The taxation system for the Kingdom of Saudi Arabia (KSA) is one that both residents and businesses should definitely understand. In recent years, the Saudi government has undertaken various initiatives to diversify its economy. These changes consist of increased enforcement of existing taxes with the addition of new taxes. If living, working or investing in KSA, it is important to know how the taxation system works.
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No Personal Income Tax
First and foremost, KSA does not implement personal income tax for salaries and wages for individuals. This is just one of the reasons why many expats choose to work in the kingdom. They don’t have to pay income tax, but depending on their business, they still have to pay VAT (value-added tax), Zakat and more. Looking for a Business Setup in Saudi Arabia?
Value-Added Tax (VAT)
VAT is among the primary taxes in KSA and was introduced in 2018. The VAT was initially set at 5% and later raised to 15% in July 2020. It taxes most industries and services. When you pay for electronics, groceries, or even book a hotel room, VAT is typically included in the price you see.
However, some goods and services are either exempt from VAT or qualify for a zero rate of tax. This includes essentials food, healthcare, and education and exports. Businesses with taxable sales exceeding the threshold set by ZATCA are required to register for VAT.
Zakat – Islamic Wealth Tax
Along with VAT, local Saudi-owned businesses must also pay Zakat. This is a religious duty and is computed in accordance with a business’s net worth. Zakat is normally 2.5% of the adjusted net assets of the company. This tax being applicable only to foreign shareholders, it complements the kingdom’s so-called tax stacked on Saudi nationals and GCC-owned entities.
However, foreign owned companies are Zakat free. Instead, they are liable for corporate income tax. Get details about Business Establishment in Riyadh KSA.
Corporate Income Tax
For foreign investor’s owned companies, the corporate income tax rate in KSA is at 20% on net profits. Even in this regard, understanding that this tax is not for all sectors (except exempted sectors as well, for a few sectors in economic cities or free zones)
Additionally, oil and hydrocarbon companies have a higher tax rate of up to 85%, depending on their revenues. Another consideration for businesses is withholding tax, which is applicable when making payments to non-residential companies or individuals.
Withholding Tax
When a Saudi company pays a foreign company for services such as consultancy or management, it is required to withhold a percentage of the payment as withholding tax and pay that amount to the government. The percentage can range from 5% to 20% based on the type of service. This will allow the government to collect tax revenue on international transactions.
Excise Tax
KSA has also introduced excise tax on products harmful to health or the environment. These are tobacco, energy drinks, and soft drinks. Such taxes can be as high as 100%, particularly for tobacco and energy drinks. This policy intends to lower the consumption of harmful goods and provide additional funding for public services. Are you looking for a Business Registration Service in Riyadh KSA?
Real Estate Transaction Tax (RETT)
To stimulate the housing market, the government introduced the Real Estate Transaction Tax (RETT) in 2020. Its sale or transfer is then subject to its flat real property 5 percent tax. But some transactions in properties, such as inheritance or gifts to family members, could be exempt.
Filing and Compliance
Businesses and individuals engaged in any taxable activity must ensure compliance with the filing requirements. VAT returns, Zakat filings and corporate tax payments have tight deadlines by ZATCA. The late payment of those amounts can incur penalties.
Fortunately, ZATCA has simplified this process through its online portal and centralized its services to allow taxpayers to file returns, register for taxes, and also make payments all through one means. The portal also offers helpful tools and calculators. Are you searching for a Business Setup Consultants in Riyadh KSA?
Double Taxation Agreements
To prevent being taxed twice on the same income, KSA has entered double taxation treaties with several countries. These agreements help companies and individuals obtain tax relief and stimulate foreign investment in the kingdom.
Navigating the Taxation in KSA
In conclusion, the tax regime in KSA consists of various indirect taxes like VAT, Zakat, corporate tax, etc. However, there are more taxes that may apply even without income tax. To remain in compliance with local legislation, and to avoid penalties, businesses should familiarize themselves with the regulations. As the kingdom modernizes the economy, it is essential for those that live or work in the kingdom to remain updated on the developments in taxation.
FAQ
The major taxes in the Kingdom of Saudi Arabia (KSA) are Value Added Tax (VAT), Zakat for Saudi-owned enterprises, and corporate income tax for foreign-owned entities. Individuals pay no personal income tax.
Currently, the Saudi Arabian VAT standard rate is 15%. It covers most goods and services unless exempt or zero-rated.
Foreign companies doing business in Saudi Arabia are taxed at a corporate level with income tax, though Saudi owned companies pay Zakat instead of income tax.
Companies that are 100% owned by Saudi or GCC nationals, pay zakat; The calculation is done on the company’s net worth.
The Zakat, Tax and Customs Authority (ZATCA) requires businesses to register online on its official portal. Timely registration will ensure compliance and help you avoid penalties.