Taxation in Saudi Arabia
The sections below provide the basic information on taxation in Saudi Arabia.
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There is no personal income tax in Saudi Arabia.
A flat income tax rate of 20% is applied to the tax-adjusted profit of resident non-Saudi and non-GCC individuals.
Non-residents who do not have a legal registration or a permanent establishment in Saudi Arabia are subject to withholding tax on their income derived from a source in Saudi Arabia. A Saudi resident entity must withhold tax from payments made to such non-residents with respect to income derived from Saudi Arabia. This rule applies regardless of whether the Saudi entity is a taxpayer. The withholding tax rates are:
Saudis and nationals of other Gulf Cooperation Council (GCC) states who are resident in Saudi Arabia are not subject to income tax in Saudi Arabia. The GCC states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Non-Saudi and non-resident GCC nationals and entities with a permanent establishment in Saudi Arabia are subject to income tax on their business income in Saudi Arabia. Payments to non-residents are subject to withholding tax.
In general, capital gains are taxed as ordinary income, together with other income earned for the same period, at a rate of 20% if the individual is a person subject to tax in Saudi Arabia and if the gain is realised in connection with the person's business activities. However, capital gains arising on the sale of shares in a Saudi joint stock company traded on the Saudi Arabia stock exchange (Tadawul) are exempt from tax if the shares (investments) were acquired after the effective date of the new tax regulations (30 July 2004) and if the sale transaction is carried out in accordance with the Saudi Capital Market Law. Under a recent amendment to the tax law, the exemption also applies to capital gains realized from the sale of securities traded on stock markets outside Saudi Arabia or through any other means if such securities are also traded on the Saudi Arabian stock exchange (Tadawul).
Gains on the disposal of property other than assets used in a business activity are also exempt from tax.
Net worth tax in Saudi Arabia, or Zakat, is a religious levy payable by Saudi or GCC nationals on the net worth or the Zakat base as adjusted for Zakat purposes. Zakat is imposed on a Saudi or a GCC national who is resident in Saudi Arabia and is engaged in business activities intended for profit or gain, such as investment; services; or commercial, industrial or financial activities.
Zakat is assessed at a rate of 2.5% on the net assessable funds or the Zakat base of a Saudi Arabian company that is attributable to Saudi and GCC shareholders. Broadly, net assessable funds comprise net assets less amounts invested in fixed assets, long-term investments and deferred costs, plus or minus the adjusted income for the year.
Complex rules apply to the calculation of Zakat liabilities.
Saudi Arabia has tax treaties in force with 46 countries.
Saudi Arabia has also entered into limited tax treaties with the United States and certain other countries for the reciprocal exemption from tax on income derived from the international operations of aircraft and ships.
An individual is considered to be resident in Saudi Arabia for a tax year if the person meets any of the following conditions:
Employment income - Employment income and allowances, including education allowances, received by expatriates are not subject to tax in Saudi Arabia.
Self-employment and business income - Non-Saudi and non-GCC individuals are generally not allowed to carry on trading activities in Saudi Arabia. However, Non-Saudi and non-GCC professionals and consultants may carry on activities in Saudi Arabia if appropriate licenses are obtained from the Saudi Arabian General Investment Authority.
Income tax is levied on profits arising from a source in Saudi Arabia derived by self-employed Non-Saudi and non-GCC professionals and consultants from their activities conducted in Saudi Arabia.
Losses may be carried forward indefinitely. However, the maximum loss that can be offset against a year's profit is 25% of the tax-adjusted profits for that year. Saudi tax regulations do not provide for the carry back of losses.
Investment income - In principle, foreign individuals are taxed on income derived from investments in Saudi projects at a rate of 20%. However, such investments do not include the opening of all types of bank accounts (current, term and savings) or trading in the shares of companies registered in the Saudi Stock Exchange by resident persons that are not subject to tax, if certain conditions are met. It is suggested that foreign individuals seek professional advice on the taxation of their investment income.
Taxation of employer-provided stock options - In general, employer-provided stock options are not subject to tax in the hands of the recipient employee.
A resident self-employed foreign professional or a resident foreign individual carrying on business activity in Saudi Arabia must file a tax return and must pay the tax due within 120 days after the end of the tax year.
An advance payment on account of tax for the year is payable in three instalments by the end of the sixth, ninth and twelfth months of the tax year.
A taxpayer is not required to make advance payments if the amount of each payment would be less than SAR 500,000.
A delay fine of 1% for each 30 days of delay is computed after the elapse of the first 30 days from the due date of tax until the advance tax is paid.
Fines apply for non-submission of tax declarations by the deadline.
The withholder of tax is required to register with the General Authority of Zakat and Tax (GAZT) before the settlement of the first tax payment. The withholder of tax must settle the tax withheld with the GAZT by the 10th day of the month following the month in which the taxable payment is made and issue a certificate to the non-resident party. A delay fine of 1% for each 30 days of delay is computed from the due date of tax until the tax is paid.
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