Saudi Arabia Corporate Tax Rates

At the heart of Middle Eastern growth, Saudi Arabia’s economy reigns supreme. Many shifts are currently undergoing to completely reshape the country’s business landscape under the vision 2030. Since, the plan is to diversify economy without depending much on oil, KSA is strongly pushing sectors like technology, tourism, entertainment and non-oil industries. One of the pivotal aspects of this transformation is the evolution of Corporate Tax system. Corporate tax plays a fundamental role in the economic stability of any country by generating sufficient revenues and attracting foreign investments. By emphasizing on corporate taxation, KSA has unlocked a financial goldmine in the region. This article further comprehensively explains the corporate tax rates in KSA, international comparison of these rates, and how local accounting firms in Saudi Arabia helps businesses in compliance with CT.

Saudi Arabia’s Corporate Tax System

Traditionally the Kingdom of Saudi Arabia had relatively low Corporate Tax rates, as compared to the global percentages. KSA primarily relied on oil reservoirs which were sufficient for the economic stability but despite progress it failed to spark the innovation seen in other nations embracing modernization. As a result, the country came up with the initiative of Vision 2030 with the goal of less dependance on oil, which not just radically evolved many legal structures but also significantly changed Kingdom’s tax system. Today, the Zakat, Tax and Customs Authority (ZATCA) looks after the taxation system in KSA, which highly prioritizes compliance with tax laws and in case of non-compliance ZATCA imposes heavy fines and penalties. However, at the same time it offers various tax incentives and tax-friendly policies to encourage taxation and attract global investments in the region.

Which Businesses Are Required to Pay Corporate Tax in KSA?

In the region, only the foreign investors are subject to corporate taxes, the local businesses on the other hand are subject to ZAKAT except for some specific sectors. Prior to moving further on Corporate Tax rates in KSA, we will here underline the businesses and individuals subjected to corporate income tax under the tax laws in KSA.

• A resident Capital Company whose shares are directly or in directly owned by non-Saudi or non-GCC persons.
• Foreign or local investors operating in the Natural gas sectors
• Foreign or local investors operating in the oil and other hydrocarbon sectors
• A non-Saudi national doing business in the KSA region
• A non-Saudi Resident doing business in the KSA through permanent establishment
• A foreign individual who receives income from other sources in the country
• A resident capital business, based on the proportion of its shares directly or indirectly held by individuals involved in oil and hydrocarbon production.

Compliance with Saudi Tax Laws in mandatory to operate in Saudi Arabia stress freely. Non-Compliance may lead to heavy fines which may cause capital loss for companies.

Overview of Corporate Tax Rates in Saudi Arabia

As we mentioned earlier the two main types on taxes in KSA are income tax and Zakat, here we will talk about the Corporate Tax rates applicable to businesses in KSA,

1.    Income Tax for Foreign Companies:

The tax imposed to foreign companies operating in the KSA is typically imposed on their net profits which is a fixed rate of 20% on annual revenues. This Tax rate is applied to both foreign corporations and foreign-owned enterprises that operate in Saudi Arabia.

2.    Zakat for Saudi and GCC Nationals:

Zakat is the Islamic tax that is only applied to Saudi and Gulf Cooperation Council (GCC) nationals. They are obliged to pay a 2.5% of Zakat on the net worth of their business, which comprises of assets such as cash, real estate, and other investments. This tax is different from standard corporate income tax as it considered an obligatory religious duty under Islamic law, and may fluctuate based on the value of the assets in question.

3.    Special Tax Regimes for Certain Sectors:

Specific sectors, oil, gas and mining in particular fall under a specialized category. They are not just subjected to higher tax rates but oftentimes have additional legal requirements to comply with the tax framework.

• Oil and Hydrocarbon Production: A standard rate ranging from 50% to 85% is applied depending on the level of capital investment.
• Natural Gas Investment: Companies operating in natural gas investment are subject to a corporate income tax rate of 20%
• Mining Sector: There are not any specific tax rates for mining activities yet they are generally subject to income tax rate of 20% on net adjusted profits.

It is important to consider that the tax regulations in the KSA are liable to change, consulting professional accounting firms with tax professionals are advisable to achieve full compliance with the legal tax laws.

Corporate Tax Incentives and Support for SMEs

Although the standard corporate tax rate in applied to small and Medium Enterprises, the Saudi government provides several incentives and support programs for SMEs, like:

• Subsidies for certain sectors (like technology and innovation).
• Access to government tenders.
• Exemptions or reduced rates in specific economic zones or sectors.
• Support through the Saudi Arabian General Investment Authority (SAGIA) and various governmental funding bodies.

SMEs in certain sectors like technology, renewable energy, or manufacturing can get the advantages from specific incentives or tax breaks with an aim to foster innovation and local business growth.

International Comparison of Saudi Arabia’s Corporate Tax Rates

Saudi Arabia delivers cost-effective tax solutions, outperforming other major economies, Middle East and North Africa (MENA) region specifically. The 20% tax rate of KSA is normally higher for most industries as compared to regional markets like the United Arab Emirates (UAE) and Qatar. Such as,

• UAE imposes a 9% corporate tax rate for businesses with profits exceeding AED 375,000.
• Qatar’s corporate tax rate is set at 10% for foreign-owned entities.

On the other hand, these tax rates are relatively low as compared to the other largest economies such as,

• United States imposes a federal corporate tax rate of 21%
• United Kingdom standard corporate tax rate is 25% (for profits over £250,000).

Saudi Arabia generally has a more favorable corporate tax environment for most industries compared to many advanced economies.

Why Hire Local Accounting Firms in Saudi Arabia for Corporate Tax Filing?

To assure compliance with the corporate tax laws in KSA, foreign business at times feels the burden of understanding tax laws and other complexities. Local Accounting firms with legal tax experts serves as a valuable support as they have:

• Precise and thorough Understanding of Saudi Tax Laws like Zakat regulations, corporate income tax, and VAT compliance.
• Stay updated with the constant updates from the Zakat, Tax and Customs Authority (ZATCA).
• Familiar with Arabic language and local and cultural business practices, which eases smoother communication.
• Offer customized solutions as per the specific business needs.
• Reduces the risk of non-compliance which comes with heavy fines and penalties.
• Timely and precisely file for taxes while the team focuses on other core areas
• Better equipped to communicate and negotiate with local authorities when demanded.

SS&CO assist businesses stay on top of corporate tax compliance in Saudi Arabia with expert precision and local insight. From addressing ZATCA regulations to managing timely filings and minimizing tax risks, SS&CO balances deep regional expertise with personalized support to keep your operations smooth, compliant, and penalty-free. Trust SS&Co to handle the numbers, so you can focus on growing your business.