Tax
It is compulsory to register a Saudi company (or a branch of a foreign company) with the General Authority for Zakat and Income Tax.
Saudi and GCC nationals in corporate structures are subject to Zakat, a religious levy of 2.5%. Zakat is derived from the ‘Zakat-able Base’, determined by a formula linked to the number of shares of the company and other values.
For foreign partners or shareholders, & for non-residents who do business in Saudi through a permanent establishment, the rate of corporate income tax is generally 20% on net profits, with limited exceptions (notably in the hydrocarbons sector, where oil production is taxed at a rate of 85%).
There is no distinction between different categories of income, and realized capital gains are treated as any other corporate income.
Saudi Arabia has entered into more than 40 double taxation treaties.
There is no personal income tax in Saudi Arabia.
Social insurance is payable monthly by the employer for non-Saudi employees at 2% of the total of basic monthly salary, housing allowance and commission payments. For Saudi nationals, 10% is payable by the employees and 12% by the employer. Social insurance is calculated based on a maximum wage limit of SAR 45,000.
On 1 January 2018, Saudi Arabia implemented a value added tax of 5%. This is in line with a 2017 decision of all GCC countries, although at the time of writing only Saudi Arabia and the UAE have actually implemented VAT.
Unless a supply is specifically zero rated or exempt, VAT is imposed on the supply of goods and services in Saudi Arabia, as well as imports of goods and services.
Examples of VAT zero-rated supplies: the export of services and goods to recipients outside the GCC; the international transportation of goods and passengers; the supply of medicine and medical equipment; and the supply of investment grade precious metals.
Examples of VAT exempt supplies: the supply of margin based financial services; the supply of life insurance; and leases of residential real estate.
Businesses in Saudi Arabia are required to register for VAT if the value of its annual taxable supplies exceeds the mandatory registration threshold of SAR 375,000 (about USD 100,000). A business may register for VAT if the value of annual taxable supplies exceeds the voluntary registration threshold of SAR 187,500 (about USD 50,000). Non-residents that are liable to account for VAT must register, irrespective of the value of the supplies.
Withholding tax applies at rates between 5% (dividends, interest, certain service fees, branch remittances abroad) and 20% (royalties and certain service fee payments to related parties) paid to non-residents by resident companies and permanent establishments in Saudi Arabia, subject to the provisions of any applicable double taxation treaty.
Rates of duty vary depending on the type and quantity of the commodity. Customs duty applies to imported goods, generally at the rate of 5% of the cost, insurance and freight (CIF) invoice value. However, certain goods may be subject to customs duty at a higher rate. Most basic consumer products are duty free.
On 11 June 2017, Saudi Arabia implemented excise tax. The excise tax applies on the importation and production of excise goods released for consumption in Saudi Arabia. At the time of writing, excise tax applies to tobacco products at 100%, carbonated drinks at 100%, and energy drinks at 50%. The excise tax is based on the higher of i. the retail sales price of the excise goods, and ii. a list price determined and published by the government.
Undeveloped land within urban boundaries attracts a land tax of 2.5%.
