Knowledge about income taxing in Saudi Arabia is also important to its citizens and expatriates, particularly because the Kingdom is still modernizing the financial and regulatory factors of this economy. Although Saudi Arabia is also reputed as having no personal income tax, corporate taxes, Zakat, VAT, excise duties and regulatory compliance requirements as part of the tax ecosystem, which are imposed by the Zakat, Tax and Customs Authority (ZATCA), are present.
This guide desegregates all you need to know including how corporate tax is levied, taxpayers, how corporate tax works, expectations of the expatriate worker, and how to remain compliant with the current tools, such as accounting ERP software, ZATCA software, and ZATCA e-invoicing solutions .
History of Saudi Tax System
The Zakat, Tax and Customs Authority (ZATCA) previously called GAZT is in charge of the VAT number check KSA tax structure of Saudi Arabia. This agency regulates all aspects of corporate tax payment to e-invoicing solutions and VAT requirements.
Razakat and Tax Difference
Zakat- Zakat is an Islamic financial duty, which is applied to Saudi nationals and companies based in the GCC.
Corporate Income Tax is on the other hand, levied on foreign-owned or partially foreign-owned entities.
VAT and levies on excise tax are charged to all people and companies in the Kingdom.
| Feature | Zakat | Corporate Tax |
|---|---|---|
| Applicable to | Saudi/GCC owners | Foreign owners |
| Rate | 2.5% | 20% |
| Based on | Assets | Net taxable income |
| Religious obligation | Yes | No |
Modes of Taxation in Saudi Arabia
- Corporate income tax Saudi Arabia.
- Zakat
- Value Added Tax (VAT)
- Excise tax ( tobacco, sweetened beverages, energy drinks)
- Exemption of tax on some payments to non-residents.
Curiously enough, Saudi Arabia does not collect taxes on salaries or wages even with such taxes.
In Saudi Arabia, Is There an Income Tax?
The brief response: No, Saudi Arabia does not have any personal income tax. All exemptions include salaries, bonuses, commissions, allowances and employment benefits.
Which Sources of income are not taxable?
- Salaries and wages
- Annual bonuses
Housing allowances or transport allowances
- Overtime income
- End-of-service benefits
This is applicable to both Saudi and the expatriates, which will make the Kingdom a priority destination among professionals across the world.
Exceptions: But What of the Owners of Business or the Foreign?
Although individual income tax audit is not subject to tax, there are still some groups that are subject to taxation:
Foreign owned firms will have to pay 20 percent tax on the corporate income.
Mixed-ownership (Saudi + foreign investors) The mixed-ownership entities (Saudi + foreign investors) pay both Zakat and corporate tax proportionately.
- Freelancers employed by an already existing foreign organization could pay withholding tax or corporate tax according to organization.
On this basis, startups, SMEs, and freelancers registered under commercial registration should be fully acquainted with their responsibilities.
Who are the Taxpayers of Saudi Arabia?
- Saudi Nationals
The Zakat by Saudi-based businesses is computed using the net worth and assets of the business.
- Foreign Companies
In Saudi Arabia, any foreign company is required to pay the average corporate income tax, which is 20 percent of taxable income.
- Mixed Ownership
In the case of a company which is 60 percent Saudi-owned, and 40 percent foreign-owned:
- 60% is assessed under Zakat,
The 40 percent is subject to taxation under the corporate income tax.
Example Scenario
One of the marketing agencies was owned by a Saudi (50 percent) and an expat (50 percent):
Supplied that the Saudi partner is liable to Zakat.
- The percentage of the business profits that the expat partner receives is subject to corporate income tax.
Saudi Arabia Corporate Income Tax
Tax rate of income in Saudi Arabia
Corporate income tax in Saudi Arabia is as follows:
- 20% on the tax-adjusted profit
Higher rates are just applied in some sectors such as oil and hydrocarbons.
Computation of Corporate Income Tax
The taxable income is calculated with consideration to:
- Gross income
- Allowable expenses
- Depreciation
- Non-deductible expenses
- Modifications that are stipulated by ZATCA regulations.
Deductions and Exemptions
Businesses can deduct:
- Operating expenses
- Depreciation
- Certain R&D expenses
- Charitable contributions (in bounds).
Corporate Tax Filing
Companies must:
- File returns annually
- Present audited financial reports.
- Respond to questions during income tax audit or income tax scrutiny assessment.
