Income Tax in Saudi Arabia: What Residents, Expats, and Businesses Should Know

Modes of Taxation in Saudi Arabia

1. Corporate income tax Saudi Arabia.
2. Zakat
3. Value Added Tax (VAT)
4. Excise tax ( tobacco, sweetened beverages, energy drinks)
5. 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?

1. Saudi Nationals

The Zakat by Saudi-based businesses is computed using the net worth and assets of the business.

2. Foreign Companies

In Saudi Arabia, any foreign company is required to pay the average corporate income tax, which is 20 percent of taxable income.

3. 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 lookup Saudi Arabia
• VAT number check KSA

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.

1. Register with ZATCA

Any business should be registered in:

• Corporate tax or Zakat
• VAT
• E-invoicing

2. 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.

3. 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.

4. Avoid Common Mistakes

• Incorrect VAT charges
• Failure to keep records
• Missing filing deadlines
• Ignoring ZATCA notices
• Changing non-compliant invoicing tools.

5. 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.