Chapter DT16602

Published date20 May 2016
Record NumberDT16602
CourtHM Revenue & Customs
IssuerHM Revenue & Customs

The position prior to the new convention coming into force is shown below.

Admissible for unilateral relief

Income Tax.

Note that, in some cases, Saudi Arabian tax may be calculated not by reference to accounts but on a `deemed profits basis’ taken as

a percentage of the gross receipts. Claims to tax credit relief in respect of Saudi tax imposed on the deemed profits basis should be considered critically.

Under Saudi Law no profit is considered to arise in Saudi Arabia where a non-resident simply exports to the Kingdom either FOB (free on board - that is where a contract of sale provides that the seller makes delivery as soon as goods are placed on board ship) or CIF (cost insurance freight - that is where the seller’s responsibilities include arranging shipment and insuring the goods for the benefit of the buyer) to a Saudi port. However, if the contract provides for delivery and/or installation of materials within the Kingdom of Saudi Arabia, the supplier may be regarded as carrying on business within Saudi Arabia and the contract may be subject to Saudi taxation on the deemed profits basis.

If goods are identified in the supply contract separately from the cost of work performed in the Kingdom then taxes will be assessed on the work performed in the Kingdom on a deemed profit basis of 15 per cent of the total value of that work. If there is no division in the contract between cost of goods and other activities in the Kingdom, work performed in the Kingdom will be given an estimated value equal to 10 per cent of the total contract value and a deemed profit of 15 per cent of that estimated value will be subject to tax in Saudi Arabia.

Clearly both of these approaches (and particularly the latter) give rise to the possibility of extraterritorial taxation, that is taxation in Saudi Arabia of income which by reference to UK principles would be regarded as having its source in the United Kingdom or in a third country. Consequently in cases where significant...

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