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flag Saudi Arabia Saudi Arabia: Tax System

In this page: Corporate Taxes | Accounting Rules | Consumption Taxes | Individual Taxes | Double Taxation Treaties | Sources of Fiscal Information

 

Corporate Taxes

Tax Base For Resident and Foreign Companies
A resident corporation is taxed on income arising in Saudi Arabia. A company is considered resident if it is registered in accordance with the regulations for companies in Saudi Arabia or if its central management is in the Kingdom.
A non-resident carrying out activities in Saudi Arabia through a permanent establishment is taxed on income arising from or related to the permanent establishment.
Branches are taxed in the same way as subsidiaries.
 

Tax Rate

Non-Saudi taxpayer's share of a resident company or a Non-resident's income from a permanent establishment in Saudi Arabia 20% + 2.5% Zakat
Saudi Shareholder - Zakat 2.5% on the higher of the zakat base (balance sheet basis) and the net adjusted profit of a Saudi or GCC shareholder following the Hijri year; while for zakat payers following the Gregorian year, the rate applicable to the zakat base is 2.577683% based on the balance sheet basis
Businesses involved in production of oil and hydrocarbons 85% (for investments up to USD 60 billion), 75% (for investments between USD 60 and 80 billion), 65% (for investments between USD 80 and 100 billion), 50% (for investments exceeding USD 100 billion)

A tax rate of 20% applies for five years on the tax base from oil and hydrocarbon downstream activities
Businesses involved in production exploitation of natural gas 20%
 
Tax Rate For Foreign Companies
A resident company is taxed on income sourced in Saudi Arabia. Only non-Saudi investors are liable for income tax in Saudi Arabia, and GCC nationals are considered Saudi citizens for tax purposes. If a company has both Saudi and foreign shareholders, the corporate income tax is calculated on the portion of taxable income attributable to the non-Saudi, while the Saudi part contributes to the tax base of Zakat.

A non-resident company carrying out business activities in Saudi Arabia through a permanent establishment is taxed on income arising from or related to the permanent establishment.

No foreign tax relief is provided for foreign entities in Saudi Arabia.

Capital Gains Taxation
The disposal of shares in a resident company by a non-resident shareholder is subject to a capital gains tax of 20%. Capital gains are subject to the normal income tax or Zakat rate, as appropriate. However, capital gains deriving from the disposal of securities traded on foreign stock markets are tax-exempt if they are also traded on the Saudi stock market.

Capital gains and losses on depreciable assets are not taken into consideration in determining the tax base. No gain or loss arises on the transfer of assets between companies belonging to the same group provided that the companies are wholly owned directly or indirectly within the group and the assets are not disposed of outside the group for two years from the date of transfer.

Main Allowable Deductions and Tax Credits
All costs and expenses paid or incurred during the tax year to earn taxable income such as salaries and wages, travel expenses which are connected with the business or enterprise, and rent on properties used in the business, are deductible from the tax base, provided that they respect certain conditions: the expenses are supported by a verifiable document or other qualifying evidence; they are related to the generation of taxable income and to the subject tax year; they are of a non-capital nature.

Other expenses which may be deducted from the tax base include employers’ contributions paid for the employees to retirement funds; research and development expenses incurred to generate an income that is subject to taxation; school fees paid for the employees’ children (provided that such benefit is stated in the employment contract and that fees are paid to a local licensed school). Start-up expenses can generally be fully expensed in the first financial year or can be capitalised and amortised. Bad debts are also deductible (conditions apply), the same as for donations to certain approved charitable organizations. Operational losses can be carried forward (the maximum yearly profit percentage that could be used to offset cumulative losses should not exceed 25% of the year’s taxable profit). Carryback of losses is not permitted.

Non-deductible expenses include taxes, entertainment expenses incurred for certain events, expenses of an individual for personal consumption, insurance commission in excess of 3% of total premiums collected in Saudi Arabia through an agent or other, payments made to headquarter offices located abroad by wholly-owned local subsidiaries or branches.

