Last modified: 11/06/2024 08:59

Corporate taxation

	Rate
Corporate income tax rate	20%
Branch tax rate	20%
Capital gains tax rate	20%

1. Corporate income tax rate
2. Capital gains tax rate

Residence: A corporation (defined in Saudi law as a public company, limited liability company, or partnership limited by shares) is resident in Saudi Arabia if it is registered in accordance with the regulations for companies in Saudi Arabia or if it is headquartered in Saudi Arabia. The resident natural person is a person who has a permanent place of residence in the kingdom and stays for a total period of 30 days in the tax year, or one without a permanent residence but resides in the Kingdom for a total period of not less than 183 days in the tax year,

Basis: A resident corporation is taxed on income arising in Saudi Arabia. A nonresident carrying out activities in Saudi Arabia through a permanent establishment (PE) is taxed on income arising from or related to the PE. Branches are taxed in the same way as subsidiaries. The definition of a resident corporation that is subject to tax includes a company with shares owned directly or indirectly by persons engaged in the production of oil and hydrocarbon materials; with the effect that the state-owned oil company and its Saudi subsidiaries engaged in the production of oil and hydrocarbon materials are subject to tax. Indirect ownership includes ownership up to the second level (i.e., through one intermediary shareholder).

Taxable income: As per Income tax law “Taxable Income” is: “Gross income less Allowable Deductions” GROSS INCOME is all income, profits and gains arising from carrying on an activity, including capital gain. An activity is defined as any commercial, industrial, agricultural, service, trade, professional or any other similar activity carried out with a view of earning profit including the leasing of movable and immovable property.

Significant local taxes on income: The Act and by-laws elaborate on several issues relating to taxable income:

A. Income from a source in the kingdom This is defined as income derived from:

(1) An activity carried out in the kingdom.

(2) An immovable property located in the kingdom including any gain arising from the disposal of such property.

(3) Rental of movable property used in the kingdom.

(4) Sale of the legal right (i.e. licenses) to use industrial or intellectual property in the Kingdom.

(5) Dividends, management or directors fee paid by a resident company.

(6) Payment for services rendered by a resident company to its head offices or an affiliate.

(7) Payment for services performed wholly or in part in the Kingdom to a resident company.

(8) Exploitation of natural resources in the Kingdom.

(9) Sale of goods by a non-resident is not considered an in-Kingdom source of income unless the goods are of a similar nature as those sold by a permanent entity of the non-resident and the transaction involves the rendering of service.

B. Income from Services

(1) Article 68 defines services as work performed for compensation.

(2) Income derived from technical or consulting services is considered an in-Kingdom sources if such services meet one of the following criteria :

(a) Services provided to a person resident in the Kingdom. Or

(b) The services are related to activities carried out in the kingdom.

Alternative minimum tax: There is no alternative minimum tax

Taxation of dividends: Applicable only for non-residents at the time of transferring with rate of 5%.

Capital gains: • Capital gains are included as part of total income and subject to tax at the rate of 20%, to the extent of the Non- Saudi shareholding. • To the extent of the Saudi shareholding in a Saudi company, gains would be subject to Zakat at the rate of 2.5%.

Capital Gain= Sale Value – Cost Base

• The sales value to be used shall be the higher of:

– The contract value,

– The market value ;or

– The book value in the company’s books.

• The base cost is usually the initial cost price of shares purchased.

Reporting deadline for capital gain tax:  Where shares held by investors in a Saudi resident company are sold, then the change of ownership must be notified to ZATCA within 60 days of the sale transaction. In case of non-compliance, seller and buyer will both be held responsible.

Losses: The Income Tax Law and the By-Laws provide as follows: (1) A taxpayer may carry forward operational losses, as adjusted for tax purposes, to be off-set against the profits of future years. (2) Carry forward is allowed for an indefinite period but the maximum amount of loss to be set-off against the profits of future years should not exceed 25% of the profits of any year. (3) Carry forward of losses apply only to entities assessed on basis of audited accounts. (4) The provisions of Article 21 do not apply to: a. Operational losses incurred prior to the Council of Minister’s resolution No.3 dated 05.01.1421H (April 10, 2000). b. Operational loss incurred during a tax holiday period c. Operational losses arising from activities exempt from tax. (5) Losses that meet the criteria of carry forward but incurred by a capital company during a change of 50% or more in its ownership or control cannot be carried forward to a taxable year following the year of change.

