Saudi Arabia Tax Laws: Key Insights from Leading Tax Advisors

As Saudi Arabia has initiated its journey towards economic diversification, it has become the center of discussion globally, whether it is about Saudi Tax Reforms or new investment laws. Let us discuss the key insights from leading tax advisors that may help you ensure tax compliance.

With Vision 2030 and Saudi Arabia’s efforts for economic diversification going forward, there is a compelling need for businesses to understand current tax laws and compliance requirements. Leading tax advisors stress the crucial need to comprehend Saudi’s tax regulations to ensure efficient tax planning with no penalties or missed chances in this volatile market. In this blog, you will find major insights derived from leading tax advisors to understand Saudi Arabia’s tax legislations, mainly on how to comply with the tax administration, VAT news, corporative tax, and those regulatory changes which are of great concern for businesses that operate in this Kingdom.

Understanding Saudi Arabia’s Tax System

Saudi Arabia is restructuring tax with increasing emphasis on tax compliance, according to the top tax advisors. Businesses in Saudi Arabia should keep proper and transparent records of financial transactions and be compliant with the Zakat, Tax, and Customs Authority’s deadline for tax filing and reporting. Tax compliance is no longer optional since the Kingdom has imposed stronger measures on businesses to meet their tax requirements. With the introduction of the Value Added Tax in 2018 and its rise to 15% in 2020, the Kingdom placed great emphasis on tax compliance.

According to the experts, the companies should file correct VAT reports, produce proper invoices, and submit their VAT returns on time in order not to be subjected to penalties. The electronic process of the filing of tax has made the life of a businessman easy as far as tax filing is concerned, but organization and but staying organized and following the rules is essential for avoiding costly mistakes.

Value Added Tax (VAT)

One of the most notable changes in the tax regime of Saudi Arabia in recent years is the introduction of VAT. According to leading tax advisors, businesses need to be aware of the present rate of VAT i.e. at 15% and the accompanying regulatory obligations. These include:

• VAT Registration Businesses with a turnover exceeding a certain annual threshold of SAR 375,000, are obligated to register for VAT.
• VAT Returns: Accurate submission of regular VAT returns at monthly or quarterly intervals.
• Exemptions and recovery: Some goods and services are exempt from VAT and companies can reclaim VAT on business expenses.

The advisors recommended that companies keep regular records of sales, purchases, and VAT paid or collected as a means of maintaining VAT compliance. Most businesses tend to underestimate the importance of proper documentation, leading to audits or additional assessments by ZATCA.

Corporate Income Tax

Saudi Arabia charges corporate income tax at a rate of 20% for foreign business ventures, whereas Saudi and GCC national companies are liable to Zakat-a form of Islamic tax. Tax consultants assert that the company must know both tax types well as they affect the overall tax liability. Zakat is computed on a company’s assets and liabilities and levied at 2.5%.

Some of the incentives that can be offered by the government to diversify sectors such as renewable energy, technology, and tourism are of interest to businesses, especially those with foreign investment. However, tax advisors are warning that businesses need to stay on top of any new corporate tax policies because the government periodically introduces new regulations and changes to attract foreign investment and promote economic growth under Vision 2030.

Transfer Pricing: New Regulations and Documentation Requirements

Transfer pricing is a critical area that businesses operating in the Kingdom need to pay much attention to, given Saudi Arabia’s increasing involvement into the global economy.  And Transfer pricing involves the pricing of goods, services, or intangible assets between related entities-for example, parent and subsidiary. Leading tax advisors have been urging companies to pay much attention to the transfer pricing regulations of the Kingdom as these are designed to ensure that related-party transactions are conducted at arm’s length.

The tax authorities have become wary of intercompany transactions due to tax avoidance by manipulating the transfer prices. Advisors urge companies to keep all their transfer price documentation up to date as evidence of compliance. That means they need to have explanations for intercompany prices, contracts, and that their intercompany transactions are undertaken at fair market value. Otherwise, a company would be facing substantial fines and penalties or even reassessments of its tax liabilities.

Social Security

Another important aspect of tax compliance in Saudi Arabia is the social security contributions and expatriate levies. Even though Saudi nationals are contributing to social security, foreign workers are required to pay expatriate levy, an additional charge on foreign employees and their dependents. Such a levy is different as it depends on the number of foreign workers employed by a business.

The tax advisors state that businesses need to know about these additional levies, especially with the rise in the levy over the past few years. A better understanding of how these levies affect the total labor cost in Saudi Arabia helps companies budget more effectively and avoid unexpected costs.

Future Trends in Saudi Taxation

Going forward, Saudi Arabia’s taxation system will be more progressive. With the vision of diversification of revenue sources and economic growth through Vision 2030 by the government, tax advisors anticipate further changes in the VAT rate, new tax incentives for foreign investments, and new regulations on digital services and e-commerce. Tax advisory will be at the center of changing times for businesses, which keeps them ahead of such changes. It enables companies to make the optimal decision through the advice of seasoned professionals, hence optimizing their strategies in taxes and reducing associated risks.

Taxation and Compliance Services in Saudi Arabia

If you want to outrank your competitors in Saudi Arabia, it is crucial to opt for the best tax compliance and advisory services. At SS&CO Global, we help companies navigate the complex taxation landscape in Saudi Arabia. With the help of top accountants, we provide the best tax compliance and advisory services in Saudi Arabia.

To streamline the financial operations of your company, you should choose the top tax compliance and advisory services. As KSA continues to make its market competitive and inviting for companies, it is essential to be aware of tax compliance and advisory services. Note that there are no regional or local government taxes in KSA. On the other hand, if you are a foreign-owned entity in KSA, you must pay competitive tax. That’s why you must consult a tax compliance firm in Riyadh to simplify the taxation issues.