Saudi Arabia, 25 February 2016 -Saudi Arabia is often perceived to be a low tax, or even a 'no tax' area, however, a recent survey of the region's tax and finance leaders show that managing tax in the region can be complex and challenging.

Launched today, PwC Middle East's latest tax survey Managing tax, discusses tax and business challenges companies in the region face, the way their tax functions are organised, and the impact of international and domestic tax reforms. The survey suggests that Saudi Arabia could successfully make its economy even more attractive to overseas investors by clarifying and streamlining its tax and business regimes.

"Tax regimes in the region can be complex and challenging to manage and their implementation can give rise to uncertainty and confusion, which in turn creates risk. As a result, companies need to manage their tax affairs with the same care and attention to detail that applies everywhere else in the world." says Dean Kern, PwC Middle East Tax and Legal services Leader.  

A key theme that emerged from the survey is the lack of clarity in the application of tax law and to some extent what laws are in place. Uncertainty can arise, for example, from the rules governing tax residency, which can be interpreted differently by different tax authorities within Saudi Arabia. The same lack of clarity applies to some social security taxes, and the tax consequences of listing on the Saudi Stock Exchange, which has recently been opened up to foreign companies.

Corporate tax is another area where, according to the survey, more clarity would help create a more stable taxation regime. Saudi Arabia has corporate taxes, but there are different rules for foreign and domestic businesses: overseas-owned firms pay 20%, while local companies pay a 2.5% 'Zakat' derived from Islamic law, which is charged on their net worth. But because Zakat is governed by decree and not by law, its precise interpretation is left to individual officials, which can create uncertainty about current and likely future liabilities.

Commenting on this Mohammed Yaghmour, Zakat and Tax Leader- PwC Saudi Arabia, said, "Tax administrations are also facing the challenge of being asked 'to do more with less'. Increased use of co-operative compliance models may help increase clarity and consistency for taxpayers and more efficiently utilise resources in tax administrations."

In the next few years, there's the possibility that Saudi Arabia could introduce VAT in to raise government revenue. The survey states that to do this effectively, it will probably require more skilled resources and more comprehensive systems.

Furthermore, as technology and digital continue to play a vital role in our lives, the survey indicates that processes and systems will be one of the biggest challenges in tax reforms that authorities are planning, ranging from managing the additional workload, to collecting and analysing the data, to internal reporting and external compliance. 

Commenting on this Jeanine Daou, Partner and Middle East Leader for Indirect Taxes and Fiscal Policy said, "The introduction of VAT, in particular, would put even greater demands on these tax departments, given the huge number of transactions that would be covered, and the volume of data that would be generated; it will be almost impossible to manage this without effective systems. It's instructive in this context to look at what happened in Malaysia, when the government introduced a goods and services tax in 2015. Many companies under-estimated the time and resources required to implement the new regime properly, and how much it would cost. Using digital technology can save both time and money, and improve accuracy and efficiency."

Also addressed in the survey is the issue of Base Erosion and Profit Sharing (BEPS). As a member of the G20, Saudi Arabia is most likely to take the lead in implementing BEPS in the region. According to the survey, at present, there is a low level of knowledge about the impact BEPS could have, and an equally low level of preparedness for these changes - only 9% of the survey respondents said they had a detailed understanding, while 39% said their knowledge level was low; likewise, only 6% have done any detailed preparation work, and 36% have done little or nothing. The survey suggests that companies need to start preparing for the requirements associated with BEPS right away to ensure its effective implementation.

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