Expert Accounting Solutions for Tax-Related Challenges in Saudi Arabia
Is your business in Saudi Arabia ensuring tax compliance?
Historically, Saudi Arabia has relied on oil revenue to finance the government. As a part of its Vision 2030 economic diversification plan, various tax reforms have been brought to light by the Saudi Government to reduce the dependence on revenue generated from oil. Tax reforms, being a significant part of this plan, have contributed to stabilize government finances, leading to economic recovery especially after oil crises. Businesses face various challenges in tax compliance and financial management especially after the introduction of Value Added Tax (VAT) and subsequent tax changes.
For entrepreneurs running businesses in Saudi Arabia, a deep understanding of their business’s financial obligations and tax regulations is crucial. It is pivotal for businesses operating in KSA to stay ahead of the curve and ensure tax compliance. In this blog, we will explore expert accounting solutions for tax related challenges in Saudi Arabia that can help businesses optimize their tax planning, ensure compliance, and navigate the evolving tax environment.
Understanding Tax Landscape in KSA
Over the recent years, the taxation landscape has significantly evolved in Saudi Arabia especially with the implementation of tax reforms to diversify economy and reduce reliance on oil generated revenues. To ensure tax compliance, businesses need a thorough understanding of tax system is Saudi Arabia.
Here’s an overview of Tax Landscape in the Kingdom of Saudi Arabia.
1. Value Added Tax (VAT)
In Saudi Arabia, Value Added Tax (VAT) was introduced in January 2018 at a rate of 5%, which was subsequently increased to 15% in July 2020.
It is an indirect tax that is levied on consumption of goods and services and is collected at every stage of the supply chain, from manufacturer to retailer and final burden on the end consumer. It has contributed as an efficient way for government to generate revenue, promote economic growth and reduced reliance on oil generated revenue. It is charged for most goods and services with some exceptions under certain conditions. It is essential for businesses to register for VAT, file returns regularly and to maintain detailed records for VAT claims.
2. Corporate Income Tax
Corporate tax in Saudi Arabia was introduced in 2017 initially at 50%, declining to 20% in 2020. Corporate tax is levied on non-Saudi investors or foreign companies. Saudi-owned companies are subject to Zakat, an Islamic tax based on net worth.
Who is subjected to Corporate Tax?
- Where the shares of a resident Capital Company are owned directly or indirectly by non-Saudi and non-GCC persons, and oil and hydrocarbon businesses, such companies are subjected to corporate tax except for the following;
- Shares owned in a resident capital company listed in the Saudi stock market acquired for the purpose of speculation through trading in the Saudi capital market.
- Shares owned either directly or indirectly by persons working in the field of oil and hydrocarbons production in a resident capital company listed in the Saudi stock market, and the shares owned either directly or indirectly by these companies in capital companies.
- Where a company is owned both by Saudi and Non-Saudi interests, the part of income proportionate to Saudi interest is subjected to Zakat tax, whereas that of non-Saudi interest is subjected to corporate tax.
- A non-Saudi natural person doing business in Saudi Arabia
- A person engaged in natural gas investment fields.
- A person producing hydrocarbons and oil production.
- A non-resident person doing business in Saudi Arabia through a permanent establishment (PE).
- A non-resident person who has other income subject to tax from sources within Saudi Arabia without having a PE.
Corporate Tax Rate in Saudi Arabia
Saudi corporate income tax is charged at the rate of 20% of the net adjustable profits; except on income from following two activities that are subject to different rates:
- A tax of 50%-85% is charged on income generated from oil and hydrocarbon production.
- The tax base of a person who works in the natural gas business should be independent of the tax base relating to other activities.
3. Zakat
Saudi investors or GCC nationals residing in Saudi Arabia are liable for Zakat. Where a company is owned by both Saudi and non-Saudi interests, the portion of taxable income attributable to the non-Saudi interest is subject to income tax, and the Saudi share goes into the basis on which Zakat is assessed. The Zakat, Tax and Customs Authority (ZATCA) is the government agency in Saudi Arabia responsible for administering Zakat.
Zakat Rate:
- Zakat is levied at 2.5% of the company’s Zakat basis.
Zakat Basis:
- The net worth of the entity is estimated for Zakat purposes.
Who is required to Pay Zakat:
- Saudi Investors
- Citizens of the GCC regions
Zakat exemption
- Islamic finance companies and government entities are exempt from Zakat.
- Charities, trusts, and non-profit organizations providing public benefit services are exempt from Zakat subject to certain conditions.
Withholding Tax
Withholding tax is a tax deducted at the source from payments made to non-resident entities for specific types of income. The purpose is to ensure tax compliance and collection of income that may otherwise be difficult to track.
| Tax Category | Applicable Withholding Tax Rate |
| Dividends | 5% |
| Royalties | 15% |
| Technical Services | 15% |
| Management Fees | 20% |
| Other Services | 15% |
Excise Tax
In Saudi Arabia, excise tax is imposed on goods deemed harmful to either health or environment. It is an indirect tax levied on certain products to reduce their consumption. It is levied on the following:
| Category | Product | Tax Rates |
| Tobacco products | Cigarettes, cigar, other Tabacco items. | 100% |
| Sugary drinks | Beverages containing added sugar, such as sodas and sweetened juices. | 50% |
| Energy drinks | Beverages that contain high levels of caffeine and sugar. | 100% |
| Other harmful products | Certain products that may negatively impact public health or the environment. |
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The Saudi government frequently reviews and updates its tax policies, including excise tax regulations, to align with public health goals and international standards. Businesses must stay updated regarding any changes in tax rates or tax compliance requirements.
