Saudis announce new tax code for Aramco amid plans for IPO

A royal decree retroactive to January 1 set an income tax rate of 50 percent for Saudi Aramco. The decree didn't address the 20% royalty Aramco pays the kingdom. The decision to cut the tax rate to 50% had been flagged earlier this year and is in line with the recommendation of Saudi Aramco's own management to the Saudi government. Saudi authorities had been considering such a change for months, sources told Reuters. China's e-commerce business Alibaba Group Holding Ltd. has claim to the world's biggest IPO, after it raised $25 billion in 2014.

"It shows the Saudi government is serious about the IPO of Saudi Aramco, and this is a very strong message to those who doubted that the government will follow through on taking Aramco public".

The Saudi government announced Monday that it's reducing Aramco's tax rate to 50 percent from 85 percent, as it prepares to offer investors as much as 5 percent of the world's biggest oil exporter in what could be a record IPO.

Deputy Crown Prince Mohammed bin Salman, who leads economic reforms, has said the IPO will value Aramco at a minimum of United States dollars 2 trillion. Many private analysts have been sceptical, making estimates below $1 trillion, but a 50 per cent tax rate could bring the offer closer to $2 trillion.

That was echoed in a statement from Khalid Al-Falih, Minister of Energy, Industry and Mineral Resources, who said the change "brings the kingdom of Saudi Arabia in line with global benchmarks".

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Aramco told CNNMoney in January that its IPO is still on schedule for 2018 and the company recently tapped a small USA investment bank to be the offering's sole independent adviser. "For the next step, we will deepen our communication and cooperation".

He said any tax revenue reductions "are replaced by stable dividend payments by government-owned companies, and other sources of revenue including profits resulting from investments". The corporation has not revealed plans for its post-IPO dividend policy.

The valuation of Saudi Aramco heavily depends on the tax regime, and how profits are being split between the government-from taxes and royalties-and the owners.

The energy minister insisted the country's oil wealth would remain sovereign despite the sale of Aramco shares, and that a drop in tax revenues would be compensated by investment returns.

  • Adam Floyd