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Corporate Tax in KSA

Updated: Aug 30, 2021

Saudi Arabia is emerging as one of the most preferred business expansion destinations in the world mainly because of its wide untapped market, infrastructure, regulatory support and ambitious government plans to drive the nation from an oil-dependent economy towards diversification.

At AstroLabs, we help businesses set up and launch their operations in Saudi Arabia. Naturally, many of our clients have questions around certain subjects pertaining to setting up and building a business in KSA. We’ve identified some of these high-interest areas and are proud to launch our new webinar:

The Saudi Market Entry Series

Every episode will explore one important aspect of running a business in Saudi Arabia. The first episode, Corporate Tax in KSA, aired on 16th February 2021, and provided clarity on taxation, one of the top deciding factors when setting up a business in any country.

The next few episodes of the series will cover the business setup process in KSA, recruitment of local talent and Saudization, and interviews with some of our clients who share their journey and experience of moving their business into the largest economy of the Middle East.

The panel for Episode 1 consisted of Alex Nicholls (Business Development Lead, AstroLabs), Kyro Brooks (Director of Finance, AstroLabs), and our Subject Matter Expert, Arshed Zuhair(Director of Tax Advisory & Financial Reporting Services, Innovant Consultant and Management Solutions). Innovant is a management consulting firm providing Accounting, Taxation, Finance, Supply Chain, and HR services for businesses in KSA.

Here’s a quick recap of what was discussed during the session that was attended by our clients and partners from across the globe.

Corporate Tax in Saudi Arabia

One of the primary objectives of the Vision 2030 program is to modify and digitize Saudi’s infrastructure and systems. To that end, the Tax System in KSA has been modernized and simplified allowing businesses to easily report and file their taxes while complying with rules and regulations.

Saudi Arabia has a user-friendly tax system because:

  1. There are only three major tax categories (there are no local, government, or regional taxes in KSA)

  2. All tax filing can be done electronically

  3. Tax code is relatively simpler

  4. Simplified payroll processing as there are no Individual or PAYE (Pay As You Earn) taxes

  5. Most of the tax compliance process can be handled in English with the exception of only a few reports that require the use of the Arabic language

Types of Taxes in KSA

There are three major types of taxes in Saudi Arabia: Income Tax and Zakat, VAT, and Withholding Taxes. We’ll describe each of them in more detail below.

Income Tax and Zakat

Income Tax and Zakat are annually charged on the tax-adjusted profit or net assets of a business at the end of a financial year. The Income Tax rate is 20% and is applicable only to companies with non-GCC shareholders while the Zakat rate is 2.5% and is applicable only to companies with GCC Shareholders.

In cases where the shareholders are a group of GCC and non-GCC citizens, the taxes that are applicable will be split based on the percentage of combined assets with the GCC and non-GCC shareholders and the category of tax they fall under, that is, Zakat or Income tax.

Value Added Tax

Value Added Tax (VAT) is an indirect tax imposed on all Goods and Services bought and sold by businesses. The standard tax rate is 15% of the value of the good or service.

  • VAT Payable = VAT collected on Revenue – VAT paid on supplies.

  • VAT Registration Eligibility

  • Exempted from registration if Value of supplies is less than SAR 187,500

  • Voluntary registration if Value of supplies is anywhere between SAR 187,500 and SAR 375,000

  • Mandatory registration if Value of supplies is greater than SAR 375,000

  • Returns must be submitted & settled quarterly if value of supplies is less than SAR 40M, and monthly if it is higher than that

  • Standard rate of 15% is applied on all Goods and Services and Imported goods

  • Supplies exempted from VAT are government fees and salaries, exports of Goods and Services outside GCC, and qualifying medical supplies

Withholding Tax

Withholding Tax (WHT) is imposed on any payments made by a KSA entity to another entity outside KSA. The tax rates vary between 5%, 15%, and 20% based on the nature of the transaction and the relationship to the non-resident entity.

  • Tax must be withheld from payments made to parties outside KSA

  • WHT is not applicable for purchases of Goods, only on non-tangible services

  • Returns must be submitted monthly whenever a payment is made

  • Exemptions based on Tax treaties may apply

These are the standard WHT rates for following kinds of services:

To know about the Related and Non-Related Party, please visit here.

Some additional points were discussed in the session based on the queries we received from our audience. They are summarized below:

  • Withholding Tax is not tax deductible, and is paid by the third party but withheld by the KSA entity. It cannot be showed as an expense.

  • Withholding Tax is applicable on Dividends paid outside KSA

  • Once Withholding Tax is applicable to your company, even if no payments were made for a month, you have to file a Nil return.

  • All incorporated company should audit their financial statements at the end of every financial year, irrespective of whether or not revenue was generated throughout the year.

  • Finance auditing should be done through an auditing firm based in KSA.

  • Tax filing reports and statements should be prepared by Certified Public Accountants (CPAs).

  • After the Commercial Registration, companies should be mindful of tax deadlines to avoid incurring automatic penalties for delays.

Additional Resources:

We hope our session on Corporate Taxes in KSA provides clarity for any questions you might have. For any specific tax-related queries, please reach out at [email protected] or [email protected] and we’d be happy to help.

Be sure to join us next week on Tuesday February 23rd for our second episode where we will discuss the business setup process in KSA. Stay tuned!

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