL) (see link here) and the draft Zakat and Tax Procedures Law (see link here), for public consultation open until 25 December 2023. This is in line with ZATCA’s interest in keeping at pace with the comparative tax legislative developments not only in the GCC region but also in the international arena.
The proposed new ITL (see draft document here) aims to reorganize the current income tax system, which was issued and implemented in 1425 AH (2004 G). This is the Kingdom’s response to the recent trends and developments in the international tax landscape to align with the best international tax practices. This initiative will boost the Kingdom’s economy as it helps in promoting and attracting investments and enhancing compliance and transparency.
Based on the draft document for public consultation, the following are the most prominent and/or salient features of the proposed new ITL which will be implemented in the KSA once the law is approved and comes into force:
- Expansion of the tax residency rules for both legal and natural persons
- Inclusion of a threshold for the period of performance of in-Kingdom services (i.e., more than 30 days within any 12-month period) for a PE to be created in the KSA.
- New rules on participation exemption for dividends, capital gains and liquidation distributions received from domestic and foreign companies subject to conditions
- Changing the tax treatment of partnerships
- Introduction of tax relief in case of mergers, acquisitions, and demergers subject to conditions
- Proposed alternative methods of tax calculation for micro-enterprise taxpayers
- Clarification on the taxation of non-Saudi persons residing and carrying-out activities in the Kingdom
- Transparent treatment of investment funds consistent with the zakat treatment
- Inclusion of new provisions relating to the following:
- Transfer of residence to and from the Kingdom
- Reinvestment reserve
- Hybrid mismatches of financial instruments between jurisdictions whereby deductions and exemptions would not apply to financial instruments that have different tax treatments in other jurisdictions than in the Kingdom.
- Introduction of tax incentives for green investments.
- Revamped withholding tax (WHT) regime, whereby the following rules are proposed:
- WHT rates apply on certain payments to nonresidents, as follows: [a] 5% for dividends and rental payments; [b] 10% for services; and [c] 15% for royalties
- Introduction of the ‘preferential tax regime’ concept in relation to WHT
- Enumeration of payments not subject to WHT
- The statute of limitations for tax assessments is reduced to three (3) years as a general rule, with exceptions.
The ZATCA has also published a draft Zakat and Tax Procedures Law (see link here), which essentially consolidates all the procedural and administrative provisions from various tax and zakat legislations. It covers registration, deregistration, record keeping, confidentiality, rulings, and communication between ZATCA and tax/zakat payers.
ZATCA releases guidelines on transactions with Related Parties for Zakat Purposes
The General Authority for Zakat and Tax (ZATCA) has issued guidelines on the zakat treatment of transactions with related parties for the purposes of calculating the zakat base and zakat. This guide is intended to provide taxpayers with clarifications on the treatment of these transactions for zakat purposes.
Key Points-
• Related party transactions are divided into three categories:
o Commercial transactions: These transactions are treated as arm’s-length transactions, and no adjustments are required to the zakat base.
o Indirect financing transactions: These transactions involve the related party paying or paying a cost or expense on behalf of the taxpayer. These transactions do not affect the zakat base, but they may be treated as debts for zakat purposes.
o Direct financing transactions: These transactions involve the related party financing the taxpayer’s commercial establishment. These transactions are treated as debts for zakat purposes.
• Taxpayers should adjust the outcome of their activity if they have overpaid for goods or services from related parties.
• Taxpayers should treat as debts any accounting entries that are reflected on the statement of financial position at the end of the year as liabilities.
• Taxpayers should add to the zakat base any obligations that are consistent with a debt relationship or something similar.
Thrilled to announce ZATCA Phase 2 Integration
We are thrilled to share that we have completed ZATCA Wave 2 E-Invoicing Integrations for our valued clients successfully! The wave came to an end on 31 December 2023.
We thank the entire team as well as our clients for entrusting us with this critical tax compliance journey and choosing us as their partner. Your trust and collaboration made this achievement possible, and we are honored to have played a part in your tax compliance achievements. We at VITA, your Virtual Intelligent Tax Advisor are grateful to have you on this compliance journey with us!
We provide multiple options through which Phase I and Phase II invoices and notes can be created depending on our client’s preferences:
1. Use our entry screen to create new invoices and notes
2. Upload your data in Excel format to generate invoices and notes
3. Integrate your ERP through API seamlessly so that you continue generating invoices and notes with minimal changes, while VITA Unicore will ensure full compliance with ZATCA guidelines, based on our inbuilt rule engines and validations.
We now look forward to serving our Wave 3 through Wave 9 clients and making their integration journey seamless and successful. Let’s continue to thrive together. Here’s to a year of continued success and growth!