What is the tax system in Saudi Arabia?

Because there is no Saudi Arabian tax on personal income, expats generally do not need to file tax returns. Previously recognized for its tax-free environment, KSA now has evolved and implemented a structured and professional tax framework. One of the key reasons behind it is to push the goals of Vision 2030. Today, foreign owned entities are subject to corporate tax while regional or GCC based investors are subject to Zakat. Apart from that, Value Added Tax (VAT) and withholding tax are also a part of Saudi Modern Taxation system, but to keep these taxes less burdening KSA has simplified the compliance process, introduced digital filing systems and offered clear guideline making it still one of the tax friendliest countries around the globe.

With zero income tax, inheritance, gift or wealth taxes, it has become catchy location for high-net-worth individuals and foreigner. Moreover, smart anti-avoidance rules, encouraging alignment with OECD tax standards, and expanding network of double tax treaties, Saudi Arabia has positioned itself as a transparent, future-ready economy. KSA is not just a compelling location for multinational companies but also for regional investors and entrepreneurs planning to grow in a low-tax and financially rewarding ecosystem.

The Regulatory Body of KSA: Zakat, Tax and Customs Authority (ZATCA)

In KSA, the taxation system is looked after by Zakat, Tax and Custom Authority (ZATCA) which was previously known as GAZT, it is mainly responsible for assuring compliance of taxes and Zakat in the Kingdom. ZATCA not just oversees the assessment and collection of taxes but also plays a pivotal role in achieving Saudi’s economic goals by serving as a link between the private sector and government’s budgetary plans.

ZATCA has also implemented a digital portal, e-services, and audit programs to facilitate the process of compliance. These electronic systems were not just created to promote efficiency and transparency but also to minimize the possibility of tax evasion. ZATCA is still working to further innovate the tax filing process through digital platforms, e-invoicing systems, and tools that offer real-time auditing.

The E-invoicing system of ZATCA, Fatoora is for VAT registered businesses to enhance better clarity in tax filing procedure. Fatoora is implemented in two phases, the first phase is for the submission of e-invoices while the second is for Integration with ZATCA systems and real-time reporting. Over time, it has not just improved compliance, reduced the burdens of administrations but also facilitated the authorities to monitor each transaction in a better way.

Types of Taxes in Saudi Arabia

Saudi Arabia has a tax system that offers a merge of traditional religious legislations and modern tax policies. With the vision 2030 moving towards its goal, the country has established various taxation models for long-term economic stability, which we will discuss here.

1.    Corporate Income Tax (CIT)

Corporate tax is only applied to the non-Saudi companies and shareholders, branches of foreign companies and non-residents which income from Saudi sources. A standard rate of 20% corporate tax is applied across all industries except for oil and hydrocarbon. 85% of corporate tax is applied if businesses produce 500,000 barrels of oil per day while for smaller production corporate tax rates normally range from 65% to 50%.  The tax rate is calculated on net income generated from operations within the Kingdom. Some expenses like operational costs, salaries, and depreciation are considered deductible expenses and not included in the tax base.

2.    Withholding Tax (WHT)

Withholding tax is applicable on the payments made to non-residents for their services and royalties obtained from Saudi Arabia, its rate is 5% for dividends, 15% for management fees and 5% to 15% for interest, Royalties and technical service fees. KSA’s double taxation agreements may lower these rates; businesses are needed to withhold the time during the time of payment and submit it to ZATCA.

3.    Value Added Tax (VAT)

VAT was introduced in 2018 with a rate of 5% however later in 2020 the rate was increased to 15% on the consumption of most goods and services to offset budget deficits and increase non-oil revenue. Companies will annual taxable profits are more than SAR 375,000 must register for VAT. Businesses with less revenue may also register voluntarily to gain benefits and boost their reputation. There are also certain sectors where the government offers relief of up to 0% VAT, such as education, healthcare, and real estate. It is mandatory for businesses to file VAT returns monthly or quarterly based on their revenue streams. In case of non-compliance, ZATCA imposes heavy fines and penalties, even license suspension in some cases.

4.    Excise Tax

An excise tax was also introduced in 2017 to hold the consumption of products that are harmful to health such as tobacco and energy drinks with 100% Excise Tax and soft drinks and sweetened beverages with 50% excise tax. These taxes are required to be paid by producers and importers but normally passed on to the consumers by raising prices. Businesses that import and export theses excise goods are required to be registered with ZATCA and must comply with labeling and packaging requirements. In case of failure to comply with these regulations ZATCA not just imposes hefty fines by also seize these goods

5.    Real Estate Transaction Tax (RETT)

RETT is taken 5% on the sales of real estate, their transfer and dispositions, RETT replaces VAT on real estate transactions with some exemptions for primary residences and buildings that are sponsored by government. RETT is paid by the seller, while real estate developers ensure that it is calculated and paid accurately and on time. Transactions like gifts, inheritances, and endowments are not subject to tax or may get the benefit from reduced tax depending on the legal laws applied.

6.    Custom Duties

Along with other taxes, KSA also imposes heavy custom duties on the import of goods, with a rate that varies between 5% to 25% depending on which category the product falls into. Many goods like medical supplies and foods can also gain the benefit of tax exemption and enjoy preferential treatment.  To further support local industries and to save the regional production companies, KSA often revise these tariff rates. It is important that businesses with international trade must categorize goods precisely under harmonized systems (HS) codes while staying compliant with the regulation related to labeling, packaging and documentation rules.

Penalties for Non-Compliance

ZATCA has made it mandatory for all applicable tax paying businesses to legally fulfil the tax requirements and to assure that it has not just simplified the process but has imposed penalties such as:

• Heavy fines are applied for late payments and filing
• Suspension of commercial licenses
• In extreme cases travel bans and even blacklisting of businesses
• Extra penalties of repetitive non-compliance
• Additional penalties for frauds in VAT and Excise tax.

ZATCA conducts thorough audits and investigations to check for any frauds, miscalculations, or misconduct. Businesses should hire tax experts or corporate tax services providers for complete compliance and to stay protected from legal calls.

Stay Compliant. Stay Ahead — How SS&CO Simplifies Tax in Saudi Arabia

Handling the nuances of corporate tax system in KSA ca be demanding at times, mainly for international businesses and startups, SS&CO reshapes these complexities into compliance with team of skilled tax experts. Having years of expertise in various industries and familiarity with global and regional tax practices, we make it possible to stay fully aligned with ZATCA regulations effortlessly through the right calculation, registration and timely filing of taxes.  We not just help businesses avoid hefty fines and penalties but also keep them away from legal audits that may lead to reputational losses. Some of the SS&CO’s tax services include:

• Stress Free Tax Registration, Calculation and Tracking of Zakat, VAT and Corporate tax services
• On time, errorless tax filing and compliance with no missed deadlines or inaccuracies.
• Smartly handling, detecting and fixing any compliance issues before ZATCA catches them
• Keeping your business always ready for audit with complete documentation and professional representation
• Thoughtful tax planning that results in better tax proficiency and staying aligned with Saudi tax laws.
• Round the clock dedicated support with ongoing compliance and expert guidance as tax laws evolve
• Positioning top notch tools and advanced software for effortless filing, e-invoicing compliance and record organization.

When you hire SSCOKSA for your corporate tax services, we turn your compliance into a rewarding outcome rather than a headache. Let us look after your tax matters while you focus on other areas that need your attention the most.