Tax System in KSA

INCOME TAX

Income tax in Saudi Arabia does not apply to employment earnings. However, individuals residing in the Kingdom who generate income from alternative sources may be subject to taxation at the corporate tax rate if they establish a permanent presence there.

Social Security Payments are mandatory for all employees in Saudi Arabia, and the contribution amount varies based on nationality:

• Saudi nationals contribute at a rate of 22%, with both the employer (12%) and the employee (10%) sharing the payment.
• GCC Nationals, excluding Saudis, contribute between 17% and 22%, with the employer (12%) covering a portion and the employee covering the remainder.
• Non-Saudi expatriates contribute 2% through their employer's payroll system, allocated for occupational hazard costs rather than social insurance like unemployment benefits or pensions.
• Withholding tax (WHT) is applicable to non-residents receiving income from businesses or residents in Saudi Arabia, including those with a permanent establishment. WHT rates typically range between 5% and 20%, with domestic rates varying from 5% on dividends and interest to 15% on royalties. WHT payments are due within the first 10 days of the month following the month in which the payment was made.

Zakat, a tax tied to the Islamic faith, is mandatory for Saudi and other GCC nationals. The rate is slightly over 2.5% of net wealth or profits, contributing to charitable causes globally. Zakat payments can be made through ZATCA or Islamic Relief, which facilitates calculating the owed amount.

Regarding tax filing, employees living and working in Saudi Arabia are not required to file tax returns. However, those earning income from alternative sources must file a corporate tax return. Additionally, a withholding tax return is necessary for those subject to WHT. Social security payments are automatically deducted by employers. Registration on the ZATCA e-services platform simplifies the process.

Tax returns must be filed within 120 days of the tax year-end, typically around the end of April. Final tax payments for the assessed tax year are also due by this date. Quarterly tax installments are generally made at the end of March, June, September, and December.

CORPORATE TAX

Corporate Income Tax in Saudi Arabia is applicable to businesses, with the tax burden varying based on the owner's nationality. Generally, non-Saudi and non-GCC investors face a 20% corporate income tax on their net-adjusted profits. However, for those deriving income from oil and hydrocarbon production, the corporate tax rate escalates to a range of 50% to 85%.

Saudi investors and GCC nationals considered Saudi citizens for tax purposes are typically subject to Zakat, with the company charged 2.5% of its Zakat base, calculated as the net worth of the company. Determining this figure can be intricate.

When both Saudi and non-Saudi investors share ownership of a company, they are obligated to pay both income tax (on the portion of income attributed to non-Saudi sources) and Zakat tax (on the remaining portion).

Kindly be aware that the tax system could undergo revisions by the Zakat, Tax, and Customs Authority (ZATCA) in the coming year.

ZATCA has put forth proposals for a substantially new and comprehensive Tax Law and Zakat & Tax Procedures Law. The primary aim of this initiative is to enhance and modernize the existing tax law to align with international best practices. The framework takes inspiration from the leading G20 nations and other pioneering countries to ensure a robust and globally competitive tax system.

Accounting standards

Companies registered in KSA are required to comply with the accounting standards issued by the Saudi Organization of Certified Public Accountants (“SOCPA”). In case no SOCPA accounting standard exists, International Financial Reporting Standards (IFRS) are to be used as a guide.

The regulations require that financial statements should include auditor’s report, balance sheet, statements of income, cash flows and changes in the shareholder’s equity and notes to the financial statements.

Auditors are required to be licensed by SOCPA in KSA, which functions under the auspices of the MOCI. It has been vested with the responsibility of monitoring and guiding the auditing profession, issuing auditing standards and accounting principles and enforcing the rules and regulations relating to the licensing of auditors and reporting violations.

Filing with MOCI

All publicly-held and limited liability companies are required, on an annual basis, to file copies of the board of directors’ report and audited financial statements with the MOCI within six months after their financial year-end. In addition, manufacturing entities are required to file a performance report including financial and operational ratios.

Only open joint stock companies (available for public) accounts are disclosed. Other companies accounts are only disclosed for authorities and other concerned parties.

PRICE SHEET FOR ACCOUNTING SERVICES

Accounting Services Includes:

• Prepare the required regulatory books of accounts along with recording it in Company accounting system.
• Prepare the required chart of accounts which is appropriate with Company activities in the Company accounting system.
• Record the daily accounting entries in Company accounting system in accordance with the international accounting standards endorsed in the Kingdom of Saudi Arabia.
• Prepare the monthly bank reconciliations along with the required customer and suppliers monthly reconciliations.
• Prepare the trial balance on a monthly basis along with the required relevant statement of accounts.
• Respond to any inquiry received from Company management related to the accounts recorded by us.
• Prepare a comprehensive monthly financial report detailing the details of the company that was carried-out and provide our recommendations in this regard.

SFM bookkeeping fee will be linked with the monthly volume of transactions inclusive of all sales, purchases, expenses, adjustments and bank transactions and is projected to increase as per the table below: