The Tax System in Saudi Arabia

What sort of taxation?

Saudi Arabia levies corporate income tax on the non-resident’s share of taxable profit from a permanent establishment (PE) based in the Kingdom.

According to the Corporate income tax law, the following persons are subject:

• A resident capital company with respect to shares owned either directly or indirectly by non-Saudi/non-GCC persons and persons operating in oil and hydrocarbon production, except for the following (in which case the underlying resident company would be subject to Zakat:
• Shares owned in a residential capital company listed in the Saudi stock market acquired for the purpose of speculation through trading in the Saudi capital market.
• Shares owned either directly or indirectly by persons working in the field of oil and hydrocarbons production in a resident capital company listed in the Saudi stock market, and the shares owned either directly or indirectly by these companies in capital companies.
• A resident non-Saudi natural person who carries on activities in Saudi Arabia.
• A non-resident person who carries out activities in Saudi Arabia through PE.
• A non-resident person who has other income subject to tax from sources within Saudi Arabia without having a PE.
• A person engaged in natural gas investment fields.
• A person engaged in oil and other hydrocarbon production.

The rate of corporate income tax is 20%. Effective 1st January 2018, the corporate income tax legislation was amended to repeal the Natural Gas Investment Tax provisions; natural gas investment should be taxed under the general provisions of the income tax legislation (including being subject to the general income tax rate of 20%).

VAT

Effective July 2020, VAT is imposed at a rate of 15% for most goods and services, with certain exceptions applicable.

The standard mandatory VAT registration threshold is an annual turnover of SAR 375,000. Businesses may also apply to register voluntarily if they have annual turnover of at least SAR 187,500. GAZT will impose a fine of 10,000 SAR for failure to register by the required deadline and non-residents providing taxable supplies to non-taxable customers in the Kingdom must register within 30 days from the first such supply.

Excise Tax

The Excise Tax Law became effective on 11 June 2-017 in Saudi Arabia, with only tobacco products (at 100%), soft drinks (at 50%), and energy drinks (at 100%) selected as goods subject to the excise tax in KSA.

To comply with the Saudi Arabian Excise Tax Law, manufacturers and importers of excisable goods are required to register with the GZAT. Businesses that qualify to be under scope of the Excise Tax Law that fail to register and comply with the guidance issued by the GAZT will be considered as tax evaders and will be imposed penalties.

Expat Levy

• Foreign nationals will have to pay a monthly fee of 400 SAR for each dependent they sponsor.
• Companies employing more foreign nationals than Saudi nationals would have to pay a monthly fee of 800 SAR per foreign national employee or 700 SAR if they employ more Saudi nationals.

Custom Duties

Customs duties are imposed on imports to encourage join ventures in manufacturing, the government grants tariff protection from competing imports to locally produced, quality goods. Rates can be as high as 25%.

Real Estate Transaction Tax (RETT)

RETT is imposed at a rate of 5% of the total real estate disposal value regardless of its condition, shape, or use at the time of disposal.

The Breakdown of taxes on different fees

• Management fees are taxes 20%.
• Dividends, interest, rent, payments made for technical and consulting services, freight, insurance, and telephone services are taxed at a rate of 5%.
• Royalties, payments made to a head office or an affiliated company for services and payments of other services face a 15% tax.
• All other payments have a 15% tax.

Zakat

Saudi Arabia’s net worth tax, known as Zakat, is a religious levy payable by Saudi or GCC nationals on net worth. It is imposed to Saudi and GCC nationals who reside in the kingdom and are engaged in business activities intended for profit, such as investments and financial services.

The rules for Zakat are the following:

• If the Zakat base is higher than the net adjusted profits attributable to Saudi and GCC nationals, Zakat, is equal to 2.758% of net assessable funds (net assets less investments in fixed assets, long-term investments, and differed costs, plus or minus adjusted income for that year) plus 2.5% of net adjusted profits.
• If the Zakat base is lower than the net adjusted profits, the rate is at 2.5% of net adjusted profits.

Tax Filing and Procedures

A resident self-employed foreign professional or carrying business in Saudi Arabia must file a tax return and pay the tax within 120 days after the end of the tax year.

A delay fine of 1% for each 30 days will be added after the elapse of the first 30 days from the due date of tax until the tax is paid.