Accounting & Tax in Saudi Arabia: Everything You Need to Know

With the growing opportunities in the Saudi Market, many investors from around the globe recognize this as a favorable chance to start their initiatives. However, with ambition comes uncertainty; the intricate financial regulations, tax structures, and compliance protocols may feel overpowering. With the right understanding and supervision, the pressure can be relieved. Businesses must get a full grasp of local Saudi taxation laws, IFRS-applicable standards, e-invoicing guidelines, and standards set by the ZATCA to operate in the Kingdom without any legal stumbling blocks.

Setting up a company in KSA can be a rewarding investment, but with the right financial direction. Let’s further educate you on the core accounting and tax regulations in KSA that you must fully understand to operate in the opportunity-rich environment of Saudi Arabia.

Key Types of Taxes on Small Businesses in Saudi Arabia

Businesses of all scales and sizes are required to comply with the tax obligations that are set by the Zakat, tax, and Customs Authority. These taxes mainly cover corporate income tax, Zakat, VAT, and WHT, and each comes with its own set of rules that apply to a company depending on its activity and the nationality of its owners.

1.     Income Tax (20%)

A corporate income tax of 20% is imposed on the annual revenues of companies owned by non-GCC or non-Saudi owners. However, the income tax is not enforced on the companies that are fully owned by GCC or Saudi nationals; they are only liable to pay Zakat. Likewise, the non-resident companies that are conducting any kind of business operations in KSA are also subject to income tax on the income they earn from the Kingdom.

2.     Value Added Tax (VAT – 15%)

Value-added tax is an indirect kind of tax that is imposed on most of the goods and services that are sold or purchased in Saudi Arabia. The standard rate of VAT is 15% that is paid by the final customer when they are purchasing a product or service. The company is then responsible for collecting this output tax and then remitting it to ZATCA directly. VAT is applied to all the stages of a supply chain, from production to the sale of services. VAT is also submitted to ZATCA, who enforce strict penalties for non-compliance and applies e-invoicing obligations for VAT compliance.

3.     Zakat

Zakat is a Sharia-based law that is obligatory for Muslim individuals and businesses. Hence, Saudi Arabia imposes Zakat legally only on the just the Saudi and GCC-based business owners. Zakat is calculated at the general rate of 2.5% on the company’s annual zakatable assets, which mainly include its capital and commercial worth. The annual Zakat return must be submitted to ZATCA, which is related to a company’s net assets. Non-Saudis are non-eligible to pay Zakat; the companies that are owned by both Saudi/GCC and non-Saudi/GCC owners have to pay their part of Zakat and Corporate income tax proportionally.

4.     With Holding Tax (WHT)

Withholding tax is subtracted by the Saudi Payer on the payments that they make to non-residents, and then they submit these payments to ZATCA. These payments are deducted from the source when the payment is made. It is necessary to collect these payments accurately and file them within the first 10 days of the coming month. The rate is not fixed and varies, such as for dividends, it is 5%, for Royalties it is 10%, and 15% for services, etc.

Bookkeeping and Reporting Requirements in Saudi Arabia

Bookkeeping and accounting are equally bound to Saudi Statutory laws. Businesses have to keep their paperwork and records as per the policies that are set by the Saudi Organization of Chartered and Professional Accountants (SOCPA). These standards are mainly influenced by the International Financial Reporting Standards (IFRS), which every company must understand to operate under a fully clear and audit-ready system.

1.     Proper Bookkeeping Requirements

Companies must emphasize keeping their financial records clear and organized so they transparently show each transaction. This covers the invoices, ledgers, payroll data, and other financial documentation. All this data must be archived for at least 6 years and should be in its true form to show the authorities the actual financial standing of the company.

2.     Annual Audit Obligation

In KSA, every business must validate its financial data by getting its inspection from a professional auditor registered by SOCPA. These auditors make certain that every financial statement is factually precise, they adhere to all relevant laws and bodies, and are free from any financial mismanagement.

3.     Arabic Record-Keeping Requirement

Saudi Imposes strict guidelines to maintain the Arabic language in all legal and financial documentation of a company. Businesses can convey their internal documentation in their other convenient languages, but for official statements, it’s must to use translated documents in Arabic.

E-Invoicing Obligations in Saudi Arabia

The Fatoorah e-invoicing laws are applied to almost all businesses in Saudi Arabia. These obligations were established by ZATCA to deal with tax fraud and to foster digital financial reporting across the country.

1.     Scope of E-invoicing

E-invoicing is obligatory for all VAT-registered companies in KSA; resident companies are part of this scope, and any party that issues an invoice on their behalf is also required to comply with e-invoicing laws. It covers both B2B and B2C transactions.

2.     The two Phases

ZATCA implemented e-invoicing in two distinct phases to reduce the burden and prepare the businesses for uncompromising compliance control. These two phases cover the integration phase, in which companies had to generate and issue their invoices digitally using the compliant systems, and paper invoices or traditional PDF formats were strictly forbidden. The integration phase 2 further complicated the process, and companies were asked to merge their system with ZATCA in real time to enable the real-time validation and reporting of invoices.

3.     E-Invoice Technical Requirements

ZATCA has presented various guidelines for e-invoicing that every business must apply. As per these instructions, the invoice must have all the necessary information of the seller and buyer, and a QR code with additional details. These invoices must contain an e-stamp, a unique invoice number, VAT amount, and total amount. These invoices must be generated in XML formats that are readable by machines for real-time verification with ZATCA. Storing these invoices digitally is also required by the ZATCA laws.

ZATCA Registration Requirements

Since ZATCA supervises the taxes in KSA, including Zakat, Corporate tax, and VAT, companies must register with ZATCA proactively to file their taxes on time and stay guarded from adverse legal consequences. The legal requirements include:

1. Mandatory Registration: For VAT registration, any business with an annual turnover exceeding the value of SAR 375,000 must register. Likewise, Saudi businesses have to register for Zakat, and non-Saudi-owned companies must sign up for corporate tax filing.
2. Online Registration Process: Companies have to sign up through the ZATCA e-portal for registration using their Commercial Registration (CR). They then have to fill out the form, selecting the type of tax they want to register for. Submit all the essential details and supporting documentation in some cases. They will then receive a Tax Identification Number (TIN), which they can use to file returns.
3. Designated Compliance Responsibility: Businesses must make sure that this responsibility is fulfilled by a qualified professional and should appoint a person to handle all the registration matters. This will ensure that every step is done with accuracy to prevent any mistakes that can result in legal queries
4. Filing Deadlines: The deadlines must be filed on time, which can be monthly or quarterly for VAT, depending on the company’s size, and annually for corporate income tax and Zakat.
5. Record Keeping: All the financial data, such as statements, invoices, and supporting documents, must be recorded accurately using digital tools within a certified accounting system to aid you during filing and guard your company from any hurdles.

SS&Co. Experienced Accounting Professionals in Saudi Arabia

sscoksa.com accounting and taxation teams have qualified and tech-savvy accounting experts who understand every tax obligation and legal accounting requirements in KSA precisely. Our experts keep your records always managed as demanded by the tax authorities and use top-notch tools to automate your routine accounting and bookkeeping tasks. We understand the requirements of ZATCA and SOCPA, and our teams are well-versed in IFRS standards. Hence, no matter which region you are operating in, we help companies maintain consistent tax compliance and planning practices.