Introduction
The General Authority for Zakat and Tax (GAZT), in the Kingdom of Saudi Arabia (KSA) comes up with a new regulatory framework for zakat and tax profile of companies listed on Tadawul by issuing circular no. 6768/16/1438. The new regime requires listed companies to pay taxes on the basis of nationality of shareholders of the company as per tadawul system on the last date of year. The circular shall be applicable to all the financial year ending after issuance. Accordingly, it shall be applicable to the financial year ending on 31st December, 2016 and all the tax and zakat returns for the year ending December, 2016 needs to be in compliance with this circular. This article aims to highlight some major changes brought in by this circular.
Previous Scenario
As per the prevailing scenario, key components for zakat base should be maintained in the books of zakat payer for a period of complete one year to form a part of zakat base. The company’s zakat/ tax liability is generally based on the founding members’ ownership as mentioned in the articles of association. The listed companies can change their ownership multiple times in a year and it may be with a GCC or non GCC national and it does not impact the zakat returns of the company. There is no impact of transfer of listed shares in determining the zakat base for the company.
Major Changes
The circular states that the companies listed on Tadawul will be required to determine their zakat/ tax liability on the basis of ownership shown in Tadawul system on last day of the financial year. These reports can be obtained from “Tadawulaty System” and it outlines the required details for ownership records e.g. residency, nationality, address etc.
- The circular directs listed companies to file their zakat/ tax returns as per the real ownership percentage as on the last day of financial year and attach a statement showing shareholding ownership pattern by Saudi nationals, non Suadi Nationals and GCC Nationals.
- It also provides for advance payment of taxes in the following year according to the amount of taxes in the return for previous year.
- Circular indicates that it shall be applicable to financial year ending after issuance of this circular and previous assessment(s) will be finalized on the basis of information available for them.
- The listed companies are now required to make provision for their zakat and tax liability on the basis of ownership information available in Tadawul system.
- If the ownership of the company is in hands of non GCC nationals as per the records available in Tadawul System will now be required to with declaration certification requirements of Article 60 (e) of Saudi Income Tax law, if applicable.
- The listed companies will not be allowed to consolidate its subsidiary entities for filing zakat returns. Separate zakat and tax returns needs to be filed for each wholly owned subsidiary. It will add the burden of compliance cost for companies.
- Some of important items which are deductible for zakat purposes may not be deductible in full for tax purposes (for example, loan charges, repairs and maintenance of fixed assets and etc.)
- Listed companies will now have to bear the burden of additional administrative cost for updating data of ownership structure in the system every year.
Conclusion
The new circular clearly indicates the intention to impose stricter compliances and keep a track of actual ownership of entities. The listed companies should now check their ownership records as per Tawadul system and update the same before the end of the financial year to prepare for ascertaining the zakat/ tax liabilities. Planning before time can help companies to calculate the financial impact on the company as well as ensure timely compliance for all group companies.
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