Financial transformation in 2023
Saudi Arabia is set to introduce several changes to its financial regulations in the coming years, with a major overhaul of taxation and finance taking place in 2023. These changes will have a significant impact on businesses operating within the country, particularly those dealing with foreign investments or international trade. Let's look at some of the specifics.
What Will 2023 Bring?
The past few years have been marked by reform and modernization of the financial system in KSA, with a particular focus on developing regulations for foreign investment. These changes are set to continue in 2023 with the implementation of several new taxation laws and regulations. Here are a few of the key updates that businesses should be aware of:
Extension in the Timelines of Tax Amnesty
The Saudi government has announced an extension of the timeline for its tax amnesty program, allowing taxpayers to voluntarily declare and pay any outstanding taxes, with no additional penalties or fines. This will be in force until 31 May 2023, after which taxpayers who have failed to take advantage of the amnesty will be subject to a number of financial penalties. The amnesty applies to a broad range of taxation types, including:
Value Added Tax (including E-Invoicing)
Real Estate Transaction Tax
Corporate Income tax
Amendments to Zero VAT Rate Rules
Saudi Arabia's Zakat, Tax and Customs Authority (ZATCA) has amended Articles 33 and 34 and introduced a new Article 36 to their value-added tax (VAT) regulations. The amendment to Article 33 states that the zero VAT rate does not apply if the place of supply for the services is located in any member state according to the special cases listed in Articles 17 to 21 of the agreement. According to Article 34's amendment, the international transportation of passengers is exempt from value-added tax (VAT) in agreement with the rules laid out in the VAT regulations. Last, Article 36 exempts the provision of military goods to armed forces and government security entities from value-added tax (VAT).
As of 1 January 2023, large taxpayers operating in KSA must use mandatory e-invoicing for all sales and purchases. This will enable businesses to track all transactions, streamline the invoicing process and make it easier for the government to monitor compliance. FATOORAH is the officially accredited e-invoicing provider for the Kingdom of Saudi Arabia and businesses must register with them to access the service.
SAMA Implements Basel III Final Reforms
On the 1st of January 2023, the Saudi Arabian Monetary Agency (SAMA) launched its final set of reforms to the Basel III banking regulations. These new regulations aim to reduce the need for a ratings-based approach while introducing an amended leverage framework and precise criteria for calculating risk-weighted assets. This is a reflection of the Kingdom's willingness to meet international expectations as a member of the G20 and increase the stability of the local financial market.
Amendment to Implementing Regulation of the Finance Companies Control Law
In an effort to boost the SMEs sector, SAMA has launched a new initiative that encourages investors to set up finance companies specifically designed for financing small and medium businesses. To promote this endeavour, SAMA is reducing the minimum paid-up capital requirement for any finance company looking to help support SME growth.
The Saudi Arabian Monetary Authority (SAMA) subsequently announced a draft that proposes to amend Article 8 of the Implementing Regulation of the Finance Companies Control Law by adding sub-article 4. According to this new amendment, finance companies specialised in providing financial support for Small and Medium Enterprises must have a minimum paid-up capital of fifty million riyals (50,000,000). Late last year, SAMA began seeking feedback on these new changes. Stakeholders and the public were welcome to provide their input before the end of the year.
Saudi Arabia Continues to Built a Strong Regulatory Framework
The Kingdom of Saudi Arabia is making substantial changes to its taxation, banking regulations and SME support initiatives. This will have a significant impact on businesses operating in the Kingdom, providing them with enhanced opportunities for growth and stability. It is essential that businesses understand how these changes will affect them in order to take full advantage of the reforms and ensure compliance with all applicable regulations. Keeping up to date with the latest news will be key for businesses looking to remain competitive and successful in Saudi Arabia.