Foreign tax relief: There is no foreign tax relief.

Participation exemption: There is no participation exemption, but income tax Law identifies the following incomes as exempt from tax: (1) Capital gains realized on sale of securities quoted in the Saudi stock exchange. Only securities acquired after the date on which the 1425 (2005) law became effective will qualify for exemption. (2) Gains on disposal of fixed assets other than those used in the activity of the business.

Holding-company regime: The profits of a Saudi resident subsidiary remitted to its Saudi resident holding company will not be taxed, provided (i) there is a minimum holding of 10%, and (ii) the investment is held for at least one year. Limited rules also exist for groups wholly subject to zakat.

Tax-based incentives: The government grants 10-year tax incentives on investments in the following six underdeveloped provinces: Hail, Jizan, Abha, Northern Border, Najran, and Al-jouf. Investors are granted a tax credit against the annual tax payable in respect of certain costs incurred on Saudi employees.

Group relief/fiscal unity: Saudi tax law does not provide for any group relief. Each entity within a group is regarded as a separate legal entity and required to pay its tax liability independently.

Small company/alternative tax regimes: There is no alternative minimum tax

Corporate taxation: compliance

Tax year: – The taxable year for taxpayers in all activities is the Government financial year, the taxable year of a taxpayer starts from the date it obtains a commercial registration or license, unless other documents support a different date. – Taxpayers may use different tax year if: a) A different tax year was adopted and approved by the ZATCA prior to the enactment of the current law. b) A Gregorian financial year is used. c) A group financial year is used. – A taxpayer who changes his tax year may have to prepare separate accounts and submit a separate tax return for the short period separating the end of his last tax year from the beginning of the new tax year. – Short taxable period may also arise in the case of new business and on the cessation of business.

Consolidated returns: Consolidated returns may be filed for zakat and in the case of wholly owned subsidiaries. However, zakat returns of the subsidiaries are filed for information purposes. Consolidated returns are not permitted for income tax purposes.

Filing and payment: (1) Tax returns shall be filed within 120 days following the end of the taxable year for which the return was filed by the following: a) A resident capital company (limited liability and joint stock companies) b) A non-resident with a permanent establishment in the Kingdom. c) A resident, non-Saudi natural person who conducts business in the Kingdom. (2) A partnership files its annual information tax return within 60 days of the end of its taxable year. (3) The time allowed for filling is also 60 days in cases of cessation of businesses. (4) Taxpayers whose gross income exceed one million Saudi Riyals should have their returns attested by a Certified Public accountant that: a) The information in the tax return are extracted from and are in conformity with books and records. b) The return is prepared in accordance with tax laws and regulations.

Penalties: The penalties for failure to file a tax return are the higher of 1% of revenue (up to a maximum of SAR 20,000), or between 5% and 25% of the unpaid tax, depending on the length of the delay. In addition, there is a fine of 1% of the unpaid tax for every 30 days’ delay in settlement.

Rulings: Taxpayers may request rulings; however, the rulings are non-binding on the tax authorities

Taxation of individuals

There are no taxes for indiviuals

Residence: (a) A Non-Saudi resident natural person is a natural person who has a permanent place of residence in the kingdom and stays for a total period of 30 days in the tax year, or one without a permanent residence but resides in the Kingdom for a total period of not less than 183 days in the tax year, (b) A Non-Saudi resident natural person should not conduct business or carry activities within the Kingdom; if so, he will subject to income tax. As a visitor you can stay in KSA for 90 days, but if you have a Visa for work “as employee”, you will obtaining a regular residency and can stay in KSA for un-limited period. To register as a resident natural person, you should have a Visa to work in KSA “as employee”.

Basis: n/a

Taxable income: n/a

Capital gains: n/a

Deductions and allowances: n/a

Foreign tax relief: n/a

Taxation of individuals: compliance

Tax year: n/a

Filing and payment: n/a

Penalties: n/a

Rulings: n/a

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Withholding taxes

Type of Payment	Resident recipients		Non-residents recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Management fee	0	0	20%	20%
Royalty	0	0	15%	15%
Head office services	0	0	Depends to the nature of the services (5-20%)	Depends to the nature of the services (5-20%)
Technical services	0	0	5%	5%
Insurance			5%	5%
Telecomms			5%	5%
Air tickets/freight			5%	5%
Rent			5%	5%
Interest			5%	5%
Dividends			5%	5%
Related Party payments			Depends to the nature of the services (5-20%)	Depends to the nature of the services (5-20%)
Others services			15%	15%

1. xxxxxxxx
2. xxxxxxxx

Branch remittance tax: A 5% withholding tax applies on the remittance of profits abroad.