The Saudi government grants a 10-year tax incentive on investments in the following six underdeveloped provinces: Hail, Jizan, Abha, Northern Border, Najran and Al-jouf. Machinery and raw materials that are required for approved projects are exempted from customs duties (when they are not available in the local market).

Other Corporate Taxes
There is no capital duty, stamp duty or payroll tax in Saudi Arabia. While there is no real estate tax, Zakat (religious tax) may be payable on real estate if held for speculation.
A Real Estate Transaction Tax ("RETT") applies to the disposal of real estate, at a rate of 5%.
A 2.5% white land tax applies on all undeveloped land within urban boundaries.

Zakat also applies to companies that are resident in Saudi Arabia and other GCC nations. It is levied at a flat rate of 2.5% and is chargeable on the total of the taxpayer's capital resources held for more than 12 months and income not invested in fixed assets. These include the company’s capital, net profits, retained earnings and reserves not created for specific liabilities.

Saudi employees are responsible for the monthly payment of the social insurance tax, which is levied at 2% for non-Saudi employees and 12% for Saudi employees (9% social insurance + 2% occupational hazard + 1% unemployment insurance), calculated on the basic wage, housing allowance and commissions (capped at SAR 45,000).

Other Domestic Resources
Zakat, Tax and Customs Authority
 

Country Comparison For Corporate Taxation

  Saudi Arabia Middle East & North Africa United States Germany
Number of Payments of Taxes per Year 4.0 20.8 10.6 9.0
Time Taken For Administrative Formalities (Hours) 104.0 204.0 175.0 218.0
Total Share of Taxes (% of Profit) 15.7 32.1 36.6 48.8

Source: The World Bank - Doing Business, Latest data available.

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Accounting Rules

 

Accounting System

Accounting Standards
Saudi Arabia uses accounting standards issued by the Saudi Organisation for Certified Public Accountants (SOCPA) which are fully compliant with IFRS. Saudi standards includes requirements on matters that are not covered by IFRS (such as Zakat or religious tax). SMEs currently use standards issued by SOCPA, however the transition to IFRS for SMEs is expected to take place in 2018.
Accounting Regulation Bodies
SOCPA, Saudi Organisation for Certified Public Accountants
Accounting Law
Saudi Accounting Laws. Also refer to the SAGIA web site.
Difference Between National and International Standards (IAS/IFRS)
Saudi accounting standards are entirely based on IFRS. They also include requirements on matters that are not covered by IFRS such as Zakat (religious tax).
 

Accounting Practices

Tax Year
The tax year is the State's fiscal year. A taxpayer's tax year begins on the date the taxpayer obtains a commercial registration or license, unless otherwise provided.
A taxpayer may use a different tax year in the following circumstances:
- the different year was approved by the Directorate before the effective date of the income tax regulations;
- the taxpayer uses a Gregorian financial year;
- the taxpayer is a member of a group of companies or a branch of a foreign company that uses a different financial year.
Accounting Reports
The companies need to maintain their accounting reports, especially the balance sheet and the profit and loss account.
Publication Requirements
The balance sheet and profit and loss account need to be published every fiscal year. Many Saudi companies are making their financial reports available on the Internet.
 

Accountancy Profession

Accountants
The Saudi Organisation for Certified Public Accountants (SOCPA) promotes the accounting and auditing profession in the country. The accountancy professional can practice provided their name is listed in the 'Register of Certified Public Accountants' with the Ministry of Commerce and Industry. The minimum qualification for registration is a Bachelor's degree in Accountancy or any other equivalent Certificate as may be deemed acceptable by the competent authorities in charge of equivalency of degrees.
Professional Accountancy Bodies
SOCPA, Saudi Organisation for Certified Public Accountants
Member of the International Federation of Accountants (IFAC)
Yes
Member of Other Federation of Accountants
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
Audit Bodies
Only licensed auditors, recognised by the Ministry of Commerce and Industry can perform auditing in Saudi Arabia.

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is an Islamic international autonomous non-profit corporate body that prepares accounting, auditing, governance, ethics and Sharia standards for Islamic financial institutions and the industry.

