Income tax in Saudi Arabia for foreigners

Because there is no Saudi Arabian tax on personal income, expats generally do not need to file tax returns. KSA has revolutionized into a magnet for global talent, investors and multinational businesses to accelerate its goal of Vision 2030. Once considered as tax friendly zone, mainly for individuals today it demands a closer look and deeper understanding of KSA tax laws particularly for foreigners looking for investment opportunities in KSA’s dynamic market. No matter if you’re an expatriate entrepreneur or an investor, it is mandatory to have a clear idea of the KSA income tax framework for compliance, strategic planning and rewarding financial growth.

With the recent developments which are aimed at keeping the Kingdom in line with the global tax standards while staying close to the economic goals, staying informed has become a present necessity. This blogpost unveils the latest rules, laws and exemptions regarding income tax for foreign entities operating in Saudi Arabia. We will present you some of the recent findings that are needed to thrive in one of the Middle’s East most established economies.

Understanding Saudi Tax System

The Saudi Taxation system in generally looked after by General Authority of Zakat and Tax (GAZT) which has now become a part of Zakat, Tax and Custom Authority (ZATCA). Personal Income Tax, which is imposed by many western countries, KSA does not impose it on either salaries or wages. However, its tax structure mainly emphasizes on Zakat, which is for Saudi and GCC nationals only, Corporate Income Tax (CIT) for foreign owned companies and specific withholding taxes. The key tax types include:

• Zakat Tax: It is a religious as well and legal obligation in KSA which is paid by only Saudi and GCC owned businesses
• Corporate Income Tax (CIT): It is paid by foreign companies and shareholders in mixed- ownership entities. CIT is filed within 120 days after the end of the fiscal year.
• Withholding tax: WHT is applied on the payments made by entities that are non-residents and must be filed monthly.
• Value Added Tax: A tax of 15% is applied on the consumption of goods and services, VAT is filled monthly, quarterly as per the turnover.

ZATCA imposes strict fines and penalties for non-compliance, which includes late filing, reporting, or non-payment issues. Hence, companies must maintain proper documentation, calculate taxes accurately, and file returns in a timely manner to avoid any reputational or financial damage.

Is There Personal Income Tax for Foreigners?

No personal income tax has yet been introduced in KSA on the salaries or wages for individual be it locals or foreigners operating in the Kingdom. This makes it a top tier location for expatriates looking for employment in KSA. Therefore, what it shows that:

• Foreign individual doesn’t need to pay any income tax
• Employers cannot hold any income from employees’ salaries
• No annual filing of income tax is required for individuals

Apart from that, KSA has also signed various double tax agreements (DTAs) with some countries around the world to prevent double taxation and fight fiscal evasion. It is crucial for expatriates and foreign investors to hire tax consultants to find out whether they qualify for DTA by verifying the existence of DTA among KSA and their home country. That being said, this does not exempt them from other financial legislations, including potential tax liabilities in their home jurisdiction, depending on their residency status and eligible for double taxation treaties.

Applicable Taxes on Foreigners in KSA

Saudi Arabia is an attractive location for international professional and investors, primarily due to its tax-free personal income tax policy and friendly corporate tax structures. Although, foreign employees have the unique dominance with zero personal income tax, yet there are several other tax obligations that are mandated by government including the following taxes mentioned below

1.     Corporate Income Tax (CIT) for Foreigners

Foreign owed companies are subject to pay 20% CIT on net profits. Companies that are operating in the mixed ownership structures are required to pay 20% CIT for Foreign share and 2.5% Zakat for Saudi or GCC share. This tax base comprises of the income after all deductions, financial gains and Saudi Source income. It demands accurate financial records, audits, and annual filings to ZATCA to ensure complete compliance.

2.     Withholding Tax (WHT)

Withholding tax is paid by the resident entities to the non-resident entities for getting services, royalties, and dividends. Its legal rate is 5% for dividends, 15% for royalties/technical services, and 5% for rent/lease. These tax rates may be reduced because of the treaties, depending on the KSA agreement with their home country.

3.     Real Estate and Capital Gains Tax for Foreigners

Foreign Investor must pay 5% Real Estate Transaction Tax (RETT) on the sale of property and 20% capital gain tax on the profit gained from the sales of assets. There are certain exemptions that can be applied depending on the nature and duration of investments and permissible treaties.

4.     VAT and Its Indirect Impact on Foreigners

VAT is applicable to both foreign and local businesses; they must register if their annual revenue exceeds SAR 375,000. They must pay a 15% of VAT on most of the goods and services. International businesses with no physical presence may also need to register if they offer any taxable services in the Kingdom

5.     Social Insurance Contributions (GOSI)

As international firms don’t take part in pension or unemployment schemes, foreign employers and employees are still subject to certain mandatory social insurance contributions under GOSI. They must pay 2% for occupational hazard insurance which is much lower rate as compared to what Saudi nationals must pay which is 22% (split between employee and employer)

Tips for Tax Planning and Optimization for Expatriates

Despite of the fact that foreigners enjoy the benefits of tax-free salary environment in KSA, yet to have a structured financial planning to gain maximum outcomes it is important to avoid costly mistakes. Thus, it is important to take the following tips for the most fruitful results.

1. Understand Home Country Tax Laws: while you are operating in KSA it is still important to stay informed with the residency rules and reporting demands mainly for the US citizens and citizen from countries with worldwide income taxation
2. Utilize Double Taxation Agreements (DTAs): Get the benefit of DTA, find your eligibility criteria, and mitigate the risk of withholding taxes on dividends, royalties, and other services.
3. Keep a Track of Residency Status: Make sure that you do not trigger any tax residency in any other jurisdiction because of working remotely or due to work travels
4. Maintain Proper Financial Documentation: Keep a detailed track record of your income, expenses, financial transactions and contracts to keep a transparent track for audits either by Saudi or home country
5. Hire Tax Advisors: Hire professional tax advisors to handle complex financial interests like multiple incomes, business ownership, and investments. They not just help you stay compliant but also keep your finances organized.

How SS&CO KSA Empowers Expatriates with Smart Tax Planning

Handling the tax nuances as a foreigner in KSA can be demanding but with SSCOKSA by your side, you gain the benefit of professional tax expertise with the best accounting advisory in KSA. We offer custom made solutions that not just assure compliance but also maximize efficiency and allow foreigners to focus on the growth and success without financial burdens. How we offer help:

• Customized Tax Assessments with comprehensive reviews of sources of incomes, status of residency and cost saving possibilities
• Cross Boarder Tax structuring to manage income, allowances and assets across global jurisdictions
• End to end support of regulatory compliance with documentation, registration, calculation and filing to avoid any legal hurdles
• Alignment with home country tax advisors to stay safe from double taxation and utilize the treaties.
• Proactive financial planning with regular audits to adapt the company’s tax framework according to latest tax laws, life events and assure long term success

No matter if you just situated in KSA or a seasoned expat, SS&CO Tax services Riyadh, offer professional, proactive and proficient solutions that are tech driven to ensure your tax journey in Saudi Arabia is not just smooth but also hassle free.