Uber, Careem set to face $ 100 million bill in Saudi tax cuts

Saudi Arabia has slapped several tech companies, including Uber Technologies Inc and its Dubai-based subsidiary Careem, with tax bills worth tens of millions of dollars, according to people familiar with the matter.
Uber and Careem face a combined bill of around $ 100 million, two of the people said. The complaints relate to a dispute over how to calculate the value-added tax owed in recent years by companies in the odd-job economy versus their sole proprietorships – and include hefty penalties for late payment , people said.
Several of the companies are trying to negotiate with Zakat, the kingdom’s tax and customs authority, they said.
The tax administration did not respond to a request for comment. Uber and Careem both declined to comment.
The disputes drag Saudi Arabia into a global debate over how to tax the activities of concert or ‘sharing economy’ platforms like Uber, Airbnb and TaskRabbit, which rely on drivers, couriers or individual hosts who often fall below the tax thresholds. The UK has also considered toughening tax rules on sharing economy activities. But the unexpected costs could scare investors off at a time when Crown Prince Mohamed bin Salman and Saudi officials are trying to attract multinational companies to the kingdom and boost foreign investment.
The issue became public this month, when a prominent investor in Dubai’s messaging app Fetchr – once among the most promising startups in the Middle East – said the company was considering filing for bankruptcy after having become “insolvent” because of a disputed tax bill of $ 100 million in Saudi Arabia.
But the problem is bigger than Fetchr and affects other tech companies.
The issue of taxation is at the heart of Prince Mohamed’s diversification ambitions and growing difficulties along the way. Saudi officials have repeatedly pledged to listen carefully to private sector concerns. Yet some businessmen complain that unpredictable policy changes over the past five years make planning and calculating risks difficult. It also comes at a time when the kingdom is increasingly competing with Dubai, a city in neighboring United Arab Emirates, as a destination for startups.
Saudi Arabia relied almost entirely on crude exports for state revenue, but in 2018, as part of efforts to increase non-oil revenue, the authorities introduced a 5% value-added tax. They raised it to 15% after the start of the pandemic and drove oil prices down, although Prince Mohamed has promised to lower the rate in the future.
Since the tax was first collected, companies like Uber typically paid it out of what they saw as their own added value, or the company’s commission. This is only part of the total amount paid by customers, a large part of which goes to drivers who use their platform.
But last year, the tax administration started sending reassessments to companies that levied taxes on the full amount, including contractor cuts, people familiar with the matter said.
Authorities argue that these people fall below the threshold for value added tax and that it would be impractical to collect taxes directly from them, the people said. But because the bills go back several years and include cumulative penalties, they leave businesses on the hook for money they haven’t collected, people said.
Some of the companies tried to seek help from the kingdom’s Investment Ministry and other entities, but were told the problem needed a political solution, two people said.
“We are aware of cases like this,” the ministry said in a statement to Bloomberg. “The Ministry of Investment is an advocate for investors across government and we are working closely with relevant government agencies to resolve this issue and collectively work for a swift and fair resolution.”
The policy changes outlined in the kingdom’s investment strategy, announced last week, are “designed to create a fair and supportive business environment that integrates the needs of local and international investors into government decision-making,” added the Ministry.
Saudi Arabia’s sovereign wealth fund has a nearly 4% stake in Uber, and the fund’s governor, a top advisor to the Saudi crown prince, sits on the company’s board. Careem is 100% owned by Uber, but the two brands operate as separate apps in the kingdom.

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