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Businesses in Corporate Tax in Saudi Arabia looking ahead to 2025, never has it been more important to understand the evolving tax landscape. The corporate tax is at its heart the cornerstone of the Kingdom’s economic framework, for the purposes of taxing income generated by businesses operating in the Kingdom. This system is being introduced by Zakat, Tax and Customs Authority (ZATCA) in order to assure transparency and mobility of the taxation process between local and foreign companies. However, the Saudi tax system is unique in the sense that it does not tax individuals on income.
Whether you are an already established enterprise or looking to enter into the market it is important that you get aware of the corporate tax in KSA as it will help you comply and optimize your financial strategies. In this article, I’ll walk you through the basics of corporate tax, who’s required to pay, the tax rates, and a few things to keep in mind for 2025. Furthermore, we will discuss the role of E-invoicing in Saudi Arabia and how digital regulation for invoicing, in big business centers such as Riyadh, continues to help improve tax compliance.
Corporate tax in Saudi Arabia does not apply in any significant measure to Saudi based investors or entities. These investors are subject to corporate income tax while Saudi citizens and citizens of GCC (countries considered Saudi citizens for tax purposes) are subject to Zakat, an Islamic rate. Zakat is computed according to specific criteria which are not linked to the corporate tax, in accordance with the specific characteristics of the Saudi tax system.
If a business is owned by Saudi and non-Saudi investors, the part of the income attributable to the non-Saudi portion is subject to corporate tax. On the other hand, Zakat, Tax and Customs Authority (ZATCA) assesses Zakat on the Saudi owner’s income. The dual system makes sure that when a company making a payment is also required to pay tax and be assessed, the principles of both corporate tax compliance, and Islamic obligations, are enforced.
Under Saudi Arabia’s income tax law, the following categories of individuals and businesses are subject to corporate tax:
1. Resident Capital Companies Owned by Non-Saudi or Non-GCC Persons
Resident capital companies where shares are owned directly or indirectly by non-Saudi or non-GCC persons are subject to income tax. However, certain exceptions apply:
2. Non-Saudi Natural Persons Doing Business in Saudi Arabia
Corporate tax is payable on income earned by non-Saudi individuals engaged in business activities within Saudi Arabia. It includes any trade, services or other forms of business which are conducted directly in the Kingdom. The income of Saudi or GCC nationals is not assessed separately from them and the income is in accordance with tax regulations.
3. Non-Residents Doing Business Through a Permanent Establishment (PE)
Corporate income tax is also levied on non-resident individuals or entities conducting business in Saudi Arabia through a permanent establishment (PE). A fixed place of business, such as a branch, office or factory, through which an entity carries on business in the Kingdom is referred to as a PE.
4. Non-Residents Earning Income from Saudi Sources Without a PE
Income from Saudi sources of non-resident individuals or entities, whether or not they have a permanent establishment in the country, must be taxed. It includes income from royalties, service fees and any other income generated from Saudi Arabia.
5. Investors in Natural Gas Fields
Corporate income tax is applied to natural gas fields invested by individuals or entities in Saudi Arabia. It includes exploration, development and extraction activities. Specific regulations apply to these businesses because of the strategic importance of natural gas in the Kingdom’s economy.
6. Persons Producing Oil and Other Hydrocarbons
Oil and other hydrocarbons producing businesses or individuals in Saudi Arabia are taxed at rates that are sector specific. Being so important to the Saudi economy, oil and hydrocarbon production is subject to specialized tax regimes to ensure fair contribution to the national revenue.
Businesses subject to income tax in Saudi Arabia pay at a corporate tax rate of 20% of net adjusted profits. Companies owned by Saudi or GCC nationals are also liable to pay Zakat (Islamic assessment) at a rate of 2.5% on the company’s Zakat base. The Zakat base is the business’s net worth and is calculated as of the Zakat time only for the purpose of Zakat. The dual taxation system suggests the Kingdom’s will to attract traditional Islamic financial systems into a modern corporate taxation system. These rates are to be complied with so that businesses meet their financial and regulatory obligations in Saudi Arabia.
Even though the corporate income tax rate is 20%, income from the below two activities is subject to different rates:
1. Income from Oil and Hydrocarbon Production
Oil and hydrocarbon production in Saudi Arabia generate income that is subject to a higher tax rate, 50% to 85%. This high rate of oil and hydrocarbon industry related incidents reflects the country’s strategic importance of its oil and hydrocarbon industry to its economy. The rate of specific tax within this range is specific to the company’s production scale and related factors. These higher rates are necessary to ensure that businesses in this important sector make a fair share of the national revenue.
2. Natural Gas Business Tax Base
The tax base for other activities and the tax base for natural gas business are separately calculated for individuals or entities engaged in natural gas business. This segregation is to separate the natural gas operations’ financial performance and tax obligations. The total approach gives the Zakat, Tax and Customs Authority the ability to have crisp tax rules and taxation of the natural gas sector takes into consideration its distinctive attributes in Saudi Arabia.
Zakat also applies to companies that are resident in Saudi Arabia and in other GCC nations at a rate of 2.5% of Zakat base, in addition to corporate income tax. There is no stamp duty, capital duty or payroll tax imposed by Saudi Arabia. Real estate tax does not exist but if your business is holding real estate for speculation you may have to pay Zakat on such assets. In addition, a real estate transaction tax (RETT) of 5% is charged on the disposal of real estate properties for compliance during property transactions.
In conclusion, businesses in Saudi Arabia must navigate the corporate tax landscape and ensure compliance, avoiding penalties. Saudi Arabia’s corporate tax is meant to be transparent and to help the country’s economy grow. It’s important to be informed about these regulations such as the 20% corporate tax rate, Zakat obligations for example, as well as some taxes for specific areas of business such as oil and hydrocarbon industry. Not only do businesses need to stay updated with the relevant requirement such as e-invoicing in Saudi Arabia, which is significant in tax reporting and compliance.
Companies engaged in large hubs like Riyadh should be conversant with the e-invoicing in Riyadh and its integration with tax systems for a smooth ride. Businesses in KSA with land office to comply with corporate tax in KSA regulations and the utilization of tools like e-invoicing can be streamlined in their processes with growth focused. With Saudi Arabia continuing to build out its tax infrastructure, it is important to make sure your business is compliant and competitive in the Kingdom.
