KSA: New Transfer Pricing Guidelines for Zakat Payers

The Zakat, Tax, and Customs Authority (ZATCA) of Saudi Arabia has released comprehensive guidelines for Zakat payers regarding the treatment of related-party transactions. These guidelines provide clarity on the Zakat treatment of various transactions and introduce critical changes to align with the amended Transfer Pricing Bylaws set to take effect on 01.01.2024.

The amendments to the Transfer Pricing Bylaws by the Board of Directors of ZATCA on 07.04. 2023 extended the applicability of Transfer Pricing provisions to Zakat payers, marking a significant shift in the regulatory landscape. The subsequent issuance of detailed guidelines aims to facilitate a smooth transition for Zakat payers by offering practical insights into related-party transactions.

Key Highlights

The guidelines categorize related-party transactions into three main types:

– Commercial transactions
– Indirect financing
– Direct financing

These classifications provide a structured approach for Zakat payers to assess the nature of their transactions and determine the appropriate Zakat treatment.

The guidelines stress the need for Zakat payers to assess the nature of their transactions and align them with the provided guidance. Businesses must review existing pricing mechanisms, establish a robust transfer pricing policy, and develop a compliance roadmap to meet the forthcoming requirements.

The amended Transfer Pricing Bylaws introduced compliance requirements that mandate submitting a Controlled Transaction Disclosure Form and Transfer Pricing Affidavit with Zakat returns. Zakat payers must also prepare a Transfer Pricing Local File and Master File, subject to specific exemptions during two distinct phases.

As the 01.01.2024 deadline approaches, Zakat payers must proactively review their related-party transactions, assess compliance preparedness, and implement necessary changes to ensure adherence to the new guidelines. This includes a thorough review of existing pricing mechanisms, establishing a comprehensive transfer pricing policy, and implementing robust processes and controls.

How TME Services Can Support

Issuing these guidelines is pivotal for Zakat payers in Saudi Arabia. It underscores the importance of aligning with the updated regulatory landscape, ensuring transparency in related-party transactions, and adopting best practices to meet the evolving compliance requirements. By taking proactive steps, businesses can confidently navigate this regulatory shift and contribute to a more transparent and compliant business environment.

TME Services is a team of 45 professionals in legal-, tax-, accounting and compliance with over 18 years of experience. We advised a significant number of SMEs in the context of the implementation of the tax framework in the UAE and KSA over the last decade to make sure that our clients are well-oriented in the new and fast-evolving tax landscape and to reduce the legal liability of managers which may arise in connection with non-compliance.

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TME Legal