Taxation in Saudi ArabiaFrom VAT to Corporate Tax: Demystifying Saudi Arabia's Taxation Framework
As the interest in the Saudi Arabian market rises, it calls for an in-depth understand of the taxation landscape in Saudi Arabia.
Saudi Arabia Corporate Tax Rates
These are the types of Corporate Taxes in Saudi Arabia:
- Value Added Tax (VAT): 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 > SAR 375,000
- Income Tax & Zakat: 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 per shareholder structure.
- Withholding Tax: 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.
- Customs & Excise Tax: Custom duties are charged on all goods imported to KSA, with Excise Duties charged on certain restricted goods.
As the nation continues to hold the door open for international businesses under Vision 2030, understanding the taxation landscape in Saudi Arabia has become imperative for global investors and enterprises looking to enter the Saudi market.
- No personal income tax
- No local or regional government taxes
- Competitive tax for foreign-owned Saudi entities
- Single tax authority (ZATCA)
- No standard tax year. Business follow their own internal financial year
- Electronic process that can be completed through a single web portal, mostly available in English.
These benefits make Saudi Arabia an attractive destination for foreign investments.
However, navigating the Saudi taxation system, understanding its nuances, and ensuring compliance can be an intricate process. Several challenges create obstacles for international businesses in KSA.
- Limited access to public information regarding the country’s tax framework
- Differences and exceptions between the tax code and implementation
- Tax appeals require representations in Arabic
- A complex application process for the Double Taxation Treaty provisions
For a deeper dive on the taxation landscape in Saudi, read this article.
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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.
Resources:
Income Tax & Zakat
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.
Resources:
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.
Resources:
Customs & Excise Tax
Customs duties are charged on all goods imported to KSA, with excise duties charged on certain restricted goods.
Resources:
E-Invoicing Regulations in Saudi Arabia
All businesses in Saudi Arabia are required to comply with e-invoicing regulations, which were phased in starting in December 2021. Phase 2 of the implementation began in January 2023 and will be gradually phased in by industry.
E-invoices must include all mandatory fields from Phase 1, as well as a QR code. E-invoicing solutions must integrate with the ZATCA "Fatoora" platform via APIs and upload e-invoice data in XML format.
For B2C invoices, the data must be uploaded within 24 hours of invoice issuance. For B2B invoices, the data must be uploaded and validated prior to customer submission.
Additional Information:
- E-invoices must be issued in Arabic, but businesses may include a translation in another language.
- Businesses must keep e-invoices for at least 10 years.
- ZATCA has a list of accredited e-invoicing solution providers on its website.
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