Corporate Social Responsibility (CSR) tax


11-March-2013

Who pays CSR?
In order for an entity to be able to pay this tax, there are a few criteria that it needs to meet:
• It needs to have a turnover of SR1 million or more;
• It must not be listed in the Second Schedule of the Business Tax Act of 2009 (as amended from time to time); and
• It must not fall in the following categories listed in the Seventh Schedule of the Business Tax Act of 2009 (Categories 2, 3, 4, 5 and 6). 

How is CSR calculated?
The entities that are eligible to pay the CSR tax will have to do so monthly, based on their current turnover (in the same way that they currently pay Vat if they are Vat-registered). 
The CSR tax is charged at 0.5% for non-Vat registered eligible entities.  If an eligible entity is Vat-registered, the 0.5% will be applicable on its turnover exclusive of the Vat it has charged on its invoices. 

For example, say a company had a turnover of SR1.2m in 2012 and is not Vat-registered.  If its turnover is SR100,000 in May 2013, its CSR liability will be 0.5% of SR100,000.00 which is SR500.
If another company with a turnover of SR2m in 2012 IS Vat-registered and its turnover is SR100,000.00 in May 2013, then approximately SR13,043 of the SR100,000 will be Vat.  Its CSR liability will therefore be calculated as 0.5% of the Vat-exclusive turnover, i.e. 0.5% of SR86,957, which is SR435.
There are certain companies that are classified as intermediaries for Vat purposes, and for them, the CSR will be applicable on their commission.

Does paying CSR tax prevent a company from making donations to charities?
Entities that were spending on projects and making sponsorships or donations in the spirit of corporate social responsibility can continue to do so.  However, their spending does not substitute for their CSR tax obligations.  If their monthly turnover is SR100,000.00 their CSR tax liability is SR500.00 regardless of whether or not they make any donations or sponsorship.

However, their spending on these donations/gifts may be deductible on their business tax liability, provided it is in line with the Fifth Schedule of the Business Tax Act. The Fifth Schedule of the Business Tax Act governs the impact of these spending/sponsorships/donation on their business tax liability.  This means that all the benefits which companies were able to make use of in the past still exist.

New legislation planned for the second half of 2013
It should be noted that in the 2013 Budget announcement, the Minister for Finance announced that businesses would have flexibility in the payment of the CSR tax.  The SI 16 of 2013 – whose mechanisms have been explained above – is a transitional arrangement, and the Ministry of Finance has started work on a new Act which is expected to be presented to the National Assembly in mid-2013.

This new piece of legislation will provide for a portion of a company’s CSR liability to be made through a direct donation or grant to eligible organisations.  Government will shortly appoint a committee of members mandated to list organisations/charities that it will recognise – along with the administrative requirements they will need to maintain that status – and to whom gifts/donations can be used to off-set CSR liability.  Donations to these organisations will off-set the CSR liability once the new Act comes into force.  The full details of these operations will be clarified at a later date. 

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