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Deciphering Saudi Arabia’s Tax Landscape for Foreign Companies

Saudi Setup Practical Guides

4 Jul 2024

Maha Anwar

This article provides a comprehensive overview of Saudi Arabia's taxation landscape, highlighting the key taxes and regulations foreign businesses need to navigate when establishing a presence in the Kingdom, in line with Vision 2030’s goals of fostering innovation and economic growth.

Saudi Arabia forms an ideal base for global businesses to set up an operational base and a springboard to penetrate regional and global markets, offering a range of compelling benefits for businesses seeking growth opportunities.

The cornerstone of its shift towards being a global financial and business center is a tax landscape that encourages foreign investments and business expansion and fosters innovation and nationwide growth in line with its Vision 2030.

Below is a comprehensive yet concise overview of the taxes in Saudi Arabia for foreign businesses intending to establish a presence in the Kingdom to unlock new possibilities for success.

Value Added Tax (VAT) in Saudi Arabia

  • VAT is an obligatory tax that applies to all goods and services imported, bought or sold by businesses in the Kingdom.
  • VAT is regulated by Zakat, Tax and Customs Authority (ZATCA).
  • It applies to businesses with volumes of supplies greater than SAR 375,000.
  • It currently stands at 15%.
  • A business must register for a special number for their company and a VAT registration number to be able to legally conduct operations.
  • VAT rules also apply to e-commerce transactions involving imported products.
  • Businesses engaged in essential services such as healthcare, education, and food products are either exempted from VAT or subject to lower rates.
  • Businesses required to pay VAT must adhere to comprehensive invoicing and reporting obligations.
  • This includes the mandatory use of e-invoicing systems through the ZATCA portal.

Documents Required by Foreign Companies to Apply for VAT include:

  • Parent Company Trade License/CR
  • Parent Company AoA
  • MISA License
  • Company’s AoA
  • Company Registration (CR)
  • Saudi National Address
  • GM Passport

Excise Tax in Saudi Arabia

  • An excise tax is charged on the production and import of certain goods.
  • These include soft carbonated drinks (50% rate), energy drinks (100% rate), and tobacco products (100% rate).
  • Businesses involved in the production or importation of excisable goods must submit their excise tax on a bimonthly basis, while returns must be submitted together with payment within 15 days of the end of the tax period.
  • Manufacturers and importers of excisable goods must register ZATCA.

Corporate Income Tax in Saudi Arabia

  • Income tax, also referred to as "capital gains," primarily targets non-Saudi entities.
  • It is levied on net adjusted profit, or the share of companies owned by non-Saudis, at a standard rate of 20%.
  • Certain industries, such as oil and hydrocarbon production, can be subject to a higher rate range of 50% to 85%, depending on capital.
  • If any of the business's shareholders are Saudi citizens, then a religious tax known as Zakat will be applied to the portion of the business that those Saudi shareholders own.
  • The Saudi/GCC portion will only be charged to Zakat.
  • Corporate income tax in Saudi Arabia doesn’t allow any foreign tax paid by companies.
  • Companies benefiting from the RHQ program are exempt from income taxes.

Withholding Tax (WHT) in Saudi Arabia

  • The withholding tax applies to income made by operating non-resident entities in the Kingdom.
  • The rates range from 5% to 20%, depending on the nature of the service and the shareholding relationship between the resident and non-resident entities.
  • Among these services applicable to WHT are management fees (20%), royalties (15%), rent (5%), dividends (5%), insurance, reinsurance (5%), airline tickets, air/sea/freight (5%), in-country land transportation (15%), and any other services coming from Saudi sources (15%).
  • A company must pay the WHT within the first ten days of the month through the ZATCA platform.
  • Annual WHT returns should be filed 120 days from the end of that financial year; partnership firms must submit their returns within 60 days from the end of the financial year.
  • A business can be charged a penalty of 1% of its tax value for every 30 days of delay from the due date.
  • If the ZATCA suspects that a company is evading taxes, an additional fine of 25% will be levied.
  • Companies benefiting from the RHQ program will enjoy zero withholding taxes.
  • WHT also applies to remittance payments.

Zakat in Saudi Arabia

Zakat is an obligatory tax levied on the net worth of Saudi and GCC nationals engaged in business activities in the Kingdom.

Unlike income tax, which can be charged at different rates, Zakat stands at 2.5% of net worth.

Tax Incentives in Special Economic Zones

Tax incentives are available in newly launched special economic zones (SEZs) and are provided as follows:

  • 5% corporate income tax (CIT) for up to 20 years
  • 0% withholding tax for the repatriation of profits from an SEZ to a foreign
  • countries
  • 0% customs duty deferral for capital equipment inside the SEZ
  • 0% VAT on goods exchanged within an SEZ and between SEZs
  • Competitive rate of utilities
  • Exemptions from operational fees for employees and their families within SEZs
  • Special tax treatment is in line with OECD principles to avoid double taxation
  • Flexible regulations around foreign talent during the first 5 years

Tax incentives offered at the special Integrated Logistics Zone (adjacent to King Khalid International Airport, Riyadh) are as follows:

  • 50-year tax exemption period
  • 0% corporate income tax VAT
  • VAT exemptions
  • Withholding tax exemptions
  • Remittance tax exemptions

Business activities and investments in underdeveloped regions such as Ha’il, Jazan, Najran, Al Baha, Al-Jouf and the Northern Territory are eligible for 10-year tax relief along with incentives on salaries and training expenses.

More incentives are granted if the capital for a project exceeds SR1 million and more than five Saudi employees have jobs of a technical and administrative nature.

As part of its comprehensive support toolkit, AstroLabs remains dedicated to helping high-growth businesses navigate the tax landscape and compliance paperwork in the Kingdom using its network of local partners and tax advisory service providers such as Innovant Management Consulting.

In a time of significant change for the Kingdom, understanding the full scope and breadth of taxation and its implications is crucial for businesses to achieve a complete soft landing and nest themselves in one of the fastest-growing economies worldwide.

Navigate the taxation landscape seamlessly when expanding to Saudi, get in touch with AstroLabs today

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