On 17 May,2023 ZATCA has recently released a Circular regarding the Taxation of the Permanent Establishments (PE) in KSA in the context of the Double Tax Avoidance Agreements (DTAAs).
As per the circular, there are 3 main tests to determine existence of a Service PE:
- “Furnishing of services”, which means that the enterprise must be providing services through its employees;
- “Within”, which means that the employees must be physically present on KSA grounds;
- The number of days the employees are physically present in KSA must exceed the threshold period stipulated in the DTAA (182 days, 183 days, or 6 months etc.)
The Circular clearly demonstrates ZATCA’s shift of approach to consider physical presence as a pre-condition for determination of service PE from Virtual PE position adopted earlier.