Main taxes in Saudi Arabia
For a long time, Saudi Arabia did not have a classic tax system due to oil revenues. However, with the fall in oil prices and the Vision 2030 strategy, the kingdom began to transform. Today, its tax system is a symbiosis of religious obligations, business incentives and new tax mechanisms.
VAT
VAT was introduced in Saudi Arabia in 2018. The main reasons were to reduce dependence on oil and to finance Vision 2030 projects (for example, the NEOM megacity).
Who pays?
- Companies registered in Saudi Arabia
- Foreign companies carrying out VAT-taxable supplies
Tax base
Cost of delivery of goods/work/services
Bid
Depends on the taxable transaction
- 15% - domestic transportation, food products, commercial premises rental
- 5% - sale of residential or commercial real estate on the primary market
- 0% - transactions involving the sale of residential real estate on the secondary market, export of goods outside the Persian Gulf countries, provision of services to non-residents of the Persian Gulf countries, international transportation, supply of certain medical products or equipment, supply of investment metals (gold, silver, platinum)
Exempt from VAT
- rent of residential premises
- provision of financial services
- staple foods
- medical services
- educational services
Thresholds for registration as a VAT payer
Mandatory registration
Mandatory Registration The company's taxable turnover reached SAR 375,000
Voluntary registration
The company's taxable turnover reached SAR 187,500
VAT GCC Agreement: How Saudi Arabia is Integrating the Regional
tax into your economy
In 2016, the Gulf Cooperation Council (GCC) countries signed the Single VAT Agreement.
The agreement is aimed at diversifying the economies: GCC countries, where oil and gas form up to 80% of the budget, are seeking to create alternative sources of income. VAT has become a tool for financing infrastructure, healthcare and education.
Each GCC country retained the right to adapt the rules to its needs. For example, Saudi Arabia and the UAE introduced VAT in 2018, Bahrain in 2019, while Qatar and Oman joined later (2023).
"Saudi Arabia was one of the first countries to introduce VAT. This step not only strengthened its position in the region, but also marked the transition to a new economic model. The next goal is to deepen integration, including the introduction of excise and digital taxes, in order to remain competitive in the post-oil era. For businesses, tax reforms are accompanied by new opportunities, although they require a certain flexibility and constant readiness for new conditions." Sergey Kovalkov, Head of International Practice инкорпораций
Income Tax (CIT)
Saudi Arabia’s corporate tax system is a balance between supporting domestic businesses and integrating into the global economy. Incentives for local companies and special economic zones make the kingdom attractive to startups, while high rates for the oil sector are a reminder of its role as a cash cow for the budget.
Who pays:
- Companies registered in Saudi Arabia.
- Individuals who conduct business in Saudi Arabia.
- Non-residents who receive taxable income from sources in Saudi Arabia. From 2024, foreign IT companies (e.g. Netflix, Google) pay CIT if their income from Saudi users exceeds $1 million per year.
CIT is divided according to the principle of "two worlds in one system"
General income tax 20%
Tax for companies with foreign participation.
Tax base:
- For local companies: net profit (all revenues
- from sources around the world minus all accepted
- to deduct expenses + adjustments).
- For foreign companies: only income received within the Kingdom is taken into account.
Tax period:
By default, this year is equal to the fiscal year in Saudi Arabia.
Zakat 2.5%
Tax for companies owned by citizens of GCC countries.
Tax base:
Net assets of the company (calculated according to special rules for Zakat).
Tax period:
Calculated according to the Hijiri calendar (354 days).
Oil and gas sector profit tax - from 30% to 85%
Giants like Saudi Aramco pay 50% CIT + royalties (up to 35% of revenue), which adds up to 85%.
If a company is owned by both GCC nationals and foreigners, the company is taxed under different systems in proportion to the shares of foreigners and nationals:
- the portion of income corresponding to the share of foreigners is subject to general income tax;
- A portion of the income corresponding to the share of GCC citizens is subject to Zakat.
