Introduction

Saudi Arabia continually refines its tax and legal framework to attract foreign investment and improve the business environment as part of its ambitious ‘Vision 2030’ initiative. Staying updated on tax regulations is crucial for businesses operating in the country to ensure compliance and avoid unexpected tax liabilities.

Al Taasis provides tax and accounting services in Saudi Arabia. This blog will guide foreign investors on their tax obligations in Saudi Arabia.

Tax Authority in Saudi Arabia

The collection of Zakat, taxes, and customs in Saudi Arabia falls under the responsibility of the Zakat, Tax, and Customs Authority (ZATCA). Operating from Riyadh, ZATCA is committed to efficient revenue collection following best practices.

Personal Income Tax in Saudi Arabia

Saudi Arabia does not impose an individual income tax. If an individual’s earnings come solely from employment within the country, they are not subject to income tax, and there is no requirement to file tax returns for such income.

Social Insurance Tax in Saudi Arabia

While individual income tax is not applicable, businesses operating in Saudi Arabia must pay a social insurance tax for each employee. The tax rate varies depending on whether the employee is a Saudi national or a foreigner.

Local Income Taxes in Saudi Arabia

Apart from regular income tax or Zakat, there are no local, state, or provincial government taxes on income in Saudi Arabia.

Withholding Tax in Saudi Arabia

Non-resident individuals or entities deriving income from a Saudi Arabian source may be subject to withholding tax (WHT). The withholding tax rates vary depending on the type of income and range from 5% to 20%.

A Saudi resident entity is obligated to deduct taxes from payments made to non-residents for income earned from Saudi Arabia, regardless of whether the Saudi entity itself a taxpayer is. The withholding tax rates for various types of payments are as follows:

• Management fees are subject to a tax rate of 20%.
• Dividends, interest, rent, payments for technical and consulting services, payments for air tickets, freight or marine services, international telephone services, and insurance or reinsurance premiums are subject to a tax rate of 5%.
• Royalties, payments to head office or affiliated companies for services, and payments for other services are subject to a tax rate of 15%.
• All other payments are taxed at a rate of 15%.

Sales Tax or Value-Added Tax (VAT) in Saudi Arabia

VAT was implemented in Saudi Arabia at a standard rate of 5% from January 1, 2018. However, in response to the economic impact of the COVID-19 pandemic, the standard VAT rate was increased to 15% from July 1, 2020.

Corporate Income Tax for Saudi Partners in KSA

Saudi citizen investors and citizens of GCC countries, treated as Saudi citizens for tax purposes, are liable for Zakat, an Islamic assessment. Zakat is charged at a rate of 2.5% based on the company’s Zakat base, representing the entity’s net worth calculated for Zakat purposes. In cases where Saudi and foreign interests jointly own a company, the portion of taxable income attributable to the foreign interest is subject to income tax. In contrast, the Saudi share is considered for Zakat assessment.

Corporate Tax for Foreign Investors in Saudi Arabia

Non-employment income earned by entities or permanent establishments (PE) in Saudi Arabia is subject to corporate income tax. Resident non-Saudi and non-GCC individuals are subject to a flat income tax rate of 20%.

It is essential to highlight that while the standard income tax rate is 20%, specific rates apply to income derived from the following two activities:

• Income generated from oil and hydrocarbon production is taxed from 50% to 85%.
• The tax calculation for individuals involved in natural gas investment differs from their other activities, and a separate tax base is considered.

As of January 1, 2018, some amendments were made to the income tax legislation, leading to the repeal of the Natural Gas Investment Tax (NGIT) provisions. Natural gas investment is now subject to the general provisions of the income tax legislation, which includes being taxed at the standard income tax rate of 20%.

Tax Returns and Compliance Requirements in Saudi Arabia

Individuals earning business income from self-employment must register with the Tax Authorities and file income tax returns. Business tax returns are due within 120 days from the end of the financial year. The due date for taxpayers with a December year-end is April 30. The majority of taxpayers follow the December year-end for their financial reporting. Taxpayers must maintain their accounting records in the Arabic language.

Corporate taxpayers have similar registration and filing requirements and may need to submit audited financial statements upon request. Taxpayers can request approval for filing tax returns based on a deemed profit basis instead of using regular accounts. The rates of deemed profit will vary from 10% to 85%, depending on the nature of their activities.

Al Taasis is Your Tax and Accounting Partner in Saudi Arabia

Conducting business in Saudi Arabia requires a thorough understanding of tax obligations to ensure compliance and prevent legal issues. With the tax landscape continuously evolving, seeking guidance from Al Taasis can help you remain up-to-date on tax regulations and navigate the complexities of the Saudi Arabian tax system effectively. Being informed and compliant will contribute to a successful and sustainable business venture in the Kingdom.

Contact us to know more about the prerequisites of your business journey.