Taxation

Tax obligations

Would a private equity fund vehicle formed in your jurisdiction be subject to taxation there with respect to its income or gains? Would the fund be required to withhold taxes with respect to distributions to investors? Please describe what conditions, if any, apply to a private equity fund to qualify for applicable tax exemptions.

Tax in Saudi Arabia is regulated by the General Authority for Zakat and Tax (GAZT). Pursuant to Saudi Arabia’s tax regulations, private equity funds are deemed as ‘capital companies’, which contemplates that they are subject to the following:

  • 2.5 per cent zakat (tax on wealth) in the case that the fund is owned by Saudi Arabian nationals or Gulf Cooperation Council (GCC) nationals (ie, Bahrain, United Arab Emirates, Kuwait, Oman and Qatar);
  • 20 per cent tax on profits in the case that the fund is owned by non-GCC unitholders; and
  • 5 per cent withholding tax on payments of all dividends and capital gains to unitholders.

However, since 2006, the GAZT has not assessed any taxes on private equity funds in Saudi Arabia or its unitholders. This is not deemed a formal exemption and GAZT reserves the right to begin taxing funds at any point in the future (including on a retroactive basis).

Local taxation of non-resident investors

Would non-resident investors in a private equity fund be subject to taxation or return-filing requirements in your jurisdiction?

Non-resident unitholders in Saudi Arabian funds are not obliged to file tax returns or pay tax to the GAZT with respect to any units held in any private fund.

Local tax authority ruling

Is it necessary or desirable to obtain a ruling from local tax authorities with respect to the tax treatment of a private equity fund vehicle formed in your jurisdiction? Are there any special tax rules relating to investors that are residents of your jurisdiction?

There is no requirement to obtain tax rulings from the GAZT or any other local tax authority for the purpose of establishing a private equity fund.

Organisational taxes

Must any significant organisational taxes be paid with respect to private equity funds organised in your jurisdiction?

No organisational taxes are required to be paid with respect to private equity funds.

Special tax considerations

Please describe briefly what special tax considerations, if any, apply with respect to a private equity fund’s sponsor.

A Saudi fund manager or entity receiving such payments is be required to report the management fees in its tax or zakat returns and pay income tax or zakat due from such returns.

Tax treaties

Please list any relevant tax treaties to which your jurisdiction is a party and how such treaties apply to the fund vehicle.

Saudi Arabia has double tax treaties with several countries including Austria, Bangladesh, Belarus, China, the Czech Republic, France, Greece, Hungary, India, Italy, Japan, Korea, Luxembourg, Malaysia, Malta, the Netherlands, Pakistan, Poland, Romania, Russia, Singapore, South Africa, Spain, Syria, Tunisia, Turkey, Ukraine, the United Kingdom, Uzbekistan and Vietnam.

Given that Saudi Arabian funds are currently not assessed for taxes by the GAZT, the treaties have a limited impact. However, the treaties with some countries reduce payments of dividends and capital gains to zero per cent and therefore may be useful if the tax treatment of funds is altered in the future.

Other significant tax issues

Are there any other significant tax issues relating to private equity funds organised in your jurisdiction?

Unitholders and fund managers in Saudi Arabia must be aware that while funds are currently tax-free, the GAZT reserves the right to begin taxing funds at any point in the future (including on a retroactive basis).