Transfer Pricing in Saudi Arabia: The Disclosure Form, the Auditor's Certificate, and the Year Zakat Payers Came Into Scope

For five years the Saudi transfer pricing bylaws were somebody else's problem. ZATCA issued them in January 2019, and the guideline that explains them still says, in as many words, that a 100% Zakat payer is exempt from them unless it must file a country by country report. It even tells Zakat payers to answer "No" to the first question on the disclosure form. Wholly Saudi and GCC owned companies read that, and moved on.

It is no longer true. By Board Resolution 8-2-23 of 20 March 2023 ZATCA amended the bylaws, and for fiscal years beginning on or after 1 January 2024 they apply to Zakat payers. Article 22 of the Implementing Regulations for Zakat Collection says the same from the other side: the transfer pricing instructions issued by ZATCA's Board, and any amendments to them, apply to the Zakat payer's transactions with related entities.

The guideline that says otherwise is the Third Edition of November 2021 and has not been reissued. Read that sentence as the former position, never as the current one.

What the 2023 amendment did

It did not write a separate regime for Zakat. It switched the same bylaws on, with one concession: the two files are phased in, and the small enterprise line is drawn elsewhere.

Obligation	Income tax payers	Zakat payers
Arm's length principle, general documentation	Since 2019	Years beginning on or after 1 January 2024
Disclosure form and auditor's certificate, Article 14	Since 2019	Same
Master file and local file, Articles 16 and 17	Since 2019, small enterprise line at SAR 6,000,000	Phased: mandatory at SAR 100 million of related party transactions, optional above SAR 48 million, not applicable at or below it
Country by country report, Article 18	Since 2019	Since 2019. This was always the exception
Advance pricing agreements, Article 23	From 2024	From 2024

The resolution then describes a second phase, three years after the first, in which documentation becomes mandatory above SAR 48 million and finance funds, left out of phase one, come into scope. For a calendar year payer that points at 2027, but it is worded as a period, not a year, so confirm the start with ZATCA.

Who counts as a related person

Two natural persons are related if they are relatives by marriage or to the fourth degree, or partners in a partnership. Ownership is the next route: 50% or more of the voting rights, income or capital of a company, held directly, indirectly or both, alone or with a related person. The third route is effective control, which the bylaws define as the ability to control another person's business decisions and then list without limitation.

Route	The test
Governance	Power over the composition of 50% or more of the board, or to appoint or dismiss management; the ability to manage the other person under a services agreement or as its trustee
Profits	A legal or de facto right to 50% or more of the other person's profits
Funding	Loans, from anyone but a financial institution, whose outstanding balance is 50% or more of the borrower's debt plus capital excluding retained earnings at year end; or guarantees, again not from a financial institution, covering 25% or more of total borrowings
Business	50% or more of the aggregate value of a person's business depends on transactions with the other; a dependent exclusive agency; or a resident whose business rests on intangibles granted exclusively by a non resident
Facts	Any other ability to control the other's business decisions, on the facts

The funding tests surprise people. A shareholder who lends rather than subscribes, and a parent guaranteeing a subsidiary's facilities, both create relatedness where the share register shows none. A dominant customer can do it too. IAS 24, as SOCPA endorsed it, draws the line elsewhere: its paragraph 11 says a customer is not a related party merely because the business depends on it, and related party transactions in Saudi Arabia sets that definition beside the Companies Law's approval rules.

The arm's length principle, and the methods ZATCA approves

The principle has no threshold. Every controlled transaction must be priced as independent persons would have priced it, whatever its size; the thresholds only decide how much paper must exist to show that it was. A Zakat payer with SAR 10 million of intragroup charges is inside the principle and outside the file requirement at once.

Five methods are approved, and the task is to pick the most appropriate one rather than work down a hierarchy.

Method	What it compares	Typical use
Comparable uncontrolled price	The price charged, against a comparable uncontrolled price	Commodities, loans, observable prices
Resale price	A reseller's gross margin, against an independent reseller's	Low value added distribution
Cost plus	The gross mark up on costs, against an independent supplier's	Contract manufacturing, routine services
Transactional net margin	A net profit indicator, against comparables	The workhorse, where gross margins are hidden
Transactional profit split	Combined profit, divided on an economically valid basis	Unique contributions both sides, integrated operations

Where none of the five fits, the bylaws allow another method that satisfies the principle. The benchmarking behind it should in general be refreshed every three years, sooner if circumstances change, and the least complex party is the one normally tested.

What a Zakat payer files

The disclosure form of controlled transactions goes to ZATCA within 120 days after the last day of the fiscal year, as part of the return. That is the same 120 days as the Zakat return, and it holds irrespective of any exception to that deadline: a partnership filing its tax return at 60 days still has 120 for the form. Section one asks whether there were related party transactions and then, one by one, for their type: tangible, intangible, services or financial. Section two is the country by country notification.

Behind it sit three tiers of documentation, none of it filed.

Document	Who keeps it	What it holds
General documentation	Every party to a controlled transaction, domestic or cross border	Format free: the relationship, the transactions, how the price was set, a functional and economic analysis
Master file	Persons above the threshold	The group's global business, its transfer pricing policy, the economic activity of the related persons
Local file	Persons above the threshold	A functional analysis, the financials of each controlled transaction, the comparability analysis, and the method applied

It is produced on request, and the period ZATCA allows is no less than 30 days, in calendar days. A file that does not exist on the day of the request cannot realistically be built inside that.