Anti-avoidance legislation

Transfer pricing: Transfer pricing continues to be a crucial international issue for businesses worldwide. It is a concept applicable to controlled transactions, which are considered cross-border transactions between related parties. Related parties include not only parties within the same group, but also parties, which have a link of direct or indirect control, including control over the Board of Directors (BOD). ZATCA has issued Transfer Pricing By-laws which apply to all Taxable Persons (being persons subject to Persons covered by the Zakat Regulations, the TP By-laws shall only be applicable insofar they are meeting the obligations of the By-laws. These By-laws set out a framework to set prices for Controlled Transactions, including but not limited to transfers of goods, services, loans and Intangibles Transfer Pricing practice of the KSA and represent the Authority’s views on the application of the TP By-laws. Application of transfer pricing rules to the tax system in the Kingdom of Saudi Arabia

The provisions of the KSA’s Income Tax Law (issued by Royal decree – the provisions of Income Tax Law

• A resident non-Saudi natural person who conducts business in the KSA.

• A non-resident who conducts business in the KSA through a permanent entity (“PE”).

• A non-resident with other taxable income from sources within the KSA.

• A person engages in the field of natural gas investment.

• A person engages in the field of oil and hydrocarbons production.

Interest restriction: Saudi Arabia does not have specific thin capitalization rules, but there is a rule limiting the deductibility of interest expense to the lesser of (i) the actual interest expense, or (ii) interest income, plus 50% of taxable income (excluding interest income and interest expense).

Controlled foreign companies: There are no controlled foreign company rules.

Hybrid mismatches: There are no anti-hybrid rules.

Disclosure requirements: The matter relating to the effective date of the TP Bylaws is important because the DFCT requires detailed information to be submitted, including: Details of all ‘Controlled Transactions’ undertaken for or without monetary consideration (such as barter arrangements) A list of all shareholders. For listed entities, information of all shareholders, directly owning more than 5% shares would need to be disclosed. Where there has been an internal reallocation of functions, assets and risks within a group, the same needs to be reported as part of the DFCT for the reporting year relevant to the change. The DFCT shall form part of annual tax declaration and be submitted electronically (in Arabic only) by every person engaged in controlled transactions, irrespective of their value. Saudi Arabian entities that are members of groups with turnover exceeding SAR 3.2 billion are subject to country-by-country (CbC) reporting and notification requirements. CbC reports should be submitted 12 months after the fiscal year-end. Notifications regarding ultimate parent entities not based in Saudi Arabia should be submitted 120 days after the fiscal year-end (as part of the disclosure form due with the annual income tax return).

Exit taxes: There is no exit tax; however, amounts in excess of the share capital invested remitted to a non-resident at the time of liquidation are treated as a dividend subject to a 5% dividend withholding tax.

General anti-avoidance rule: Transfer pricing regulations apply and generally are consistent with OECD guidelines. The regulations apply to all taxpayers (as defined for income tax purposes) and cover transactions between related persons or persons under common control. The concept of “effective control” has been introduced, which broadens the definition of “related party” for transfer pricing purposes.

Digital services tax and Other significant anti-avoidance legislation: There is no Digital services tax and other significant anti-avoidance legislation.

Value-added tax/Goods and services tax

Type of tax: Value Added Tax (“VAT”) is an indirect tax levied on the import and supply of goods and services at the production and distribution stages, with certain exceptions. Value Added Tax is imposed in more than 160 countries worldwide. VAT is a tax on consumption that is paid and collected at every stage of the supply chain, starting from when a manufacturer purchases raw materials until a retailer sells the product to a consumer. Persons registered for VAT will both: • Collect VAT from their customers equal to a specified percentage of each eligible sale; and • Pay VAT to their suppliers equal to a specified percentage of each eligible purchase.

