Andersen

2020/12/08

It is only recently that Saudi Arabia exposed itself to taxes in general, Whereby the implementation of indirect taxes began in January 2018, although some other taxes such as income tax and withholding tax were previously applied and stipulated in the laws and regulations issued by the General Authority for Zakat and Tax, However they were limited to some foreign and Saudi companies. As for indirect taxes, they mainly target the end user. From there, it has become a general and comprehensive culture that the tax community needs to understand, especially companies, to be able to correctly implement and adhere to what tax regulations required in a way that does not affect the course of work or cause the companies to be subject to huge Tax liabilities and penalties.

From a tax perspective, we can define a tax plan, as the analysis of the financial position or financial plan of the business. The purpose of tax planning is to ensure tax efficiency and avoid penalties that result from violating tax laws and regulations. Tax planning is an essential part of the financial plan for an individual investor or company. By reducing the tax risk and penalties, which is critical to ensure the maximum ability for business continuity and success.

Why should companies adopt a tax plan through professional offices?

Tax planning strategies are used to help businesses achieve their financial and business objectives and avoid undue tax liabilities that may occur in the absence of a plan to confront those risks. All large, medium and small companies shall benefit from tax plans, which aim in reducing the net taxable income and provide legal solutions to postpone tax payments for subsequent periods. Moreover, companies can also benefit from available tax exemptions and recover taxes that have been paid in countries that have double taxation prevention treaties with Saudi Arabia. A bigger advantage is that they can keep all the companies up to date with all the changes in tax regulations.

There are many different types of business tax planning strategies, some of which we will discuss in this article:

Capital gains tax

It is a tax imposed on the sale of capital assets, which the company acquires for the purpose of investment, at a price higher than the purchase value. Those assets are not subject to tax; however, their profits are. Tax planners can make the calculations for the company and provide a list of all assets that are subject to tax and those exempted from tax.

Corporate tax

Corporate tax often has a significant impact on profitable companies. However, large, medium, and small enterprises can maintain those profits by treating them as assets and investments which the company owns so that they will not be subject to tax.

International taxes

Companies that are carrying out an international activity or have branches in more than one country need to be aware of international tax. By having a tax plan, it can help those companies by being aware of and understanding double taxation agreements between countries and tax exemptions that investment authorities provide for some activities during their early years of investment.

Dividend tax plan

Dividends have a significant tax impact, and this process affects taxes at the time of money distributions from the company’s accounts. If the company does not have a tax plan from a tax advisor that deals with the distribution of profits professionally, it might be subject to direct or indirect taxes according to the level of tax non-compliance that can happen.

There are also many taxes that the company needs to be aware of which they may negatively affect the cash flow of the company in the absence of someone managing those risks.

Tax culture and what to consider.

The importance of having tax plans increases with the rising number of taxes. Tax plans help avoid tax risks, such as, tax inflation, incremental penalties, stopping the company’s services and disrupting its operational activity.

According to the article published on the General Authority of Zakat and Tax website under the title “Zakat and Tax” on October 18, 2020; more than three thousand field visits resulted in the discovery of more than 800 tax violations. Statistics showed that the percentage of violations exceeded 26% of the number of companies inspected. And this ratio indicates that there is a gap between companies and their awareness of tax legislations. To fill this gap, companies need to have tax advisors who can provide tax plans to avoid tax violations that could multiply with the passage of time without properly addressing them.