 
 

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Consumption Taxes

Nature of the Tax
A Value Added Tax (VAT) was introduced on 1st January 2018. For more info consult the website of the Zakat, Tax and Customs Authority.
Standard Rate
15% (effective 1 July 2020).
Reduced Tax Rate
Certain goods and services are zero-rated, including exports of goods and services outside the GCC, the supply of qualifying medicines, medical goods, investment metals (gold, silver and platinum of 99% purity or higher, on a producer or refiner’s original sale of investment metal and any further sale of gold, silver and platinum where the purity level remains), international transport services, and vehicles and equipment to be used for international transportation.
Exclusion From Taxation
Certain products and services are exempt from VAT, including financial instruments, operation of current, deposit and savings accounts, life insurance and residential property rental, Islamic finance products and residential real estate leases (excluding hotels and similar), education and healthcare services provided to Saudi citizens, etc.
Method of Calculation, Declaration and Settlement
VAT applies to almost all supplies of goods or services. The value of taxable supplies is the total value of supplies made by the taxable person at the end of any month plus the previous eleven months. The standard mandatory VAT registration threshold is an annual turnover of SAR 375,000 (with a turnover of at least SAR 187,500 businesses also may apply to register voluntarily). Non-residents providing taxable supplies to non-taxable customers in Saudi Arabia must register through tax representatives within 30 days from the first supply.

Monthly tax periods are mandatory for taxable persons with annual revenues exceeding SAR 40 million. For all other VAT-registered persons, the standard tax period is three months. The VAT return must be filed, and the corresponding payment of net tax due made, no later than the last day of the month following the end of the tax period to which the VAT return relates. VAT reporting can be carried out on a “cash accounting” basis for small businesses with a turnover of less than SAR 5 million.

Other Consumption Taxes
Other consumption taxes are levied at the national level and the local level (e.g. gasoline tax, aviation fuel tax, liquefied petroleum gas tax, petroleum tax, motor vehicle tax, etc.). Excise taxes were introduced in 2017. The rates are50% on soft drinks and 100% on energy drinks, tobacco products, and electronic devices used for smoking or vaping, as well as liquids consumed in such devices. In order to comply with the Saudi Arabian Excise Tax Law, manufacturers and importers of such goods are required to register with the Zakat, Tax and Customs Authority.

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Individual Taxes

Tax Base For Residents and Non-Residents
An individual is considered resident in Saudi Arabia if (a) he/she has a permanent residence and is physically present in the Kingdom for a period of more than 30 days in a tax year, or (b) he/she does not have a permanent residence and is physically present for more than 183 days in a tax year.
 

Tax Rate

There is no individual income tax scheme in Saudi Arabia. Income tax is not imposed on an individual's earnings if they are derived only from employment in Saudi Arabia. N.A.
Non-employment income is taxed as an entity or permanent establishment (PE). Refer to corporate tax rates. 0%
 
Allowable Deductions and Tax Credits
There is no individual income tax scheme in Saudi Arabia, and as such no deductions are needed.
Special Expatriate Tax Regime
Resident Saudis and non-residents who conduct business through a permanent establishment and/or with income sourced from Saudi Arabia are subject to tax. However, they are not taxed on personal or employment income but only on business income earned. Individuals not conducting business or professional activity are not taxed on interest or dividend income.
An annual dependent levy of SAR 4,800 applies per expat dependent residing in Saudi Arabia.
Capital Tax Rate
A 20% capital gains tax is imposed on the disposal of shares in a resident company by a non-resident shareholder.
Saudi employees contribute 10% of their basic income, allowances and commissions to social security (9% social insurance + 1% unemployment insurance).
A "White Land" tax applies at a rate of 2.5% on the market value of urban vacant land designated for residential or commercial use.
A Real Estate Transaction Tax ("RETT") applies to the disposal of real estate, at a rate of 5%.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
See the international tax treaties on the website of the Zakat, Tax and Customs Authority
Withholding Taxes
When paid to a non-resident, withholding tax rates are 5% for dividends, 5% for interest and 15% for royalties, unless otherwise provided in a tax treaty. No withholding taxes are levied on residents.

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Latest Update: April 2024