Tax rates in Saudi Arabia

Company Tax

20% + 2.5% Zakat

Tax Rate For Foreign Companies

Resident companies listed on the Saudi stock exchange, not involved in oil and hydrocarbon production, are subject to corporate income tax on global income, but only if their shares are owned by non-Saudi/non-GCC shareholders for purposes other than market speculation. Unlisted resident companies face similar taxation but must have shares held by non-Saudi/non-GCC entities or those in oil and hydrocarbon production, unless they are subsidiaries of listed firms. Those in oil and gas production, and investors in natural gas in Saudi Arabia, are subject to corporate income tax. Non-Saudi/non-GCC nonresidents with a permanent establishment in Saudi Arabia are taxed on PE-related income, unless exempt under a tax treaty. The "virtual PE" approach is no longer applied by ZATCA. Saudi-resident non-Saudi/non-GCC individuals conducting business in the country are also subject to corporate income tax on their business income.

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 from selling shares bought after June 30, 2004, and listed on a stock exchange are tax-exempt if sold through a Saudi or foreign stock exchange, or off-market sales following Saudi Capital Market Law.

Transfers of non-depreciating assets within wholly-owned group companies incur no gain or loss, provided they stay within the group for at least two years post-transfer. However, the Zakat, Tax, and Customs Authority (ZATCA) limits this relief to transfers among Saudi resident group firms.

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 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.

Employers in Saudi Arabia can deduct contributions made to employees' pension or savings funds, as long as the contribution does not exceed 25% of the employee's income before the employer's contributions and the fund fulfills specific criteria. These include being established with clear subscription conditions and subscriber rights, having an obligation stated in the employment contract or establishment's Articles of Association, and maintaining independent status with separate audited accounts by a CPA. Additionally, capital companies can deduct contributions to retirement, social insurance, or other funds meant for settling employee end-of-service benefits or medical expenses, provided they meet certain conditions. Notably, notifying ZATCA is necessary to claim deductions for contributions.

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. Moreover, there are five special economic zones offer diverse direct and indirect tax incentives tailored to specific industries. 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 calculated based on the higher value between a business's zakat base (balance sheet basis) and the net adjusted profit. For those adhering to the Hijri year, the zakat rate is 2.5%, while for those following the Gregorian year, it's 2.5778% for the zakat base excluding the net adjusted profit, and 2.5% for the net adjusted profit itself. Specific regulations apply to losses for groups wholly subject to zakat. Wholly-owned subsidiaries, whether domestic or foreign, held directly or indirectly, may file consolidated returns for zakat.

Social insurance tax is calculated monthly on (i) basic wage, (ii) cash or in-kind housing allowance, and (iii) commissions, capped at SAR45,000. Non-Saudi employees pay 2%, covered by the employer. Saudi employees pay 21.5%, split between employee (9.75%) and employer (11.75%).

Other Domestic Resources

Zakat, Tax and Customs Authority

Tax Rate

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 (expatriate levy).