Tax Services in Saudi Arabia

The tax situation in the Kingdom of Saudi Arabia (KSA) can be difficult to navigate, particularly for new firms. A dependable tax partner like Gatestone Group can be extremely beneficial in this situation. Nowadays, filing taxes brings several benefits. Businesses can lower their tax burden by registering for Value Added Tax (VAT) and claiming input tax credits.

VAT registration shows investors, partners, and clients that the business is committed to compliance and will be more transparent and credible. In a competitive market platform, this may provide a significant advantage, creating new opportunities and will help a business to grow.

The types of taxes applicable in the Saudi Arabia include:

1. Corporate Tax

• Resident non-Saudi and non-GCC individuals are subject to an income tax rate of 20% on their tax-adjusted profit.
• Income from oil and hydrocarbon production is subject to tax between 50% to 85%.

2. VAT

• VAT was introduced in January 2018 at a rate of 5% which was subsequently increased to 15%.
• Registration is mandatory if the total value of a person’s taxable supplies during any 12 months exceeds SAR 375,000 (the mandatory VAT registration threshold).

3. Income Tax

• There is no individual income tax in Saudi Arabia.

4. Excise Tax

• The excise tax was introduced in Saudi Arabia on June 11,
• The excise tax is imposed on products that are likely to cause health problems and subsequently increase medical expenses, such as soft drinks, energy drinks, cigarettes, and tobacco products.
• The excise tax became effective on the following categories of excise goods:
  1. 1. Tobacco (related) products
  2. 2. Soft drinks
  3. 3. Energy drinks. It is now expanded to include the following:
  4. 4. Sweetened drinks
  5. 5. Electronic devices and tools used for smoking, vaping and similar activities
  6. 6. Liquids consumed in electronic devices and tools used for smoking, vaping and similar activities
• Excise duty is 50% for items 2 and 4, and all others are charged at 100%

5. Custom Duties

• Custom taxes apply to imported items in Saudi Arabia. The type of commodity and the country of origin determines the precise custom duty rate.

6. Withholding Tax

1. Non-resident individuals or entities earning income from Saudi Arabia may be subject to Withholding Tax (WHT).

2. Saudi resident entities are required to deduct taxes from payments made to non-residents for the income earned.

3. The withholding tax rates vary depending on the type of income and range from 5% to 20%. The rates are as follows:

• 20% for management fees
• 15% for royalties
• 5% for dividends
• 5% for rent
• 5% for reinsurance/insurance
• 5% for consulting and technical services
• 5% for freight sea or air/tickets airline
• 15% for international telecommunication services
• 15% for land transportation

7. Real Estate Transactions Tax

• A 5% tax is applied to the entire sale price of the real estate transaction as the Real Estate Transaction Tax (RETT).
• RETT results in a reduced tax burden than the 15% VAT rate that applied to real estate transactions previously.

8. Capital Gain Tax

• Non-resident GCC companies must pay a 20% tax rate on capital gains and file an assessment accordingly.
• A “white land” tax applies at a rate of 2.5% on the market value of urban vacant land designated for residential or commercial use.
• Capital gains realised from the disposal of shares in Saudi stock companies listed in the Saudi market are tax exempt, subject to certain conditions.

9. Zakat

1. Zakat is not considered a tax but rather a charitable contribution mandated by Islamic law.

2. Zakat, Tax and Customs Authority (ZATCA) plays a significant role in collecting and distributing Zakat funds.

3. Following persons who engage in an activity are subject to collection of Zakat, including:

• Resident Saudi natural persons and nationals of a member state of the Gulf Cooperation Council for the Arab States of the Gulf (GCC).
• Saudi Arabian resident companies in respect of Saudi partners’ shareholding and the shareholding of GCC nationals accorded similar treatment the same as Saudi nationals, and any person engaged in business activity pursuant to a license issued by a competent government or administrative body in accordance with the criteria set by ZATCA.
• Shares held by non-Saudi partners in Saudi resident listed companies, other than founding shareholders or their successors as per articles of association or other statutory documents, and the shares owned by Saudi government departments/organizations.
• Permanent establishments of non-resident Saudi nationals (of the Kingdom) and such other persons accorded similar treatment, where the requirements for main office are applicable to such permanent establishment as provided for in the regulations.

Below is a table summarising the main taxes in the Saudi Arabia:

*Non-resident GCC companies must pay a 20% tax rate on capital gains.

*Corporate income tax is payable by non-Saudi/non-GCC shareholders in a Saudi Capital Company and non-residents doing business in Saudi Arabia through Permanent Establishment.

**Companies earnings profits above £250,000 would be taxed @25% while companies with profit less than £50,000 would be taxed @19%.

The Tax Authority in Saudi Arabia falls under the responsibility of the Zakat, Tax and Customs Authority (ZATCA). Saudi Arabia continues to improve its legal and tax structures to bring in international investment.

Saudi Arabia is a desirable location for international investments because of the below benefits offered:

• There is no individual income tax
• No taxes are imposed by the local or regional governments
• Competitive taxes for Saudi companies with foreign ownership
• Single tax authority (ZATCA)
• Companies have their internal fiscal year

Foreign businesses operating in Saudi Arabia are subject to the same rates as local businesses. However, tax rates may vary depending on the type of business and the nature of its operation. Foreign businesses should consult with a tax professional to ensure compliance with the tax laws of Saudi Arabia.

The tax experts at Gatestone Group are familiar with the up-to-date Saudi Arabian tax laws and are ready to assist you with every step of the registration procedure while making sure all the required paperwork is correctly produced and filed. Their knowledge expedites the procedure, saving you both time and money.