ZATCA approves amendments to Transfer Pricing Bylaws

On 4 July 2022, the Zakat, Tax and Customs Authority (ZATCA) issued a public consultation document (PCD) proposing some amendments to the current Transfer Pricing (TP) Bylaws in the Kingdom of Saudi Arabia (KSA).

On 20 March 2023, the ZATCA Board of Directors approved the amendments proposed in the PCD, which will bring Saudi Zakat payers in scope of the KSA TP Bylaws as from 1 January 2024.

This is a significant change in the KSA tax landscape as contrary to Saudi income taxpayers, Zakat payers where previously not subject to TP regulations (except for Country-by-Country reporting).

Zakat payers will now have to ensure that all their related party transactions meet the arm’s length principle.

Starting in FY 2024 Zakat payers will also have to prepare and maintain TP documentation (disclosure form and affidavit, local file and master file) subject to the following thresholds:

 

Phase 1 – FY 2024 until FY 2027

Value of controlled transactions - TP documentation:

≤ SAR48 million - Not applicable
> SAR48 million and < SAR100 million - Optional
≥ SAR100 million - Mandatory

 

Phase 2 – FY 2027 onwards

Value of controlled transactions - TP documentation:

≤ SAR48 million - Not applicable
> SAR48 million - Mandatory

 

Investment funds will be exempt during Phase 1.

The TP documentation threshold for Saudi income taxpayers is SAR6 million in a 12-month period.

 

Key takeaway

With effect from 1 January 2024, all Zakat payers must ensure that all related party transactions are conducted on the basis of arm’s length pricing. As a first step, we recommend in-scope businesses to map all related party transactions.