The Minister of Commerce has unveiled new rules that require all companies in Saudi Arabia (subject to some exemptions) to identify and disclose their ultimate beneficial owners (UBOs) and maintain accurate and up-to-date beneficial owner records. The rules apply as from 3 April 2025.
The Saudi tax authorities apply a look-through approach to determine the tax obligations of companies, based on the UBO. This method involves examining the ownership structure of a company to identify the individuals who ultimately own or control the Saudi-established companies, ensuring that tax liabilities are appropriately determined and assigned.
Key aspects of the look-through approach:
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Identification of UBOs: The tax authorities trace the chain of ownership to identify individuals who have significant control or ownership, even if they do not hold shares directly in the company.
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Tax classification: The tax treatment of a company is determined by the residency and nationality of its UBOs. For instance, if a company has both Saudi and non-Saudi shareholders, its income may be subject to different tax rates or obligations, such as Zakat for Saudi shareholders and corporate income tax for non-Saudi shareholders.
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Impact of intermediary entities: The presence of intermediary entities in the ownership structure can influence the tax classification. For example, using a non-GCC entity to invest in Saudi Arabia might result in the income being subject to corporate income tax, regardless of the UBO’s nationality.
This approach ensures that tax obligations align with the economic realities of ownership and control, preventing tax avoidance through complex ownership arrangements. It is essential for businesses operating in Saudi Arabia to maintain transparent and accurate records of their ownership structure structures to comply with tax regulations and avoid potential penalties.
Gihad Al AmriBDO in Saudi Arabia