New Saudi tax law under review

22 March 2002

A new corporate tax law has been submitted to the Majlis al-Shura for debate following the approval of draft legislation by the Supreme Economic Council, secretary-general of the council Abdulrahman al-Tuwaijri told delegates at the MEED Congress in Dubai on 19 March. The law envisages a new tax framework for non-Saudi corporates operating in the kingdom. Al-Tuwaijri said that the corporate tax rate had already been reduced to 30 per cent from 45 per cent, and he was confident that there would be further reductions to come.

An income tax element, for non-Saudis, had originally been considered for inclusion in the new law, but it is now envisaged as a solely corporate tax law. However, the Majlis may decide to recommend the reintroduction of income tax elements to the legislation, Al-Tuwaijri said.

Earlier discussions regarding the tax law had included proposals for the equalisation of tax regimes for foreign and local companies, but these proposals are not included in the draft legislation. At present, tax is only levied on non-resident companies, while Saudi companies are obliged to pay Islamic zakat, which usually works out at between 2.5 per cent and 15 per cent.

According to Al-Tuwaijri, a number of other crucial pieces of legislation are beginning to take shape. These include the new capital market and labour laws, a new definition of areas open to the private sector, and the creation of a framework for private investment in the kingdom's passenger and freight railways (see Special Report).

The capital market law was passed to the Majlis for approval in 2001 and is still under evaluation. Fahad al-Mubarak of the local Malaz Grouptold MEED Congress that the law was likely to be in full effect within 12 months. The labour law is now with the council of ministers. Its aim is to deal with rigidities in the labour market. Existing legislation drawn up in the 1950s offers such a high level of protection to Saudi workers that Saudi employers are often reluctant to employ nationals, business leaders say. The law tackles the problem of poor employee mobility between the public and private sectors.

The Supreme Economic Council is also honing legislation for private and foreign investment in the industrial sector. Progress had been made on new by-laws for industrial estates, said Al-Tuwaijri, while the council is close to setting up a new independent body to run industrial parks in the kingdom. The new body will be largely self-financing, with most of its revenues generated from land rentals. New legislation will allow for the creation of private companies in control of designated areas of land, and basic infrastructure will be provided by government bodies. Al-Tuwaijri said that a large number of private companies had already expressed an interest in setting up industrial ventures under the new legislation.

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