Exempt from the master and local file are natural persons other than sole establishments, small enterprises, wholly state owned companies exempt from Zakat collection, and investment funds. The small enterprise line is where Zakat payers get their relief: controlled transactions at arm's length value must not exceed SAR 6,000,000 in a 12 month period for an income tax payer or a mixed payer, and SAR 48,000,000 for a Zakat payer. The exemption does not touch the general documentation, and ZATCA may still direct any person to build a file, on the same 30 day floor, where the counterparty sits in a special economic zone or is exempt from filing, where a transaction looks artificial, or where a corresponding adjustment has been requested.

One relief is specific to Zakat: companies filing a consolidated Zakat return are outside transfer pricing on transactions among themselves, provided they disclose transactions with companies they own less than 100% of.

The certificate your auditor signs

Article 14 does not stop at the form. The payer must attach a certificate from a chartered accountant licensed to practise in the Kingdom, declaring that the group's transfer pricing policy is applied consistently and without failure in relation to that payer. ZATCA accepts either a limited or a reasonable assurance engagement, so long as the signatory holds a Saudi licence.

Most jurisdictions enforce transfer pricing after the fact, through audit and penalty. Saudi Arabia puts a licensed professional in the filing chain, so the policy is tested annually by somebody with a licence to lose, before ZATCA looks at anything. For a Zakat payer whose auditor has never seen a transfer pricing file, that conversation has to start well before the 120 days run out. Which companies must appoint an auditor at all is covered in Which Saudi Companies Must Appoint an Auditor, and How Long One May Serve.

Country by country reporting

This is the piece that applied to Zakat payers all along, and it belongs to groups rather than companies. The trigger is consolidated group revenue above SAR 3.2 billion in the year immediately preceding the reporting year. The ultimate parent, or a surrogate, files the report within 12 months of the end of the group's tax or Zakat year, and every constituent entity notifies ZATCA within 120 days of its year end which entity reports and where. The notification is the obligation most often missed: it falls due long before the report, and is owed by entities that file nothing themselves.

Advance pricing agreements

The same resolution added Article 23 and, with it, advance pricing agreements for tax and Zakat years beginning on or after 1 January 2024. ZATCA published its APA guideline in February 2025 and is processing unilateral agreements only; bilateral and multilateral applications will not be handled until further notice, which limits what an APA can do about double taxation. It is a discretionary service, with no entitlement to one.

Condition	What the guideline states
Size	Each covered transaction at least SAR 100,000,000 a year. Closely linked ones may be aggregated, and the Governor may exempt complex ones
Timing	At least 12 months before the start of the first fiscal year covered. A late one is rejected automatically by the portal
Term	Typically three years, renewable for another three, against an annual compliance report
Excluded	Applications involving profit attribution to a permanent establishment

Where an adjustment lands on a Zakat return

For an income tax payer this is simple: an arm's length adjustment increases taxable income and costs 20% of the movement, as in Corporate Income Tax in Saudi Arabia. A Zakat payer's base is not profit at all. It is sources of funding less what they were sunk into, set out in How the Zakat Base Is Calculated in Saudi Arabia.

An adjustment still reaches it, by two routes in the Zakat regulations. The difference between adjusted net profit and book profit is an added item to the base under Article 23, and under Article 27 the base cannot sit below adjusted net profit. Disallow an underpriced sale to a sister company and adjusted net profit rises, moving one lever or both. A company comfortably above its minimum base can be pulled onto it by a transfer pricing adjustment alone.

Mixed companies are the other trap. For transfer pricing, a company owned by both a Zakat payer and an income tax payer is treated as an income tax payer as a whole, not apportioned, which is why its small enterprise line is SAR 6,000,000 rather than SAR 48,000,000.

How the paper asks

Zakat and Tax is the Fellowship subject with no international equivalent, and this is now part of it. The questions test recognition, not computation.

Question pattern	Answer
Zakat payer, SAR 60 million of related party transactions	Disclosure form and certificate with the return; the two files are optional at that level
Zakat payer, SAR 120 million	All of it, and the two files are mandatory
Zakat payer, SAR 30 million	Still bound by the arm's length principle; general documentation only
Company 60% Saudi, 40% foreign	Mixed: an income tax payer in full, line at SAR 6,000,000
Parent guaranteeing 30% of a subsidiary's borrowings	Related. That test is 25%, not 50%
ZATCA requests the local file on 1 March	At least 30 calendar days to produce it

Where to practise this

This topic rewards one habit: learn which threshold attaches to which obligation, then practise until they stop blurring. Prepito's Zakat and Tax course covers Zakat, income tax, withholding tax, VAT and the related levies with practice questions, simulations and full explanations in Arabic and English.

For the subject as a whole see the SOCPA Zakat and Tax study guide, or the SOCPA Fellowship programme.

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This is a study guide, not tax advice. Sources: ZATCA on the Transfer Pricing Bylaws, the Bylaws as amended by Resolution 8-2-23 and the resolution itself, which carries the phased thresholds, the Transfer Pricing Guidelines, Third Edition, the Implementing Regulations for Zakat Collection, and the Advance Pricing Agreements guideline. That Third Edition predates the 2023 amendment and still places Zakat payers outside the bylaws; the bylaws and the resolution govern. Thresholds and forms change; confirm the current text before filing.