Saudi ArabiaTax Obligations Detailed

In Saudi Arabia, employers face several key tax obligations, primarily corporate income tax, Zakat, and social security contributions.

Corporate Income Tax

• Standard Rate: 20% of net adjusted profits. This applies to resident companies and non-resident companies with a permanent establishment in Saudi Arabia.
• Higher Rates for Specific Industries: Oil and hydrocarbon production companies may face higher rates, ranging from 50% to 85%, depending on their capital.
• Withholding Tax (WHT): Applies to payments made to non-resident entities for services rendered within Saudi Arabia. Rates vary from 5% to 20% based on the service type. For example, management fees are subject to 20% WHT, royalties and other services are subject to 15%, while dividends, rent, and insurance are subject to 5%.

Zakat

• Religious Tax: Applies to Saudi and other GCC nationals' share of a business.
• Rate: 2.5% of the Zakat base.
• Applicability: Only the portion of the business owned by Saudi/GCC nationals is subject to Zakat.

Social Security Contributions

• For Saudi Employees: Both employers and employees contribute.
• Employee Contribution: 10% (9% for social insurance + 1% for unemployment insurance). This applies to monthly income between SAR 1,500 and SAR 45,000.
• Employer Contribution: 12% (9% for social insurance + 2% for occupational hazards + 1% for unemployment insurance). This applies to monthly income between SAR 1,500 and SAR 45,000.
• For Non-Saudi Employees: Employers contribute 2% for occupational hazards. Foreign workers are exempt from social insurance and unemployment insurance.

Value Added Tax (VAT)

• Standard Rate: 15%.
• Zero-Rated Goods and Services: Certain goods and services are zero-rated as per the GCC's Framework Agreement and Saudi VAT law.

Other Taxes

• No Personal Income Tax: Saudi Arabia does not levy income tax on individual salaries.
• No Payroll Tax, Stamp Duty, or Capital Duty.
• Real Estate Transaction Tax: A 5% tax applies upon the sale of real estate.

It's important to note that this information is current as of February 5, 2025, and regulations can change. Consulting with a tax professional is recommended for the most up-to-date and personalized guidance.

Employee Tax Deductions in Saudi Arabia (2025)

There are no income taxes on employee salaries earned within Saudi Arabia. However, Saudi employees contribute to social security and other programs.

Social Security Contributions

• Saudi nationals contribute 9% of their salary to social security.
• Employers contribute an additional 9% for a total of 18%.

Unemployment Insurance (SANED)

• Saudi nationals contribute 0.75% of their salary to the unemployment insurance program (SANED).
• Employers contribute an additional 0.75% for a total of 1.5%.

Occupational Hazard Insurance

• Employers contribute 2% of the employee's salary for occupational hazard insurance. This applies to Saudi nationals only.

Health Insurance

• Health insurance is mandatory in Saudi Arabia.
• Most employers provide health insurance as a benefit, with premium costs sometimes shared with the employee. Specific deduction amounts vary based on the insurance plan and the agreement between the employer and employee.

Other Deductions

• Other potential deductions may include employee contributions to retirement savings plans or other optional benefit schemes if offered by the employer.

General Information About Taxes in Saudi Arabia

While there is no personal income tax on employment income, businesses operating within Saudi Arabia are subject to corporate income tax. The corporate income tax rate is generally 20%. Additionally, there is a Value Added Tax (VAT) of 15% on most goods and services, which consumers ultimately bear. Zakat, a religious wealth tax, applies to Saudi and GCC nationals, affecting assets and investments rather than employment income. Withholding taxes apply to certain payments made to non-residents, such as dividends, interest, and royalties. The rates for withholding taxes vary depending on the nature of the payment. As of Today, February 5, 2025, this information is current, but tax laws are always subject to change, so staying updated is vital.

In Saudi Arabia, Value Added Tax (VAT) is levied on most goods and services at a standard rate of 15%.

VAT Rates

• Standard Rate: 15% (Effective from July 1, 2020)
• Zero Rate: 0% applies to specific goods and services, including exports outside the Gulf Cooperation Council (GCC), services to non-GCC residents, international transportation, and certain medicines and medical equipment.
• Exempt: Financial services (except explicit fees or commissions), residential real estate leases, and certain other categories are exempt from VAT.

