A Saudi company's income tax liability for the prior tax year, after deducting withholding tax already withheld on its reported income, works out to SAR 1,200,000. Under the Saudi Income Tax Law's advance (estimated) tax payment rules, what must this company generally do during the current tax year?
- Nothing; advance tax payments are only required once this calculated figure exceeds SAR 5,000,000
- Pay the full SAR 1,200,000 as a single advance instalment on the last day of the sixth month of the current tax year
- Pay three equal advance instalments, each equal to 25% of SAR 1,200,000 (SAR 300,000), on the last day of the sixth, ninth and twelfth months of the current tax year
- Pay two equal advance instalments, each equal to 50% of SAR 1,200,000 (SAR 600,000), on the last day of the sixth and twelfth months of the current tax year
Why C? And why not the others?
Correct answer: C. Pay three equal advance instalments, each equal to 25% of SAR 1,200,000 (SAR 300,000), on the last day of the sixth, ninth and twelfth months of the current tax year
Once the prior year's tax liability, net of withholding tax already suffered, exceeds SAR 500,000, a company must make advance tax payments during the current year in three equal instalments, each equal to 25% of that figure, due on the last day of the sixth, ninth and twelfth months of the current tax year; here SAR 1,200,000 clearly exceeds the SAR 500,000 threshold, so three instalments of SAR 300,000 each are required on those three dates. The option treating SAR 5,000,000 as the trigger is wrong because it overstates the actual threshold by a wide margin, when the real figure that activates the advance-payment obligation is SAR 500,000. The option describing a single lump-sum instalment is wrong because the rules spread the obligation across three separate payment dates rather than requiring the whole amount at once. The option describing two 50% instalments is wrong because the mechanism is built around three equal 25% payments tied to three specific month-end dates, not a two-instalment structure.
Source: Saudi Income Tax Law (Royal Decree No. M/1 of 1425H) and its Implementing Regulations, advance (estimated) tax payment provisions