Understanding Accounting Policies and Taxes in Saudi Arabia

 

The Kingdom of Saudi Arabia (KSA) has undergone significant changes in its accounting and tax regulations in recent years. These changes are part of the broader Vision 2030 initiative, which aims to diversify the economy and reduce dependence on oil revenues. Here’s a closer look at the current landscape of accounting policies and taxes in KSA.

Accounting Standards

Saudi Arabia follows accounting standards issued by the Saudi Organisation for Certified Public Accountants (SOCPA), which are fully compliant with International Financial Reporting Standards (IFRS). However, there are additional requirements specific to Saudi Arabia, such as those related to Zakat (a form of religious tax) that are not covered by IFRS

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Key Tax Policies

1. Zakat and Income Tax:

   • Zakat: This is a religious obligation for Muslims and is calculated at 2.5% of the Zakat base, which includes net worth and certain adjustments. It applies to Saudi and GCC nationals.
   • Income Tax: Non-Saudi and non-GCC nationals are subject to income tax on their share of profits from resident companies at a rate of 20%
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2. Value Added Tax (VAT):

   • Introduced in 2018, VAT is levied at a standard rate of 15% on most goods and services. This was increased from the initial rate of 5% as part of measures to boost government revenue
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3. E-Invoicing:

   • The implementation of mandatory e-invoicing, known as FATOORA, aims to enhance transparency and reduce tax evasion. Businesses with an income exceeding 500 million SAR must submit invoices electronically
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4. Real Estate Transaction Tax (RETT):

   • RETT is applied at a rate of 5% on the transfer of real estate properties. Recent amendments have introduced exemptions for certain transactions, such as transfers to approved developers for off-plan sales
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5. Tax Amnesty:

   • To support businesses affected by the COVID-19 pandemic, a tax amnesty program was introduced, allowing businesses to settle overdue taxes without penalties. This program has been extended to provide further relief
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Compliance and Reporting

The Saudi government has been proactive in updating its tax and accounting regulations to align with global standards. This includes rigorous compliance measures to ensure accurate financial reporting and reduce tax evasion. The introduction of e-invoicing and updates to the RETT regulations are examples of these efforts

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Conclusion

The evolving landscape of accounting and tax policies in Saudi Arabia reflects the country’s commitment to economic reform and diversification. By aligning with international standards and implementing robust compliance measures, KSA aims to create a more transparent and efficient financial environment. These changes not only support the goals of Vision 2030 but also provide a more predictable and stable framework for businesses operating in the Kingdom.