Standard rate: 15% is effective rate for VAT from 1 July 2020, the standard VAT rate was increased by the government to 15% which is the current standard rate , Certain goods and services are zero-rated in accordance with the GCC’s Framework Agreement, which specifies some mandatory areas for zero-rating in all six GCC member states (including exports of goods and services to outside KSA, and the supply of qualifying medicines, medical goods and investment metals).Pay VAT to their suppliers equal to a specified percentage of each eligible purchase. When taxable persons sell a good or provide a service, a 15% VAT charge – assuming the standard rate applies – is assessed and added to the sales price. The taxable persons will account for that 15% that they have collected from all eligible sales separately from its revenue in order to later remit a portion of it to the Authority

Reduced rates: The following are zero rated: Export, International Goods and Passenger Transport Services, Qualifying Medicines and Medical Goods and Qualifying Investment Metal Meanwhile, Financial services, Residential Real Estate Rent, life insurance, real-estate transactions are exempted from VAT. On the other hand, the Government will pay VAT for residents in the field of Health care and Education.

Registration: Mandatory registration: Registration is mandatory for all persons who carry out an Economic Activity on a regular basis and whose annual taxable supplies exceed a certain threshold. If the total value of a person’s taxable supplies during any 12 months exceeds SAR 375,000, (equivalent to $ 100,000). _ Optional VAT registration: Any Resident person in the Kingdom of Saudi Arabia who has taxable supplies or taxable expenses not exceeding the “Optional VAT registration threshold” of SAR 187,500 in a twelve-month period may register for VAT on a voluntary basis. IF the annual turnover of the entity is less than SR 40 million the return will be filed every three month (i.e. will be quarterly returns during the year, meanwhile if it’s more than SR 40 m the return must be filed monthly.

Filing and payment: VAT tax periods may be monthly or quarterly. Taxpayers must calculate the net VAT for the period and submit the VAT return electronically along with the payment by the last date of the month following the end of the tax period. It means every taxpayer in Saudi Arabia must pay the VAT before the last day of the month after the end of a tax period. VAT reporting can be carried out on a cash accounting basis for small businesses with turnover of less than SAR 5 million. Businesses with annual turnover of less than AR 40 million may use a quarterly filing period.

Social security contributions

	Employer	Employee
	Rate (%)	Rate (%)
Saudi	9.75%	11.75%
Non-Saudi	0	2%

Self-employed

There in no self employed tax, and this kind of business must have a license and register in VAT if his income during the year become amount of SAR 375,000.

Other taxes

Capital duty: There is no capital duty.

Immovable property taxes: There is no Immovable property taxes, only The Real Estate Transaction Tax (RETT) was introduced in the Kingdom of Saudi Arabia (KSA) with effect from 4 October 2020 at the rate of 5% . Unless specifically exempted (residence) it applies to all land and property sales assignments, transfers and similar that take place in the Kingdom.

Transfer tax: There is no transfer tax in Saudi Arabia

Stamp duty: Not applicable.

Net wealth/worth tax: There is no wealth/worth tax applied in KSA.

Inheritance/gift taxes: There is no inheritance/gift tax.

Other: Excise Tax: _ General Overview: Excise tax has been introduced In in KSA since June 2017, another GCC harmonized initiative within the GCC Framework Agreement. Some of the key points are listed below: Excise tax is imposed on the import or production of certain selective goods offered for consumption in the Kingdom of Saudi Arabia on or after June 11, 2017. Excise tax is usually collected with reference to the ‘tax base’ of the goods in question. The tax base is the highest retail selling price of goods or a list price set and published by the authorities _ Excise Tax rates: The categories of excise goods are, broadly, soft carbonated drinks and sugar sweetened beverages (50% rate), energy drinks (100% rate), and tobacco products, including electronic devices and liquids used for smoking (100% rate). _ Excise Tax returns: All those holding excise goods valued in excess of SR 60, 000 were required to submit a one-off transitional return and pay excise due within 45 days of the implementation of the tax. This means many shops and other businesses were liable to pay tax on stocks on hand. – In addition to any transitional return, excise tax licensees must submit returns reporting their total excise tax liabilities on a bi-monthly basis (i.e. one returns every two calendar months). Returns must be submitted together with payment within 15 days of the end of the tax period. – Importers of excise goods who have not entered into a tax suspension arrangement will be required to pay excise tax on import to the customs authorities.

Tax treaties

Saudi Arabia has entered into tax treaties with several countries which have effectively tested in Saudi Arabia. However, the DTT generally provide certain relief, including WHT on dividends, interest, and royalties.