VAT Registration

• Mandatory Registration: Businesses with an annual turnover exceeding SAR 375,000 must register for VAT.
• Voluntary Registration: Businesses with an annual turnover between SAR 187,500 and SAR 375,000 can register voluntarily.
• Non-resident Suppliers of Digital Services: No threshold applies; registration is generally required.

VAT Filing and Payments

• Monthly Filing: Businesses with an annual turnover exceeding SAR 40 million. Returns are due by the end of the following month. For example, the return for revenue generated during January 2025 is due by the end of February 2025.
• Quarterly Filing: Businesses with an annual turnover of SAR 40 million or less. Returns are due by the end of the following month after the quarter ends.
• E-invoicing is being implemented in several phases. Businesses exceeding specified revenue thresholds are required to comply with e-invoicing regulations which stipulate data fields and formatting guidelines. Phase 13, which starts on Feb 1, 2025 applies to businesses whose taxable revenue exceeded SAR 5 million in 2022 or 2023.
• Taxpayers should ensure compliance with VAT regulations and keep records for at least ten years.

Examples of Exempt Goods and Services:

• Financial services such as issuing or transferring money or securities, operating current, deposit, and savings accounts, and life insurance.
• Residential real estate leases (excluding short-term rentals).

Examples of 0% VAT Goods and Services

• Exports of goods outside the GCC.
• Services supplied to non-GCC residents.
• International transport of goods and passengers.
• Certain medicines and medical equipment.
• Investment precious metals (gold, silver, or platinum) that are at least 99% pure.

As of February 5, 2025, a penalty waiver for taxes, including VAT and excise tax, is in effect until June 2025. Businesses should consult the Zakat, Tax and Customs Authority (ZATCA) website for the most current VAT regulations and guidance.

Saudi Arabia offers various tax incentives, especially for businesses establishing regional headquarters and investing in less-developed regions. A noteworthy incentive is a 30-year tax holiday for multinational companies establishing regional headquarters in Saudi Arabia.

Regional Headquarters (RHQ) Incentives

A 30-year tax relief package is available to attract multinational enterprises (MNEs), encouraging international investment. This includes:

• 0% corporate income tax for 30 years, renewable.
• 0% withholding tax (WHT) for dividends paid to non-residents, payments to related persons, and other specific payments.

Eligibility:

• Must be established as a separate legal entity (company or branch) in Saudi Arabia.
• The parent company must operate in at least two other jurisdictions.
• Meet specific operational and strategic requirements.

Special Economic Zone (SEZ) Incentives

Several incentives are available to promote business growth within designated SEZs:

• Reduced Corporate Income Tax (CIT) rate of 5% for up to 20 years.
• 0% withholding tax on profit repatriation to foreign countries.
• 0% customs duty deferral for capital equipment.
• VAT exemption on goods exchanged within and between SEZs.

Incentives for Less-Developed Regions

The government provides incentives for investment in six less-developed regions: Ha'il, Jazan, Najran, Al-Baha, Al-Jouf, and the Northern Territory. These include:

• 10-year tax deductions.
• 50% deduction on training expenses for Saudi employees.
• 50% deduction on salaries paid to Saudi nationals.
• 15% deduction on non-Saudi capital shares (subject to certain conditions).
• Additional deductions if investment capital exceeds SAR 1 million and employs more than five Saudi nationals in technical or administrative roles with at least one-year contracts.

Tax Amnesty Initiative

An extension of the tax amnesty initiative until June 30, 2025, provides relief for taxpayers meeting specific criteria. This initiative covers various taxes, including withholding, income, excise, and real estate transaction taxes. To qualify, businesses must be registered with the Zakat, Tax and Customs Authority (ZATCA), file all due returns, and pay any outstanding taxes. Installment payments are also available.

General Tax Information

Standard tax rates in Saudi Arabia include:

• 20% Corporate Income Tax (CIT)
• 15% Value Added Tax (VAT)
• 5% Real Estate Transfer Tax (REET)
• 2.5% Zakat (for Saudi/GCC-owned companies)

While no personal income tax is levied on employment income, non-employment income for residents is taxed under corporate income tax rules. Non-residents without a Permanent Establishment (PE) deriving income from Saudi Arabia are subject to Withholding Tax (WHT).

It's important to consult official sources and tax advisors for the most accurate and up-to-date information regarding tax regulations and incentive programs in Saudi Arabia, as regulations may be subject to change. This information is current as of February 5, 2025.