Are government grants taxable under Corporate Tax?

Article 5 – Government Entity 1. A Government Entity shall be exempt from Corporate Tax and the provisions of this Decree-Law shall not apply to it. 2. Notwithstanding Clause 1 of this Article, a Government Entity shall be subject to Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 10 the provisions of this Decree-Law if it conducts a Business or Business Activity under a Licence issued by a Licensing Authority. 3. Any Business or Business Activity conducted by a Government Entity under a Licence issued by a Licensing Authority shall be treated as an independent Business, and the Government Entity shall keep financial statements for this Business separately from the Government Entity’s other activities. 4. The Government Entity shall calculate the Taxable Income for its Business or Business Activity specified in Clause 2 of this Article independently for each Tax Period, in accordance with the provisions of this Decree-Law. 5. Transactions between the Business or Business Activity specified under Clause 2 of this Article and the other activities of the Government Entity shall be considered Related Party transactions subject to the provisions of Article 34 of this DecreeLaw. 6. A Government Entity may apply to the Authority for all its Businesses and Business Activities to be treated as a single Taxable Person for the purposes of this DecreeLaw subject to meeting the conditions to be prescribed by the Minister.

determined having regard to all relevant facts and circumstances. The presence of additional rights, benefits, obligations, restrictions, or other valuation factors may result in a different valuation and Corporate Tax outcome. Q Does Taxable Income include the reversal of a provision that was originally created before the first Tax Period? A Yes, Taxable Income includes all income recognised in financial statements prepared in accordance with IFRS75, subject to any exemptions in the Corporate Tax Law (i.e. if it is Exempt Income). If the reversal of a provision is recognised as income under IFRS, then it is Taxable Income even if the provision originally arose before the first Tax Period. Q Does Taxable Income include receipt of a compensation amount that relates to events prior to the first Tax Period but which was included in financial statements for the first Tax Period? A Yes, Taxable Income includes all income recognised in financial statements prepared in accordance with IFRS76. If the compensation is correctly recognised as income under IFRS, then it is Taxable Income, even if the events that gave rise to it occurred before the first Tax Period. Q Should a government grant be included in Taxable Income? A It depends on the treatment of the grant under IFRS. Taxable Income includes all accounting income recognised in financial statements prepared in accordance with IFRS77, subject to any exemptions in the Corporate Tax Law. Participation Exemption Q Can the Participation exemption 78 apply to dividends received from a Saudi company that is subject to Zakat at 2.5%? A Yes, on the basis that the corporate tax levied in KSA is applied on a similar basis to Corporate Tax in the UAE and is levied at the rate of 20%, the requirement79 for the Participation to be subject to Corporate Tax or a tax of a character similar to Corporate Tax at a rate of 9% or more is considered to be met for companies subject to Saudi Zakat. Q Can the Participation exemption80 apply to dividends received from a holding company taxed at less than 9% if the ultimate source of the income is a company taxed at 9% or more? A Yes. There are special rules that allow a foreign holding company taxed at less than 9% to be treated as a Participation as long as certain conditions are met. The holding company must have the principal objective and activity of holding shares or equitable interests that meet the conditions of the Participation exemption 81 and it must: a. Be directed and managed in the relevant other country or foreign territory. b. Comply with the requirement to submit any documents, records or information to the relevant authority under the laws and regulations applicable to the Participation in the relevant other country or foreign territory. 75 Article 20(1) of the Corporate Tax Law 76 Article 20(1) of the Corporate Tax Law 77 Article 20(1) of the Corporate Tax Law 78 Article 23 of the Corporate Tax Law 79 Article 23(2)(b) of the Corporate Tax Law 80 Article 23 of the Corporate Tax Law 81 Article 23(3) of the Corporate Tax Law 14

Article 6 – Government Controlled Entity 1. A Government Controlled Entity shall be exempt from Corporate Tax and the provisions of this Decree-Law shall not apply to it. 2. Notwithstanding Clause 1 of this Article, a Government Controlled Entity shall be subject to the provisions of this Decree-Law if it conducts a Business or Business Activity that is not its Mandated Activities. 3. Any Business or Business Activity conducted by a Government Controlled Entity that is not its Mandated Activity shall be treated as an independent Business, and the Government Controlled Entity shall keep financial statements for this Business separately from its Mandated Activity. 4. The Government Controlled Entity shall calculate the Taxable Income for its Business or Business Activity that is not its Mandated Activity independently for each Tax Period, in accordance with the provisions of this Decree-Law. 5. Transactions between the Business or Business Activity specified in Clause 2 of this Article and the Mandated Activity of the Government Controlled Entity shall be considered Related Party transactions subject to the provisions of Article 34 of this Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 11 Decree-Law.