Corporate Tax in Saudi Arabia: Key Updates and Implications for Companies

Saudi Arabia corporate income tax rate is 20% of the net adjusted profits. Further, Zakat is charged on the company’s Zakat base at 2.5%. Zakat base means the business’s net worth calculated for Zakat purposes.

In the past couple of years, KSA has been going through a significant fiscal evolution, pushed by the country’s goal to align with Vision 2030. Once considered as a low tax region, today Saudi Arabia’s tax landscape has transformed into a dynamic, transparent and most advanced digital system, with an aim to diversify economy. From the beginning of corporate income tax and VAT to the roll out of Special Economic Zones with tax incentives, KSA is highly emphasizing tax compliance. They have made it clear that compliance is no longer an option, but a mandatory law that must be followed; businesses should adapt or risk legal penalties.

With robust E-Invoicing systems, strict law enforcement and cross—border tax facilitation, companies must perform with precision, clarity and awareness. No matter if you are a multinational business expanding in the region or a local enterprise scaling its operations, having a complete awareness of the latest tax changes is crucial to managing risks and competitive advantage. This article sheds light on the latest changes in corporate tax policies and analyzes what they mean for businesses across different sectors in KSA’s reshaping environment.

Saudi Arabia’s Evolving Tax Framework: A Strategic Shift 240

Saudi Arabia’s goal under Vision 2030 is to minimize the reliance on oil exports and build a country that is stable enough economically through fostering businesses, attracting tourists, foreign investments and boosting the education sector. Apart from that, tax in economic growth also plays the role of one of the Key pillars. The introduction of tax therefore was a smart move to stabilize public finances while encouraging a transparent and competitive business environment. Some of the major tax reforms include:

• Establishment of Value Added Tax (VAT) in 2018, its rate was 5% in the beginning, which was later increased to 15% in July 2020.
• Expansion of Excise Tax on products that have adverse effects on health like tobacco, energy drinks, and sugary beverages.
• Stronger enforcement and audit activity by Zakat, Tax and Customs Authority (ZATCA)

These tax reforms were designed to not just elevate the revenue streams, but also boost transparency, alignment with international tax standards, and incentivize foreign direct investment (FDI).

Role of ZATCA

ZATCA is mainly responsible for looking after tax compliance, law imposition, and tax innovation. According to Vision 2030, ZATCA has to be proficient enough in adopting technology and improving taxpayer services. Some of their noteworthy initiatives include:

• Launching e-invoicing (Fatoora) to make sure that businesses provide real time documentation and reduce the chances of VAT fraud.
• Phased Implementation of E-Invoicing to facilitate the businesses of all sizes
• Establishment of Digital Portals for Zakat and Tax submissions, to reduce the paperwork load and improve clarity
• Initiating educational campaigns to increase voluntary compliance.

ZATCA offers various facilities and incentives for businesses but at the same time imposes strict compliance obligations. For businesses, success depends on staying informed and adapting to the Kingdom’s shaping tax regulatory laws while utilizing incentives for better growth and proficiency.

Corporate Income Tax (CIT) and Zakat Structure

Saudi Arabia has Dual Tax obligations under its modernized financial policies. Companies are taxed on the basis of their ownership.

• 100% Saudi or GCC owned businesses are obliged to pay Zakat with only 2.5% rate
• 100% foreign owned entities are obliged to pay Corporate Income which is 20%
• Mixed Ownership is applied on both taxes proportionally.
• Oil and Hydrocarbon sectors are applied with the most tax rate of 50%-80% depending on the output and profitability, pushing the investors to structure business for maximum tax exposure and control.

CIT is applied on the net adjusted income, while calculating deductions for operational expenses and depreciation. Zakat which is governed by Shariah is based on the net worth. Both CIT and Zakat are mandated to file within the 120 days of financial year end. The government imposes strict audits and heavy penalties for up to 25% for non-compliance.

Withholding Tax (WHT) and Treaties

Withholding tax is applied on certain payments that are done by Saudi businesses to non-resident parties. It includes:

• 5% on dividends, interest, royalties
• 15% on technical/consultancy services
• 20% on management fees

KSA has over 55 Double tax treaties with countries like UK, China, India and Germany. These treaties help in avoiding double taxation income earned in both jurisdictions, allows tax credits in home country and reduce applicable withholding tax. To claim these benefits vendors must submit a tax residency certificate and other supporting documentation before payments are made.

Tax Incentives and Special Zones

Saudi Arabia’s offers various ambitious investment incentives and special zones that opens the door or opportunities for businesses it includes:

• The Regional HQ Program under which government offers 30 year 0% CIT and WHT, Saudization Waivers and fast tracking of visa. Many companies like BNY Mellon, Pepsico and Siemens are a part of it.
• Special Economic Zones (SEZ) and SILZ which provides 5% CIT, VAT and custom exemptions and 0% tax implementation in SILZ
• Regional Development Incentives which target areas like Najran, with the relief of tax for 10 years and incentives for hiring locals

Real Estate and UBO Transparency

The Real Estate Transaction Tax (RETT) replaces VAT while applying 5% tax on property value with exemptions for family transfers, mergers and gifts. Additionally, the latest Ultimate Beneficial Ownership (UBO) demands all the firms to identify above 25% stakeholder, maintain UBO registers and annually report to the ministry of Commerce. In case of any non-compliance penalties of up to SAR 500,000 are applied, this not just promotes anti money laundering but also creates a transparent environment.

Strategic Considerations for Businesses

1.      Planning for Incentives

It is essential to thoroughly plan to gain maximum benefits, such as businesses can:

• Evaluate RHQ status to get tax exemptions for 30-Year tax exemption
• Operate in SEZ or SILZ to have the advantage of 0% tax
• Utilize the regional reliefs offered by government to optimize cost

2.      Navigating Complexity

Businesses should not overlook the tax intricacies they should emphasize on:

• Maintaining rigorous records for transfer pricing
• Monitoring the withholding tax obligations and eligibility for treaty
• Deploy APAs to resolve the uncertainties related to pricing

3.      Ensuring Compliance

Ensure complete compliance to stay away from heavy fines, penalties and reputational damage by:

• Integrating e-invoicing and digital reporting tools
• Preparing for UBO, RETT and CbCE legal requirements
• Utilize the amnesty duration to resolve any legal tax issues

SS&CO KSA: Navigating Tax Change with Confidence

SS&CO KSA stands as one of the premium corporate tax advisory service providers in Saudi Arabia, aiding business handle the Kingdom’s quickly developing tax structure. With a team of some of the best skilled tax experts, we not just assist companies in staying compliant but also optimize their tax strategies. SS&CO being one of the best accounting firms in Saudi Arabia provides custom made solutions and tech enabled opportunities to ensure businesses stay ahead of regulatory changes and maximize rewarding outcomes.

Some of the latest ways SS&CO facilitates companies with latest corporate tax changes:

• Regulatory monitoring through continuous tracking of updates from legal authorities.
• Customized approach for planning tax related to any specific sector regulations
• Digital Compliance by deploying the most advanced tools to ensure e-invoicing, digital reporting and alignment with legal digital portals.
• Thorough health checkups and internal audits to detect any potential risks exposure
• Strategic tax advisory services for international investors entering in the Saudi Market

With the skilled team and top-notch tax technology, SS&CO empowers businesses to meet the regulatory needs while creating strong, forward looking tax plans as per in line with Saudi Arabia’s transforming fiscal structure.