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CalculateFinancial reporting and audit requirements are regulated by the Companies Law.
Companies incorporated in Saudi Arabia must prepare their financial statements in accordance with the international financial reporting standards (IFRS).
Financial statements in Saudi Arabia shall be filed with the Ministry of Commerce and Investment responsible for keeping the commercial register. In addition, companies must publish their financial statements.
Financial documents are provided by the Registry of Companies. To get information, one can use the dedicated online service as well as services of financial portals where Saudi companies disclose their reports.
Financial statements of enterprises of Saudi Arabia may be used to obtain information on customers in the case of making export transactions, purchasing goods and services or holding shares in the capital of enterprises of Saudi Arabia as well as making decisions to apply to arbitration courts to collect debts.
Financial statements of a company consist of the following documents:
Financial statements and tax reports shall be in the national currency of Saudi Arabia (Saudi riyal, SAR).
The reporting period of a company is a period from 1 January to 31 December (inclusive) of a calendar year. The first reporting period of a company may not exceed 18 months after the date of its incorporation. Every subsequent reporting period lasts 12 months. A company may shorten its reporting period if it is a liquidation period: the date of the company’s cessation will be the date of the end of the reporting period.
According to regulations, financial statements must be disclosed by 30 June of the year following the reporting period.
All legal entities must report and pay taxes by filing tax returns.
It is worth noting that neither sales tax nor real estate tax is levied in the Kingdom of Saudi Arabia.
However, there is the white land tax in Saudi Arabia introduced by Royal Decree No. M/4 dated 24 November 2015 and Council of Ministers Decision No. 377 dated 13 June 2016. White land is vacant or undeveloped plots intended for residential or commercial use and located within a city. An annual fee of 2.5% of the actual market value of the land is imposed on white land owned by one or more individuals or non-state-owned legal entities. The money is used for dwelling projects and building public facilities in those projects. In the end, development of those vacant plots will facilitate growth of the real estate sector and give investors many opportunities, whether it is trade or dwelling. It will also help many Saudis solve housing issues as they will have more options to choose from.
Main taxes in Saudi Arabia:
Payers of zakat are individuals and legal entities resident in the Kingdom or other Gulf Cooperation Council (GCC) countries. The tax rate is 2.5% of the net income less capital invested in real estate and long-term investments. If a legal entity is only partially owned by a resident of the said countries, zakat is paid in proportion to their share in the authorized capital. No penalties apply in the case of late payment of zakat.
Value added tax also applies in Saudi Arabia. The standard VAT rate is 15%; VAT does not apply to some goods.
All enterprises that have a Saudi VAT payer number must file VAT returns. Online VAT return forms are available in the taxpayer’s personal area on the first day of each return filing period. A VAT return shall be filed by the taxpayer or a person authorized to act on their behalf.
The frequency of the filing of returns depends on the annual value of taxable supplies of the taxpayer. taxpayers with annual turnover exceeding SAR 40 000 000 must file tax returns monthly. Taxpayers who do not reach this threshold must file tax returns quarterly.
Business companies that fully or partially belong to foreign owners shall provide the Zakat, Tax and Customs Authority with information on annual income and net profit proven by an auditor’s opinion and pay profit tax within 2.5 months after the end of the financial reporting year.
Companies owned by residents of Saudi Arabia or GCC countries shall provide the Zakat, Tax and Customs Authority with analogous documents to pay zakat within 1 month after the end of the financial reporting year. During the same period, they shall pay zakat.
After the desk audit of provided annual reporting documents (the audit may take up to 6 months), the Zakat, Tax and Customs Authority may send the taxpayer a request to provide additional information or a tax letter containing the due tax amount. Furthermore, the Authority has the right to conduct a field audit of the taxpayer’s accounting records, with or without a preliminary notice.
The final settlement of all issues related to payment of taxes shall take place within 18 months of the date of filing the annual reporting documents with the Authority.
Audit activity in Saudi Arabia is regulated by the Companies Law. It is worth noting that microenterprises and small companies are exempt from audit.
The law has exempted microenterprises and small companies from the requirement to appoint an auditor. Appointing the latter is not required if two of the following three criteria are met:
According to the provisions of the law, the manager or chairman of the board of directors must, when filing financial statements of the company, enclose a declaration of the fact that the requirement to appoint an auditor does not apply to this business entity.
Audit is compulsory for:
The law provides for 3 main categories of breaches, each of which results in different penalties.
Category 1 – breaches resulting in a penalty of up to SAR 5 000 000 and/or imprisonment for up to 5 years:
Category 2 – breaches resulting in a penalty of up to SAR 1 000 000 and/or imprisonment for up to one year:
Category 3 – breaches resulting in a penalty of up to SAR 500 000:
Consolidated financial statements shall be made for a group of companies if the parent company holds a majority of shares in the authorized capital of the subsidiary, influences its financial and operating activity or exerts significant influence over the subsidiary when making transactions.
