Taxation in Saudi Arabia

Imagine a world without roads, schools, or hospitals, that’s a world without taxes. Taxation in any society plays a foundational role in the economic development of a country, it is mandatory to raise funds for governments for public services. KSA primarily maintained Tax free status by relying on oil for economic growth however the fluctuating oil prices made the authorities think of diversifying economy under the vision 2030 initiative. Along with other developments KSA introduced a range of taxes in recent years. Understanding the taxation in Saudi Arabia makes paying less stressful and way smarter. You’ll know where your money’s going and how to keep more of it with the right deductions and credits. This article will explore various types of taxes in KSA, the process of registration and tips to stay compliant.

A Brief History of Taxation in Saudi Arabia

Saudi Arabia has undergone significant tax changes in the last couple of years, to reduce dependence on oil and to diversify its economy. Mainly KSA introduced a simple tax structure with just Zakat as an obligatory tax, however over the time KSA introduced a wide range of taxation measures to keep up with global standards. Although ZAKAT is still a major part of KSA taxation system, yet many other taxes like VAT, corporate tax, and excise tax are some mandatory taxes that businesses are obliged to pay. Today, Saudi Arabia’s tax system is managed by Zakat, Tax and Customs Authority (ZATCA), with a focus on digitalization, transparency, and global alignment, marking a modern era of structured, strategic taxation.

Tax Structure in Saudi Arabia

Some of the legal tax structures that are introduced by KSA include,

1.     Corporate Tax

Corporate tax is only applied to foreign owned companies and non-residents businesses operating in KSA. A fixed a corporate tax rate is 20% of the net adjusted profits. Higher tax rates are applied to the businesses operating in the oil and hydrocarbon sectors depending on their investments and revenues.

2.     Income Tax

Income tax is normally paid by non-Saudi Investors on their share of profit from the businesses that they are operating in the Kingdom. However, Income tax is not applied on wages and salaries of individuals whether they are nationals or foreigners working in KSA.

3.     ZAKAT

Zakat Tax is only paid by Saudi and GCC national, it is a form of Islamic wealth tax with a rate of 2.5% calculated on the taxpayer’s net worth and is overseen by the Zakat, Tax and Customs Authority (ZATCA).

4.     Value Added Tax (VAT)

Value Added Tax is one of the prime taxes in Saudi landscape, it was introduced in 2018 with an initial rate of 5% which was later increased to 15% in July 2020 to have more economic benefit from it. It is applied on most of the goods and services with an exemption in certain sectors.

5.     Withholding Tax

It is applied to the payments made by businesses that are Saudi-residents to the non-Saudi residents for services such as royalties, interest, dividends, technical services, and consulting. Its rate typically ranges from 5% to 20% as per the mode of payment.

6.     Excise Tax

Harmful and unhealthy goods are also subject to taxes which is excise tax, items such as tobacco, soft drinks, energy drinks, and sugary beverages are subjected to higher taxes, and sometimes ranges up to 100% depending on the type of product.

Compliance with all the necessary taxes is obligatory in KSA, ZATCA has established strict penalties for violations. These penalties may result in high capital loss and reputational damage. Therefore, many legal accounting firms help companies operating in KSA to fully comply with legal tax laws.

Tax Registration and Compliance

As we have discussed above ZATCA oversees the administration, registration and collection of taxes in Saudi Arabia, the legal process includes,

• Businesses firstly need to register with ZATCA through online portals.
• They need to register for VAT, withholding tax and corporate tax depending on their ownerships and Operations.
• All the necessary documents like financial statements and tax return forms should be organized for filing purpose
• Tax filling is done via digital portals provided by ZATCA.

Businesses should pay VAT monthly, quarterly depending on revenue however Zakat and corporate tax is paid once a year. ZATCA regularly conducts audits on the basis of risk profits, discrepancies, or random selection. With the utilization of automation and AI tools it looks for anomalies. Fines and penalties are imposed on businesses for non-compliance, miscalculations and underreporting.

Challenges of Taxation in Saudi Arabia

The process of taxation in KSA is simple and structed yet it may feel intricate for many startups and foreign investors that are not familiar with the local tax laws and regulations. Some of challenges faced by companies include,

• Frequent and ever-changing updates in the tax laws.
• Limited understanding of taxation system in Saudi Arabia
• Utilizing the old and traditional systems and showing resistance to new tax policies and methods
• Less skilled internal tax teams with the burden of tax registration, filling and record keeping.
• Complexities in alignment with international tax standards.

These hurdles can be minimized by the use of digital platforms, hiring tax experts and investing in trainings of internal teams related to efficient tax compliance possibilities.

How Accounting Firms Assist in Tax Compliance

1.     Tax Registration Support

Accounting advisory firms with their expert tax advisors help in registration for VAT, Zakat and corporate tax with ZATCA using the right method, they also assure that the registration process is done with accuracy to avoid any penalties and delays.

2.     Tax Return Preparation and Filing

They help you prepare and file accurate tax returns by calculating the right amount of taxes on the basis of updated tax laws and to minimize liabilities.

3.     Recordkeeping and Documentation

Accountants help to Set up proper accounting systems to track income, expenses, and tax-related transactions. This help business stays audit-ready and keep their documentation maintained as required by ZATCA.

4.     Tax Advisory Services

They assist in expert ways to plan for tax to optimize liabilities, identify deductions, exemptions and tax credits to reduce the burden of tax, they further offer advise on tax implications of specific business decision.

5.      Audit Support

Accounting experts not just offer assistance in filing and compliance but also represent clients in front of tax authorities. They also respond to queries, prepare reconciliations, and submit supporting documentation and help resolve any legal disputes.

7.     Updates and Training

Tax advisors keep the clients informed of the latest changes in tax laws and conduct regular training sessions to also keep the finance teams updated of these laws.

8.     Digital Compliance Assistance

By using the best accounting software and tools that are compatible with ZATCA e-invoicing systems they make certain that every tax process is simplified for better decision making.

SS&CO is one of the top accounting advisory firms in KSA, we are not just your traditional tax advisor, but your partner through your business growth in tax compliance. We are the utmost priority of our clients because we understand their goals not just numbers. With the best tax consultants in KSA we provide a perfect blend of financial expertise with on-ground market insight to deliver outcomes that matter. Pick us for your tax services today and stay out of tax complications.