Transfer Pricing Regulations
In Saudi Arabia, it is pivotal for companies that are engaged in intercompany transactions to tick to local transfer pricing rules, ensuring that transactions are conducted at arm’s length. Proper documentation is required to prove pricing methods used for intercompany transactions. Transfer pricing regulations in Saudi Arabia are crucial for ensuring fair taxation and tax compliance for multinational undertakings.
Economic Zones KSA
As a part of vision 2030, the government of Saudi Arabia has established various economic zones as an initiative to attract foreign investment and to diversify economy. These zones are special areas confined for business activities offering tax incentives, favorable conditions for businesses to operate along with infrastructure support. Business owners in KSA must stay updated to avail such benefit from economic zones in KSA.
Digital Tax Administration in Saudi Arabia
Tax system of Saudi Arabia has recently witnessed significant advancement in country’s approach to ensure tax compliance. The General Authority of Zakat and TAX has digitalized tax procedures to elevate the efficiency, transparency and accuracy of the Tax system. This digitalization involves E-filing and use of data analytics for compliance monitoring. It is crucial for businesses to leverage technology.
Challenges in Tax Compliance in KSA
The transforming tax landscape makes it crucial for businesses to understand the tax obligations. This can be a hassle and quite challenging for many. Some of these key challenges involve:
- Most businesses struggle to understand VAT compliance requirements, implications, registration and filing procedures. The regulations regarding VAT are subject to frequent changes making it difficult for businesses to stay informed.
- As mentioned above, Saudi owned companies are subject to Zakat, while non-Saudi companies are subject to corporate income tax, making it complex for businesses to understand the differences and complicated calculations. Different industries have different rates and exemptions which further makes it challenging for businesses to understand the tax compliance requirements.
- The payments to non-residents lead to different withholding tax rates thus creating confusion and tax compliance issues. The maintenance of proper documentation to account for deductions may also be challenging.
- The tax reforms have necessitated tax audits making it crucial for businesses to maintain accurate records in order to ensure tax compliance. The preparation for tax audits may be time and resource intensive, diverting the focus of business management from their core business goals.
- The scarcity of tax professionals and qualified accountants with proficiency in Saudi Tax law, makes tax compliance more challenging.
- In addition, it may be complicated for non-Saudis to navigate both local and international tax regulations, including double taxation agreements.
- Identification of tax incentives and exemptions can also be difficult without expert knowledge.
Expert Accounting Solutions for Tax-Related Challenges in KSA
The tax landscape in Saudi Arabia is rapidly evolving making it challenging for businesses to ensure tax compliance. These businesses can successfully navigate through these challenges by acquiring expert accounting services in KSA. The best accounting services in Saudi Arabia are those that provide support to businesses to enhance the efficiency of their accounting operations and ensure tax compliance.
- To ensure VAT compliance, businesses are required to acquire professional accounting services in KSA which can assist in compliance with VAT regulations, registration, filing and timely payments to avoid any penalties.
- Specialized accounting services in KSA can help companies navigate the complexities of Zakat for Saudi-owned businesses and corporate tax for non-Saudi investors, to ensure accurate calculations and tax filings.
- The tax professionals in KSA can assist businesses in the preparation of comprehensive transfer pricing documentation that complies with local regulations. The acquisition of accounting services in KSA can help businesses to establish pricing strategies for intercompany transactions, to optimize tax liabilities and to ensure adherence to arm’s length.
- These accounting services in KSA may include the internal auditing services to prepare businesses for tax audits and to identify potential issues before.
- The accounting services in KSA may offer E-filing solutions, facilitating the businesses to file tax returns digitally without confusion and further fulfill compliance requirements such as documentation and reduced administrative burdens.
- The professionals could provide training to in-house finance teams regarding the latest tax regulations, updates and compliance. For businesses engaged in cross-border transactions, these accounting services in KSA provide insights on international tax treaties and implications.
Conclusion
The expert accounting services in Saudi Arabia are crucial for businesses to help them navigate the complexities of the tax landscape. The acquisition of these professional services ensures tax compliance and further assists businesses in strategic tax planning. Engagement with specialized accounting firms in KSA can provide valuable insights, enabling businesses to thrive in this competitive and rapidly evolving environment of KSA.
About Us
At SS&CO KSA, we help companies navigate the complex taxation landscape in Saudi Arabia. With the help of top accountants, we provide the best tax compliance and advisory services in Saudi Arabia. At SS&Co., we understand the importance of staying ahead of transforming tax trends in KSA. Our goal is to build enduring relationships by delivering exceptional value. In both prosperous times and during challenges, we are your trusted resource, offering in-depth knowledge, extensive experience, and innovative tax technology solutions to simplify compliance, enhance efficiency, and improve your tax cash flow.