What businesses need to know about tax systems in the region

Different jurisdictions, different mandates
What businesses need to know about tax systems in the region
Archit Gupta, Founder and CEO, ClearTax

ClearTax, a prominent Enterprise SaaS company in Tax and Compliance-related products, has recently announced news regarding its operations in Saudi and its plans for the wider GCC region, looking to invest up to $20 million into the region over the next 3 years.

Speaking to Economy Middle East, Archit Gupta, Founder and CEO, ClearTax, explained the intricacies involved in regional tax systems with different jurisdictions.

What differences exist between tax systems and processing in KSA and the wider Middle East region?


Tax systems in these countries can be intricate and differ across jurisdictions, and so without the proper guidance, can be challenging for companies to navigate.

For example, in KSA, companies are subject to either corporate income tax or Zakat, while in the UAE, there is currently no corporate tax at the federal level, except for taxation for oil and gas companies and branches of foreign banks. This is set to change, however, with the introduction of the UAE’s Federal Corporate Tax, which will come into effect from the 1st of June 2023. As a thriving region experiencing exponential change with ambitions of becoming a leading digital economy, it’s only natural that we can expect an evolution in compliance and taxation to go hand in hand.

Read: Uncovering the mysteries behind UAE’s looming corporate tax

A recent shift we saw in KSA in the pursuit of a ‘digital by default’ economy was the introduction and rollout of the ZATCA Phase I and II e-invoicing mandate introduced in December 2021 and January 2023, respectively. We help businesses by simplifying ZATCA requirements on technical, and functional aspects and help them deploy a compliant, secure, reliable, scalable solution without their teams having to spend time away from ongoing projects and commitments.

These tax initiatives will be complex in the initial phases, but over a longer term they will herald the kingdom into a new era in alignment with the Saudi 2030 vision of reducing dependence on oil exports. While tax initiatives are an important and positive development in the long term, intended to diversify government revenue streams and reduce dependence on oil exports, in the short term, they can increase complexity if enterprises are not prepared. Businesses operating in the region, therefore, need to stay updated with the latest changes to ensure compliance and avoid unwanted penalties.

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 What impact might the introduction of these new mandates have on businesses in the region when required to implement new digital systems?


In the initial adoption phase, businesses will need to undertake an assessment of their existing processes and reporting systems and identify areas where they may need to adapt or upgrade their current systems to ensure they remain compliant with new rulings.

However, updated tax mandates and electronic systems can lead to a more transparent and stable business environment, which in turn can attract more foreign investment and improve the overall economic situation in the region. It also encourages businesses to adopt better financial practices, increasing efficiency and competitiveness in the long run.

Such mandates considering updated regulations or reporting systems are usually announced with advanced notice, providing ample time to prepare for any necessary operational changes and avoid any confusion or uncertainty among teams. Cloud-based service offerings – like the one we provide at ClearTax – can help alleviate the strain on businesses with fully integrable purpose-built solutions to aid in a smooth transition. Specialized advisory services also help avoid misinterpretations of new regulations across jurisdictions and, in some cases, unintentional non-compliance, which can lead to unwanted penalties.

Utilizing a digital solution provider can be a crucial support in achieving a streamlined strategy. While this might incur an initial ‘cost,’ be it across new technology infrastructure such as ZATCA-approved cloud-based products, staff training, or the time and effort involved; this will be useful to companies in the long run. It will help bridge the gap between adoption and full integration and help them embrace the changes needed in a smooth manner.

What solutions are available to businesses in the region to aid their digital transformation?


We’re fortunate to be witnessing an unparalleled move towards digital adoption here in KSA and the wider region, and the opportunities these presents are unparalleled; however, so too are the potential challenges. Businesses can utilize a range of services from digital solutions providers such as ClearTax to ensure tax regulation compliance. Our software will help enterprises design systems that simplify the tax compliance process.

Training and education is another high-value service helping companies understand the new tax regulations through seminars, webinars, and workshops that cover various tax-related topics and help ensure their teams are equipped to deal with any transitions that come their way. Ultimately, when organizations have a streamlined compliance strategy that is not cumbersome and the right tools to manage their processes, greater operational efficiencies can be achieved.

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How does the introduction of online tax systems and government mandates contribute to the digital transformation efforts of KSA and the wider Middle East region?


Government initiatives such as the Cloud First Policy in KSA, the Digital Government Strategy 2025, and Digital Economy Strategy in the UAE demonstrate the region’s laser-sharp focus on digitization. Such policies encourage public sector migration from traditional IT solutions to cloud-based models after recognizing advantages such as enhanced agility, better reliability, tightened security, and increased innovation. The introduction of tax-related mandates such as e-invoicing demonstrates the government’s efforts to leverage technology to modernize its tax systems and support the country’s digital transformation agenda.

Digital transformation efforts of the GCC aim to simplify and streamline the invoicing and tax compliance process, reducing the need for manual processes and paperwork and encouraging a move towards a paperless, digital-by-design environment. Technology solutions and tax advisory services such as ours are helping businesses embrace technology to drive growth and efficiency and ensure enterprises do not fall behind the rapid rate of digital transformation in the region.

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Disclaimer: Opinions conveyed in this article are solely those of the author. The information presented in this article is intended for informational purposes only. It does not constitute advice on tax and legal matters; neither are they financial or investment recommendations. Refer to our full disclaimer policy here.