Saudi Arabia’s economy is heavily depend on oil but there is a growing emphasis on diversification through its vision in 2030 initiative. Saudi Arabia taxation system is unique , with no personal income tax for most residents,reflecting its economic reliance on oil revenue.The tax year in saudi arabia follows the islamic hijri calendar , which is important for businesses and foreign workers to note , especially the ones involved in tax and zakat the islamic levy on wealth.

Saudi Arabia has had a rentier economy for most of its modern history. Until 2018, the state derived a significant portion of its national revenues from oil rents and taxing citizens was unnecessary. As a result, the country’s economy was largely dependent on energy markets.

In January 2017, Saudi Arabia ratified the GCC Value Added Tax Agreement by royal decree and implemented it one year later.37 Initially, in 2018, the General Authority of Zakat and Tax set the rate at 5% for most goods and services in accordance with the agreement. Against IMF advice, the rate was later increased to 15 % in 2020. Certain businesses have been exempted from registering depending on their taxable annual turnover. As of December 2018, the threshold for mandatory registration has been set at 375,000 riyals, and the threshold for voluntary registration at 187,500 riyals.38.

Saudi Arabia taxation : corporate tax rates

Value added tax (VAT) in Saudi Arabia :

VAT is an indirect tax imposed on all goods and services bought or sold by businesses. The current VAT rate in KSA is 15%. VAT registration is mandatory for businesses with a value of supplies greater than SAR 375,000 reported by Saudi Arabian General Authority of Zakat and Tax (GAZT) .

Income tax:

Income tax is a direct tax imposed on the taxable income of businesses and individuals. Zakat is an Islamic religious obligation that is also levied on businesses and individuals. Foreign companies are subject to a corporate income tax of 20% on the net adjusted profits at the end of the financial year. The profit adjustments differ depending on the shareholder structure.

Withholding tax :

Withholding tax is a tax imposed on payments made by a KSA entity to another entity outside KSA. The withholding tax ranges from 5% to 20%, depending on the type of service.

To have more information about this type of tax , you can check our previous blog titled : “Withholding tax (WHT) in Saudi Arabia “

We can say that WHT is a type of income tax levied on payments made to non-residents by Saudi entities or individuals. 

An individual is considered a resident in Saudi Arabia for a taxable year if one meets any of the two following conditions:

• One has a permanent place of residence in Saudi Arabia and resides in Saudi Arabia for a total period of not less than 30 days in the taxable year.
• One resides in Saudi Arabia for a period of not less than 183 days in the taxable year.

With regards to counting the number of days, residence in Saudi Arabia for part of a day is considered residence for the whole day, except in case of a person in transit between two points outside Saudi Arabia.

Customs & excise taxation :

Customs duties are charged on all goods imported to KSA, with excise duties charged on certain restricted goods.

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