How much is the tax in Riyadh?

Just like every country around the world is tightening their tax policies, Saudi Arabia is working towards their taxation frameworks too. With a charming business atmosphere and investor-friendly opportunities in Riyadh’s market, businesses from around the globe prefer to invest there. However, recent changes in tax laws and the dual taxation obligations sometimes make it hard for businesses to keep up with statutorily aligned operations, and they actually get into legal trouble.

Tax rates in KSA change depending on multiple factors that require thorough comprehension. Additionally, KSA has signed treaties with several countries, so foreign investors are taxed at a reduced rate or are exempt from taxes in KSA on certain items of income they receive from sources within the Kingdom. If you are considering Riyadh as your next business location, you must fully understand the applicable taxes, their rates, and deductions. This guide also covers the basic tax rates in Riyadh, but to further grasp it, hiring a tax consultant in Riyadh can be of great help.

The Taxation System in Riyadh

The taxation system in Riyadh is looked after by the Zakat, Tax and Customs Authority (ZATCA). It controls how the taxes are imposed, collected, and additional tax compliance requirements that every business must adhere to. If a company fails to acknowledge its tax obligations, it has to go through inquiries and audits that can even turn into adverse legal damages. The Tax system in Riyadh varies with the type of business you own, like if a company is Saudi-owned, if it is a foreign company, or a mixed ownership; they all apply with distinct tax rates and rules in Saudi Arabia. Knowing these distinctions is crucial to operate lawfully across not just Riyadh but the entire Kingdom. Let’s further deep-dive into various Tax rates and other laws that influence businesses.

1.    Personal Income Tax: 0%

In Riyadh and across the KSA, professionals don’t have to stress over the tax deduction on their personal income. This means that they have to pay 0% income tax on their salaries, housing allowances, transportation, and other benefits. This makes Saudi Arabia a tax-friendly region and attracts talent from across the globe to Riyadh.

2.    Corporate Income Tax (CIT): 20%

Companies in Saudi Arabia that are only owned by foreign-based investors are obliged to pay corporate income tax at a 20% rate. This tax doesn’t impact the organizations owned by locals; only the branch offices, foreign shareholders in regional companies, and permanent establishments pay the 20% corporate income tax. However, some sectors that generate higher profits, like oil and hydrocarbons, pay increased rates defined by ZATCA.

3.    Zakat: 2.5%

Just like corporate tax is only applied to expat companies, Zakat is only imposed on the Saudi/GCC owned businesses with a fixed rate of 2.5% of their Zakat base. Zakat base is not what we consider financial profits, but it is specifically applied to the Zakatable assets that are categorized for Zakat under Saudi laws. The companies that have mixed ownership of both Saudi/GCC partners and foreign owners have to pay both the Zakat and corporate income tax. Saudi Ownership will pay 2.5% of their Zakat, and non-Saudi ownership will pay 20% of corporate income tax on their part of ownership.

4.    Value Added Tax (VAT): 15%

Value added tax is another critical tax that impacts the Saudi Business system. Although it is not a type of direct tax, it is applied to the goods and services that are supplied by the businesses. The VAT rate is generally 15%, and companies collect this VAT on behalf of the government. After the collection, this tax is then submitted to ZATCA, where companies can recover their input VAT on the supplies that are listed for input VAT recovery on business expenses. That being said, not every business has to register for VAT; it is only for companies whose annual taxable income surpasses the SAR 375,000 threshold.

5.    Withholding Tax: 5% to 20%

Any payment that a Saudi company makes to a non-resident company is applied with the withholding tax. Withholding tax is the fair share that is paid by foreign businesses for having their income generated within Saudi Arabia. This tax is subtracted by the Saudi Company before making payments to non-residents for their services. The rate of WHT changes depending on the nature of payment. Like for dividends, WHT is 5%, for interest payments, it’s also 5%; however, for royalties its 15%. Likewise, certain other categories are also charged at 20%. These rates can be reduced by applying the tax treaties.

6.    Excise Tax: 50% to 100%

To discourage the use of products that are hazardous to health, Saudi Arabia imposes the excise tax with increased percentages of up to 100%. Soft drinks are charged with a 50% excise tax, while tobacco products, e-liquids, and e-smoking devices are charged with a 100% excise tax. This tax is paid by the manufacturers but is mentioned in the retail prices.

7.    Real Estate Transaction Tax (RETT): 5%

The transfer of a property in Saudi Arabia is subject to a RETT of 5% of the transaction value, apart from the areas where they can apply the exemptions. The RETT is applied to residential property sales, land sales, transfers of commercial properties, and other specific transfers of real estate. Businesses that take part in real estate investments must understand and calculate their RETT rates prior to making transactions.

8.    Customs Duties

In Riyadh, imported goods are charged with customs duties that don’t have a single fixed rate. This rate is conditional on the HS code category, product types, origin country, and trade agreements.

Why Staying Tax-Compliant is a Must for Riyadh-Based Companies?

Despite the fact that Riyadh is home to several business benefits, the tax challenges can be highly demanding at times. But not staying compliant with them leads to pressing legal concerns that not just damage your routine operations and threaten your finances but also lower your credibility across the market. Therefore, it’s important to register for your tax on time, file your returns before the deadline approaches, and keep the financial documentation archived for audit purposes.

Best Tax Saving and Compliance Strategies in Riyadh

Tax management is important for all businesses across Riyadh; the ZATCA strictly enforces every single tax obligation and checks if a business is compliant with them. Hence, it is highly crucial to implement the most optimal strategies to stay guarded from unlawful actions. The best way to do that is by:

1.    Knowing your applicable taxes and their rates

With several tax implications, it is important to be familiar with the ones that apply to you. If you have mixed ownership, you must pay both the corporate tax and zakat; companies that are registered for VAT must comply with VAT and e-invoicing laws. Thoroughly identifying what you are liable to pay and implement keeps you safe from fines and reputational losses.

2.    Maximize Eligible Business Deductions

Understanding your taxes is also critically essential to save extra tax liabilities. Saudi Arabia offers tax deductions and incentives in several cases; companies must apply all the relevant deductions and gain benefits from incentives to reduce their tax burdens. Likewise, the double taxation treaties aid foreign companies in avoiding being taxed. It is important to have all necessary documentation to reap tax rewards.

3.    Review Transfer Pricing Requirements

Transfer pricing regulations are mostly not implemented correctly. Businesses that take part in transactions with related parties must follow the arm’s length price principle to lower any risks that result in legal scrutiny.

4.    Conduct Regular Internal Tax Reviews

You might be confident in your tax laws, but there are minor gaps that create major troubles in the tax season when you have nothing to avoid them. Reviewing your tax policies through conducting regular tax compliance checkups is important not just to avoid legal stumbling blocks but to keep you always ready for any new changes.

5.    Look for Professional Tax Advice

Saudi dual tax obligations and changing laws can be overwhelming for your internal teams that are already piled up with the never-ending routine tasks. Hiring a professional tax consultant and the best accountants in Riyadh helps you not just perform law-abiding operations but also lower your tax burdens by recognizing and applying tax benefits.

Why you need SS&Co Tax Compliance Services, Riyadh?

SS&Co is one of the leading tax consultants and best accountants in Riyadh. Our professionals offer taxation solutions for every industry with close oversight of the latest regulations. We help you always stay compliant and detect tax mistakes before they turn into a serious legal concern. Get in touch today to let SS&Co build the strong tax backbone for your company that never fails you while operating in the competitive market of Riyadh.