Zakat, Tax and Customs Authority (ZATCA) introduced the corporate tax in KSA (Kingdom of South Arabia) to levy taxes on the income of businesses. Just like the United Arab Emirates, Saudi charges no tax on the personal income of individuals. However, businesses owned by non-Saudi owners are subject to Saudi Arabia corporate tax.
As the interest in the Saudi Arabian market is rising and the nation is holding the door open for international businesses, it has become imperative for global investors and enterprises to understand the taxation landscape in Saudi Arabia. In this article, we have tried to answer some important questions regarding Saudi Arabia corporate tax like what it is, who should pay, what are the tax rates, and the other types of corporate taxes.
Corporate tax in KSA
According to the law, only the non-Saudi investors operating in Saudi Arabia are liable to pay Corporate Tax. However, the citizen investors and the citizens of GCC countries are liable for Zakat and Islamic assessment. For instance, if a company is owned by both Saudi and non-Saudi investors, then the income earned by the non-Saudi investor will be subject to corporate tax, while the income of the Saudi owner will be considered for assessing Zakat.
Who is eligible to pay Saudi Arabia corporate tax?
According to the Saudi Arabia income tax law, the following entities are subject to corporate income tax:-
- A resident company whose shares are owned directly or indirectly by non-Saudi or non-GCC investors and oil & hydrocarbon companies with the following exceptions. The exception categories are however liable to pay Zakat.
- Shares owned in a public resident company for speculation trading in the Saudi market.
- Shares held by individuals engaged in oil and hydrocarbon production in a public resident company. Further, these companies hold the shares owned in capital companies.
- Non-Saudi individuals conducting business in Saudi Arabia
- Non-resident individuals with a PE (Permanent Establishment) in Saudi Arabia
- Non-residents without a PE, but earn income from other sources within Saudi Arabia
- Individuals having investments in natural gas fields
- Individuals producing oil and other hydrocarbon
Resident v/s Non-Resident – A person who has a permanent residency in the country and has stayed for a period not less than 30 days during a tax period; or for a period not less than 183 days without a permanent residency. On the other hand, a person who does not meet the residency conditions specified in the regulations will be considered a non-resident in the country.
Corporate Tax Rates in Saudi Arabia
The standard Saudi Arabia corporate tax is 20% of the net adjusted profits. Further, 2.5% Zakat is imposed on the Zakat base of the company, the net worth of the business anticipated for Zakat purposes.
Nevertheless, the income derived from the following two activities is subject to different rates, other than 20%:-
- Income generated from oil and hydrocarbon production – 50% to 85%
- The tax base of individuals working in the natural gas business is independent of the tax base of other activities
Furthermore, Saudi Arabia imposes no stamp duty, capital tax, or payroll tax. Additionally, there is no real estate tax either in KSA. However, if the property is held for speculation, the business owner might have to pay Zakat, and a 5% real estate transaction tax while disposing of the property.
For companies and people engaged in oil and other hydrocarbons production industry, the corporate tax rates may vary:-
- For investments above $100 billion – 50%
- For investments above $80 to $100 billion – 65%
- For investments between $60 to $80 billion – 75%
- For investments up to $60 billion – 85%
Saudi Arabia Corporate Tax –Types
There are various types of corporate taxes in Saudi, such as –
Value Added Tax – This is an indirect tax imposed on all goods and services in the KSA. The current VAT rate in Saudi is 15% and entities with value of supplies above SAR 375,000 are required to register for VAT.
Income Tax & Zakat – Foreign companies operating in Saudi are required to pay 20% corporate income tax on their net adjusted profits at the end of the financial year.
Withholding Tax – Withholding tax refers to the tax levied on payments made by a Saudi company to another company situated outside the Kingdom. The tax rate ranges from 5% to 20%, depending on the type of services provided by the company.
Customs and excise tax – Custom duties are imposed on all imported goods in Saudi Arabia, while Excise taxes are charged only on certain restricted goods.
Dividends tax – Dividends received by shareholders are considered income, and hence are subject to taxation in Saudi Arabia. Dividends are taxed based on the recipient’s applicable income tax rate.
Capital gains – This tax is levied at a rate of 20% on the profit attained from the sale or transfer of shares in a resident company in Saudi Arabia.
Sources of Income in Saudi Arabia
The following are considered sources of income in the Kingdom of Saudi Arabia –
Debt returns for a non-resident in any of the below cases:
- Debt secured by movable or non-movable property is located in the country
- If the borrower is living in the Saudi
- If the loan is related to an activity carried out in Saudi through a PE
Insurance and reinsurance premiums in any of the below circumstances:
- The insured subject is located in the country
- The insured person or legal entity is a resident of Saudi
- The insurance is for activities or risks related to an activity carried out in Saudi
Income from technical and consultancy services if:
- The service was provided to a Saudi resident
- The service is related to an activity carried out in Saudi
Other sources of income: –
- Income generated by a resident funds company and its branches operating inside or outside Saudi Arabia;
- Income derived from movable and non-movable funds that are associated with an activity carried out in Saudi Arabia or carried out through a resident person;
- Income generated from sales of goods manufactured or produced inside the Kingdom;
Benefits of Investing in the Saudi Arabia Market
Those looking to enter the Saudi market can enjoy the following benefits:
- No individual income tax
- Exemption from local or regional government taxes
- Competitive taxes for foreign-owned enterprises
- Single tax authority (ZATCA)
- Liberty to follow own internal financial year
- Completion of the electronic process through a single web portal, mostly available in English.
These advantages, thus, make Saudi an attractive destination for conducting business. However, it can be a challenge to navigate the Saudi taxation system, understand its nuances, and ensure compliance. For instance,
- Businesses have limited access to public information regarding the tax framework of the country.
- There are differences and exemptions between the tax code and its application.
- Tax appeals need to be appealed in Arabic.
- The application process for the Double Taxation Treaty provisions is complicated.
For a deeper dive into the tax landscape of Saudi Arabia, speak with a tax consultant at Shuraa Tax.
Conclusion
In conclusion, corporate tax in KSA extends beyond zakat and includes various other taxes. By comprehending the complexities of these taxes and their implications, businesses can improve their tax approaches, ensure compliance with regulatory requirements, and alleviate financial risks.
Hence, to get a clear understanding of Saudi Arabia corporate tax, connect with Shuraa Tax Consultants and Accountants. They will help you navigate the Saudi tax landscape with confidence and capitalize on different opportunities for your business growth and success. Visit www.shuraatax.com
