Corporate Income Tax in Saudi Arabia

Saudi Arabia levies corporate income tax on non-Saudi investors at a general rate of 20% on net earnings, while Saudi and GCC nationals maintain Zakat at a 2.5% rate. Oil and gas operations get special tax rates ranging between 50% and 85% in the Kingdom. Income sources taxable in Saudi Arabia include consultancy fees, insurance premiums, and sales of products manufactured in the country. Tax compliance can be cumbersome, even requiring professional help to certify correctness and optimization. Make a call to our tax consultants today!

What is Corporate Income Tax?

Corporate Income Tax, or simply corporate tax, refers to a direct tax on the profits or net income of enterprises. In Saudi Arabia, this tax is levied on non-Saudi investors, whereas Zakat applies to Saudi and GCC nationals. The business environment must gain awareness regarding CIT, as it applies to businesses in the Kingdom.

Who is Subject to Corporate Income Tax?

Corporate Income Tax in Saudi Arabia applies to:

Non-Saudi investors.
Mixed ownership companies (only the non-Saudi portion is taxed under CIT).
Legal and natural persons engaged in the oil and hydrocarbon sector.
Non-residents earning income from Saudi-based sources.

Corporate Tax vs. Zakat

Corporate Income Tax: Applies to non-Saudi investors and foreign entities.
Zakat Tax: A 2.5% Islamic levy applicable to Saudi and GCC investors.

Tax Rates in Saudi Arabia

The corporate tax rate is generally 20% on net adjusted profits. However, specific industries have different tax structures:

Oil and hydrocarbon production: Tax rates range between 50% and 85%.
Natural gas investment: Tax base calculated independently from other income.

What Business Activities are Subject to CIT?

All business sectors in Saudi Arabia fall under the scope of Corporate Income Tax, including:

Trading and manufacturing
Service-based businesses
Oil and gas companies
Real estate investments

Who is a Resident for Taxation Purposes?

An individual is a resident if they:

Permanently reside in Saudi Arabia and be present for a minimum of 30 days in the Kingdom during a tax year.
Spend at least 183 days during a tax year in Saudi Arabia, even in the absence of permanent residency.

What Defines a Tax Resident?

A person is considered a resident if they:

Have a permanent residency in Saudi Arabia and spend at least 30 days in the Kingdom within a tax period.
Stay in Saudi Arabia for at least 183 days in a tax period, even without a permanent residency.

How is Tax Residency Determined?

The following types of income are considered taxable in Saudi Arabia:

Debt Returns

If secured by property located in Saudi Arabia.
If the borrower resides in Saudi Arabia.

Insurance & Reinsurance Premiums

If the insured entity is located in Saudi Arabia.
If the insured party is a Saudi resident.

Technical & Consultancy Services

If services are provided to a Saudi resident.
If services relate to an activity in Saudi Arabia.

Revenue from Resident Companies

Income generated by Saudi-based operations and branches.

Income from Assets

Profits derived from movable and non-movable property in Saudi Arabia.

Sales of Goods Manufactured in Saudi Arabia

All goods produced and sold in the Kingdom are subject to taxation.

Supply & Shipment Contracts

Supply contracts including local transport, installation, or training are taxable.

Service Income

Services performed within Saudi Arabia, even remotely, are taxable.
Services provided on aircraft or ships related to a Saudi business are taxable.

How to Calculate Corporate Income Tax in Saudi Arabia?

The corporate tax calculation follows this formula:

Taxable Income = Total Revenue – Allowable Deductions

Apply the 20% tax rate to the net taxable income.
Oil and hydrocarbon firms use progressive tax rates from 50% to 85%.
Natural gas investments follow specific tax base calculations.

Corporate Income Tax Filing Requirements

Companies have to register for taxation with the Zakat, Tax and Customs Authority (ZATCA).
Annual tax returns must be submitted by April 30th of the next year.
Payment should be done electronically through the ZATCA portal.
Fine is imposed for late filing and non-submission.

Corporate Tax Planning Strategies

To optimize tax obligations, businesses can adopt the following strategies:

Utilize available deductions: Claim all allowable business expenses.
Tax-efficient structuring: Set up operations in tax-friendly zones.
Transfer pricing compliance: Ensure fair inter-company pricing.
Engage tax consultants: Professional guidance helps in tax optimization.

Corporate Income Tax in Saudi Arabia plays a vital role in the business landscape. With a standard tax rate of 20%, special provisions for the oil and gas industry, and clear guidelines on taxable income, it is essential for businesses to stay compliant. CBD Accounting for Financial Consulting offers proper tax planning, timely filing, and understanding tax liabilities that can help companies thrive in the Kingdom’s dynamic economy.

frequently asked question

How much is corporate tax in Saudi Arabia?

Corporate tax is levied at 20% on net profits, while the oil and gas sector is taxed at 50% to 85%.

Are Saudi-owned businesses subject to Corporate Tax?

No, Saudi and GCC-owned businesses pay Zakat at 2.5% instead of corporate tax.

How do foreign investors pay taxes in Saudi Arabia?

Foreign investors must file tax returns and pay corporate income tax through the ZATCA portal.

When is the deadline for corporate tax filing?

The tax return must be filed by April 30th of the following year.

Is corporate tax applicable to service-based businesses?

Yes, all types of business activities, including consulting and professional services, are subject to CIT.

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