Saudi Aramco Tax Slashed Ahead of What May Be Biggest IPO

27/03/2017 16:13 AST

Saudi Arabia slashed taxes by more than a third for state oil producer Saudi Aramco ahead of what could be the world’s biggest initial public offering.

New rates reduce Aramco’s income tax rate to 50 percent from 85 percent, Chief Executive Officer Amin Nasser said in an emailed statement. The Saudi Arabian Oil Co., known as Saudi Aramco, plans to sell as much as 5 percent of the company in an IPO next year that the kingdom estimates could value the business at more than $2 trillion.

“The new tax rate will bring Saudi Aramco in line with international benchmarks,” Nasser said. The new rates on hydrocarbon companies announced by royal order on Monday are effective retroactively from Jan. 1, according to the official Saudi Press Agency.

Nasser said in January that Saudi Arabia will reduce the company’s overall tax rate to make the share sale more attractive to investors. Aramco currently pays a 20 percent royalty on its revenue and an 85 percent tax on income. The IPO is part of a plan by Deputy Crown Prince Mohammed bin Salman to set up the world’s biggest sovereign wealth fund and reduce the economy’s reliance on hydrocarbons. The share sale, if it meets the government’s estimate, would dwarf that of Alibaba.



Investor Appeal

“The royal decree falls in line with an earlier promise that Saudi Arabia will reduce the overall tax rate paid by its national oil company to make its 2018 initial public offering -- potentially one of the largest in history -- more appealing to investors,” John Sfakianakis, director of economic research at the Gulf Research Center Foundation in Riyadh, said in an emailed statement.

“The 50 percent tax rate will be very lucrative to investors who should be gearing up for its privatization. This is one of many steps that will begin a process of investor-friendly initiatives that will help in whetting appetites,” he said.

Under the new rates, hydrocarbon companies in Saudi Arabia with capital of more than 375 billion riyals ($100 billion) will pay a tax of 50 percent, according to SPA. Those with capital of between 300 billion and 375 billion riyals will pay an income tax of 65 percent. Companies with capital of between 225 billion and 300 billion riyals will pay 75 percent, and those with capital below 225 billion riyals 85 percent, according to SPA.

Bloomberg