Corporate Income Tax in Saudi Arabia: Everything You Need to Know

For businesses established in or looking to enter Saudi Arabia, comprehending corporate income tax complexities is indispensable. KSA being the leading economy in the middle east has systematically maintained the corporate tax landscape for both local and foreign businesses running in Saudi Arabia. Having a thorough understanding is mandatory to drive a business with precision and stability in the region. Corporate Income Tax is levied solely on non-Saudi investors while the Saudi Nationals are required to pay Zakat which is a religious obligation. Non-compliance with these laws might lead to costly legal consequences. In our blog post today, we will further give insight into KSA corporate income tax, tax rates and how to file for these taxes, have a look.

Understanding Corporate Income Tax in KSA

Zakat, Tax, and Customs Authority (ZATCA) primarily look after the corporate income tax in Saudi Arabia. It ensures that businesses operating in the kingdom must pay corporate tax, Zakat or a combination of both on their taxable incomes depending on their ownership which we will explain below,

• Corporate Income Tax: It is liable for businesses that are owned by foreign companies, or non-residents getting their income from Saudi Resources.
• Zakat: Zakat is a mandatory religious and a legal obligation that solely applied to Saudi and GCC operated companies and applied 2.5% on the net worth of businesses.
• Mixed Companies: Any business with both Saudi/GCC and foreign ownership needs to pay both Zakat and Corporate income tax, depending on the part of each ownership.

Both Zakat and Corporate income tax is utilized for the economic growth of the Kingdom. CIT is used for government expenses, development of infrastructures and public services. However, Zakat is used for social welfare programs, helping the needy, poor and orphans and for other applicable beneficiaries under the Islamic Law. The dual taxes contribute to the nation’s advancement, benefiting both governmental initiatives and public welfare.

Rates of Corporate Income Tax

The legal rate of corporate income tax across Saudi Arabia is 20% on the annual taxable income of the businesses owned by international companies. Specific shifts are however made for certain industries which are as follow,

• Oil and Hydrocarbon Sector: Businesses dealing in oil and hydrocarbon industries face much higher CIT rates normally ranging from 50% to 85%, as per their investment criteria and agreements with legal authorities.
• Capital Gains Tax: Any company who gains capital on sales of assets or shares are subjected t0 normal 20% CIT rate.
• Withholding Tax: CIT rate is lower for payments that are made to non-residents for their services, commissions and profits and the range normally vary from 5% to 20%.

A thorough understanding of the implementation of these tax regulations is crucial specifically for local companies with non-Saudi partners. This includes explanations regarding shares owned by both resident and non-resident individuals or entities, especially those acquired for speculative trading on the Saudi Stock Exchange. Shares owned by non-Saudis in joint ventures, where they hold partnerships in resident capital entities, are not listed as Saudi shares for taxation purposes under existing Saudi Tax regulations.

Tax Filing and Regulatory Obligations

Businesses operating in KSA need to register and file for Corporate Income tax by following these legal steps,

• Register with Zakat, Tax and Customs Authority (ZATCA) through their website by creating an account and attain a Tax Identification Number (TIN).
• File CIT return against your TIN annually through the ZATCA online portal, keeping in mind that it should not exceed the deadline which is 12o days after the year ends.
• Precisely calculate the CIT based on 20% of taxable profits and make this payment via SADAD and avoid late payment to protect your business from fines
• In order to stay legally compliant, keep the financial records as per the requirements of ZATCA to avoid any legal Audits.

Essential aspects to consider:

• It is essential to conduct routine internal audit to assure that companies finances align with legal tax requirements
• Monthly withholding tax filings must be submitted for remittances to non-residents.
• Multinational businesses must adhere to transfer pricing regulations, along with documentation requirements and Country-by-Country (CbC) reporting.

Saudi Authorities have tried to simplify this process over the last couple of years by launching several initiatives. For example, Fatoora which is an E-invoicing system helps businesses to stay transparent while ensuring compliance, similarly they have also launched several tax incentives and reliefs specifically for businesses operating in Special Economic Zones (SEZs) to attract foreign investments.

Benefits of Corporate Income Tax (CIT) Compliance

Some of the key benefits of corporate tax compliance include,

• It gives your business a legal protection by avoiding penalties, hefty fines and reputational damages
• CIT compliance uplifts the trust on investors and stakeholders by increasing the credibility of your company
• It helps businesses to take part in public sector projects and access business permits
• Keep businesses away from audits and other administrative disruptions which leads to smooth running of operations
• CIT compliance open the doors to tax incentives, reliefs, deductions and tax credits which reduces the tax liabilities.
• Contribution in the economic growth of the country by supporting national development, infrastructure, and public services

That being said, in case of non-compliance companies can deal with strict legal challenges, such as late filling penalties which is up to 25% of the tax due. Likewise, interest charges, business restrictions and other severe legal actions could be taken in case of long-term non-compliance.

Best practices for Corporate Tax compliance

To keep your business running smoothly, cash in on CIT advantages, and sidestep financial pitfalls, adopt these smart strategies,

• Accurate Bookkeeping: Keeps your books accurate, make sure that you have a complete track of your financial transactions including all the important statements.
• Stay informed of legal Laws: To ensure compliance keep looking for any recent made changes by ZATCA and apply them promptly to prevent any later hurdles.
• Utilize Technology: Deploy latest automation tools and software for more precise calculations and timely submissions by automating routine financial tasks.
• Protect your Data: Cyber security issues are one of the rising concerns it is important to keep your financial data safe for accurate tax filing which can be done by implementing robust cybersecurity measures, cloud-based systems and backup plans.
• Prepare for Audits: Incase of any legal inspection your business should be ready to deal with authorities by presenting the audit-ready financial reports.
• Internal Tax Policies & Training: Conduct routine internal audits to keep the teams aligned with the tax policies, also make trainings a regular part of your business for better tax awareness.
• Seek Professional Help: If your internal teams are not competent enough to deal with CIT calculations and filings than look for an external professional accountant to assist you in the tax related matter so that you can focus on the other core areas.

SS&CO KSA offers you top-tier and accounting and tax advisory services, we have some of best chartered accountants Saudi Arabia has to offer. We go beyond mere guidance to provide you with deep insights and comprehensive support of corporate income tax and also assist you in maintaining compliance by minimizing tax responsibilities. Hiring SS&CO team ensures you stay ahead of the curve in Saudi tax matters while fine-tuning your tax strategy.