For example:
Foreigners have a total of 40% stake in the company. Citizens of GCC countries have a 60% stake in the same company.
Then:
- 40% of the company's profits will be subject to general income tax.
- 60% of the profit will be subject to Zakat.
Income tax benefits
Capital gains benefit
Gains in the value of securities may be exempt from tax if the securities were sold on an exchange incorporated in Saudi Arabia, subject to restrictions imposed by regulation.
SEZ Benefits
In 2023, special economic zones were launched, in which benefits apply: - the income tax rate is 5% for 20 years - the withholding tax rate is 0%
Participation exemption
Dividends are exempt from tax in Saudi Arabia if - the percentage of ownership of the company is at least 10% and - the period of ownership of the share is at least 1 year
Benefit for registering the parent company of an international group in Saudi Arabia
Provides Saudi Arabian multinational groups with a 30-year corporate tax break (0% for both corporate income tax and withholding tax on certain transactions), but requires the company to meet economic presence requirements in the kingdom.
Withholding tax (WHT)
Withholding tax is a mandatory withholding of a portion of the payment in favor of the state when paying to non-residents.
Who pays?
- Residents: Tax is withheld on payments to non-residents by residents of Saudi Arabia, including private companies, government and semi-government entities.
- Non-residents: Any legal entity or individual that does not have a permanent establishment in Saudi Arabia but receives income from Saudi sources.
- Permanent establishments: If a non-resident has a permanent establishment in Saudi Arabia, income attributable to the activities of that establishment is not subject to withholding tax but is included in the taxable base of the establishment.
Tax base
Cost of delivery of goods/work/services
Bid
Rates depend on the type of income and the presence of double tax treaties (DTA)
- 5% - dividends (0% for GCC residents)
- 15% - royalty (reduced to 5% under DTA)
- 15% - most services (0% for GCC residents) if they are provided in whole or in part in Saudi Arabia
- 20% - for payment of management services
- Exempt from WHT: government agencies and projects in special economic zones (NEOM, KAEC), as well as payments between GCC residents.
Double Taxation Avoidance Agreements
Each agreement sets maximum withholding tax rates for specific types of income:
Standard WHT rate
- Dividends: 5%
- Interest: 5%
- Royalty: 15%
- Services: 15%
Preferential rate for DTA
- Dividends: 0-5% (usually 5%)
- Interest: 0-5%
- Royalty: 5-10%
- Services: 0-10% (depending on the contract)
To apply the benefits, the income recipient must provide
- Tax Residency Certificate.
- Declaration of beneficial ownership.
Saudi Arabia does not have a DTA with the US, which means that when dividends/royalties/interest on a loan are paid from the US to a Saudi Arabian company, there will be a 30% withholding in the US.
At the same time, Apple and Google services can process payments from different jurisdictions depending on which service is in question, what your account history is, and the volume of sales to users in different countries.
For example:
- Google Ads payments are typically made from the US and may be subject to a 30% withholding tax.
- Payments from Google Play may be made from Google entities in various jurisdictions (for example, the US or Ireland):
- If payments to your account are made from the United States, they are subject to withholding tax at a rate of 30%.
- If payments to your account originate from Ireland, Google is not required to withhold tax on those payments.
Valve will withhold a 30% withholding tax on all revenue from the game's US audience when paying out money from Steam.
PERSONAL INCOME TAX
Unlike most countries in the world, Saudi Arabia does not have a direct tax on personal income. This means that salaries, dividends, interest on deposits and other types of income of citizens and residents of the kingdom are not subject to income tax. This policy is aimed at stimulating economic activity and attracting highly qualified specialists from around the world.
However, expats working in Saudi Arabia may face social security contributions or special charges, depending on their status and type of employment. For example, employers are required to pay a fee for hiring foreign workers, and as a pension contribution, employers withhold 9% of the employee's basic salary, and an equal amount is paid by the government or a government agency.
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