Current systems such as accounting ERP software, ZATCA-approved software, and ZATCA e-invoicing software ease the compliance, record-keeping and reporting.
Zakat: The Islamic Tax
What is Zakat?
Zakat is a religious obligation in Islam but it is also a legal obligation to the Saudi owned entities and some of the GCC owned shares. It is computed using eligible assets as opposed to profit.
Who Pays Zakat?
- 100% Saudi-owned businesses
- GCC nationals
- Mixed entities (only the Saudi-owned share)
How Is Zakat Calculated?
Zakat is normally determined based on 2.5 percent of Zakat base that consists of cash, receivables, inventory and other working capital items.
Other Indirect Taxes and Value Added Tax (VAT).
VAT in Saudi Arabia
The VAT rate in Saudi Arabia is 15 per cent since July 2020.
Products and Services under VAT.
VAT applies to:
- Consumer goods
- Services
- Utilities
- E-commerce transactions
- International sales (excluding some exceptions)
Businesses may check VAT IDs with:
VAT calculator KSA assists companies to calculate VAT on invoices and compliance.
Excise Tax
Applied to:
- Tobacco products
- Sweetened beverages
- Energy drinks
The rates are between 50-100 percent depending on the product.
Outlook of Income Tax in Saudi Arabia
The long-term plan in Saudi Arabia in the vision 2030 is economic diversification and the elimination of oil dependence. There has been rumor in relation to future personal taxation but the government has made it clear time and again:
No plans of introducing personal income tax
The top priority is still the enhancement of business taxation, digital transparency and financial compliance.
It is estimated by the experts that the lack of personal income tax still attracts foreign skills and capital to invest in the Kingdom, which is favorable to the overall economic objectives of the Kingdom.
What to do to remain compliant with the Saudi Tax laws
Digital systems have made life easier by ensuring that companies remain in line with the requirements of ZATCA income tax scrutiny assessment.
- Register with ZATCA
Any business should be registered in:
- Corporate tax or Zakat
- VAT
- E-invoicing
- Maintain Records Carefully
Businesses must retain:
- Sales invoices
- VAT reports
- Financial statements
- Procurement records
ERP software or accounting ERP software reduces human error and automates compliance work.
- Apply ZATCA-Approved Solutions.
ZATCA requires the use of electronic invoicing with:
- ZATCA software
- ZATCA-approved software
- ZATCA e-invoicing solutions fully compliant.
Such systems automatically archive invoice information, maintain non-tamper records and aid in audits.
- Avoid Common Mistakes
- Incorrect VAT charges
- Failure to keep records
- Missing filing deadlines
- Ignoring ZATCA notices
- Changing non-compliant invoicing tools.
- Understand Penalties
Non-compliance may result in:
- Fines
- Suspension of services
- Rejection of filings
- Heightened attention with income tax scrutiny assessment or income tax audit.
The tax calculations can be done through a VAT calculator KSA.
Conclusion
Saudi Arabia does not impose personal income tax, however, the Kingdom has a transparent and well-organized tax system that incorporates Zakat, VAT lookup Saudi Arabia, corporate tax, and excise taxes. As a resident, expatate, or businessperson, these regulations are the most important to learn about to prevent punishment and remain in the legal sphere.
The businesses should refer to the ZATCA-approved software, the latest ERP systems, and the digital compliance tools that make financial operations easier to handle VAT, e-invoicing, and tax reporting.
Need help? See a tax consultant or go on the official portal of ZATCA to get the latest information.
FAQs
Corporate income tax rate in saudi arabia Is 20, which is imposed in the businesses owned by foreigners or the foreign portion of the mixed-ownership companies. This is only in some industries such as oil and hydrocarbons.
Yes, Zakat is the obligatory measure to Saudi nationals and GCC citizens having businesses. It is determined at 2.5 percent of the Zakat base which consists of the eligible assets such as cash, inventory, and receivables.
Expats do not pay personal income tax, though they pay the indirect tax which includes VAT (15) on goods and services. In case an expat is a business owner, he or she will be taxed twenty percent of the company income as corporate income tax.
A majority of the goods and services are subject to VAT in Saudi Arabia with a 15 percent charge. To be in compliance with the ZATCA regulations, the businesses must have to have registered themselves, collect VAT on the sales, and they are required to file VAT returns periodically and also maintain adequate financial records.
