Taxpayers' Rights and Obligations

The new Income Tax ( the Law )  has stipulated a set of rights to taxpayers as well a set of obligations they have to fulfill. Below are the most important rights and obligations:

Taxpayers' Rights

1. Confidentiality of Information:

Article 59 of the Law  has stipulated that the Department of Zakat and Income Tax (the Department) and all its staff shall maintain confidentiality of information pertaining to taxpayers to which they have access in their official capacity.

2. Loss Carry-forward:

The Law has allowed the carry-forward of a net operating loss to the taxable year following the year in which the loss is incurred. The carried-forward loss shall be deducted from the tax base of the following taxable years until the cumulative loss is fully offset. The Implementing Regulations have specified the maximum limits allowed to be annually deducted at 25 percent of the annual profit as per return.

3. Accounting Method:

Article 23 of the Law has allowed, for tax purposes, a natural person to record his transactions on a cash or accrual basis. However, if his gross income from business during a taxable year exceeds 5 million Saudi Riyals, he must use the accrual  method in all succeeding taxable years notwithstanding any later drop of his income below this limit.

A company which keeps or is legally required to keep commercial books must record income and expenses on an accrual basis. Otherwise, it may, for taxation purposes, use either the cash or accrual method.

4. Refund:

Article 72 of the Law has given a taxpayer, in the case of an overpayment of tax, the right to request refund of the excess amount any time within five years of the tax year for which the overpayment was made. The taxpayer is also entitled to a compensation at the rate of one percent of the overpayment for each thirty days, beginning thirty days after the claim and continuing until the taxpayer receives the amount.

5. Regulatory period for assessment (Statute of Limitations):

Article 65 of the Law has assured that The Department shall not assess or reassess a taxpayer if five years have passed after the tax year.

But if a taxpayer has failed to file a tax declaration for the taxable year, or , or it is found that the declaration is incomplete or incorrect with the intent to evade tax, the Department may assess or reassess the taxpayer within 10 years of the tax year.

6. Objections and Appeals:

Article 65 of the Law has guaranteed the right to taxpayers to object to an assessment within 60 days of receipt of assessment letter, to appeal the Preliminary Committee resolution within 60 days of receipt of resolution, and to appeal the Appeal Committee resolution to the Board of Grievances with 60 days of date of notice of the Appeal Committee resolution.

Taxpayers' Obligations

1. Registration:

Article 57 of the Law has stipulated that every person subject to tax in accordance with the Law shall register with the Department before the end of its first fiscal year. The Law does not require taxpayers subject only to final withholding tax to register. Non-registration shall be subject to a penalty ranging from one thousand to twenty thousand Saudi riyals.

2. Books and Records:

Article 58 of the Law has stipulated that a taxpayer, other than a non resident with no permanent establishment in the Kingdom, shall maintain the necessary commercial books and accounting records in Arabic for determination of the tax payable by it; the taxpayer is also required to keep the supporting documents.

3. Filing of required returns and payment of due tax:

Articles 60 and 69 of the Law have required taxpayers to file the tax return and pay accordingly within 120 days of the end of the tax year the return represents.

A taxpayer whose taxable income exceeds one million Saudi riyals should have its return certified as correct by a certified public accountant.

A partnership should file its information return on or before the 60^th day of the end of its tax year.

Article 76 of the Law has stipulated penalties for late filing and late payment according to the following:

- One percent of taxpayer's gross income provided that the fine does not exceed twenty thousand (20,000) riyals, or according to the following formula, whichever is higher:

-  Five percent (5%) of the unpaid tax if the delay does not exceed thirty (30) days of the legally prescribed date.

- Ten percent (10%) of the unpaid tax if the delay exceeds thirty (30) days and does not exceed ninety (90) days of the legally prescribed date.

- Twenty percent (20%) of the unpaid tax if the delay exceeds ninety (90) days and does not exceed three hundred sixty five (365) days of the legally prescribed date.

- Twenty five percent (25%) of the unpaid tax if the delay exceeds three hundred sixty five (365) days of the legally prescribed date.

Article 77 of the law has stipulated a delay penalty of one percent (1%) of unpaid tax for every thirty days of delay, calculated from the tax due date until the date of payment, with no ceiling for this penalty  as long as the tax is not paid. The delay penalty also applies to delay in payment of tax required to be withheld and advance payments.

In addition to the previous fines, the taxpayer shall be subject to a fine of twenty five percent (25%) of the difference in tax resulting from fraud or from false information provided by the taxpayer or its certified accountant, with the intention to evade tax.

4. Information provision of contracts concluded with other parties:

Article 61 of the Law requires all taxpayers to provide the Department with a summary of contracts concluded with the private sector within three months of the date of conclusion of the contract on the prescribed form. A person who does not provide the Department with what is required under this paragraph, or does not notify the Department of the date of cessation of work stated in the contract, is jointly liable for any tax claim due on the contract.

5. Advance installments of due tax:

Article 70 of the Law has stipulated that a taxpayer should pay three advance payments of tax on or before the last day of the 6^th, 9^th and 12^th months of the taxable year according to the following formula: 25 percent of (The taxpayer’s tax for the preceding year according to its declaration minus the amount of tax paid in the preceding year by withholding at source.), using the prescribed form. A taxpayer shall not be obligated to make the advance payments, if the result of the above formula is less than five hundred thousand (500,000) riyals. In case of non-compliance with advance payments, the taxpayer shall be subject to the penalty of 1 percent for every thirty days of delay.

6. Withholding tax:

Article 68 of the Law has stipulated that Every resident, whether or not a taxpayer according to the Law, and a permanent establishment of a non-resident in the Kingdom which pays an amount to a non-resident from a source in the Kingdom shall withhold tax from the paid amount according to the rates prescribed in the Law. Tax has to be withheld and paid over to the Department within the first 10 days of the month following the month of payment to the recipient using the prescribed form ( the monthly withholding form). The taxpayer should also  provide the Department with  withholding information for the tax year during 120 days of the end of the tax year using the prescribed form ( the annual withholding form), but a partnership which should file its annual withholding form within 60 days of the end of its fiscal year. In case of non-compliance, the taxpayer shall be subject to the delay penalty of 1 percent for every 30 days of delays as stipulated in the Law.

7 Cessation of activities:

A taxpayer who ceases business activity is required to notify the Department and to present, within sixty days from the cessation date, a tax declaration for the short taxable period ending with the date on which it ceases business. In case of non-compliance with this requirement, the taxpayer shall be subject to the penalty as stipulated in Article 76 of the Law.