Only non-Saudi investors are liable for income tax in Saudi Arabia. In most cases, Saudi citizen investors (and citizens of the GCC countries, who are considered to be Saudi citizens for Saudi tax purposes) are liable for Zakat, an Islamic assessment. Where a company is owned by both Saudi and non-Saudi interests, the portion of taxable income attributable to the non-Saudi interest is subject to income tax, and the Saudi share goes into the basis on which Zakat is assessed.
According to the income tax law, the following persons are subject to income tax:
- A resident capital company to the extent of its non-Saudi shareholding.
- A resident non-Saudi natural person who carries on activities in Saudi Arabia.
- A non-resident person who carries out activities in Saudi Arabia through a permanent establishment (PE).
- A non-resident person who has other income subject to tax from sources within Saudi Arabia.
- A person engaged in natural gas investment fields.
- A person engaged in oil and other hydrocarbon production.
- A resident capital company with respect to shares owned either directly or indirectly by persons operating in oil and hydrocarbon production.
The rate of income tax is 20% of the net adjusted profits. Withholding tax (WHT) rates are between 5% and 20%. Zakat is charged on the company’s Zakat base at 2.5%. Zakat base represents the net worth of the entity as calculated for Zakat purposes.
It should be noted that although the income tax rate is 20%, income from the following two activities is subject to different rates:
- Natural Gas Investment Tax (NGIT) shall be determined on the basis of the internal rate of return (IRR) on the cumulative annual cash flows of the taxpayer derived from natural gas investment activities. The rate applicable will be 30% if the IRR is 8% or less. The rate increases progressively up to 85% if the IRR equals or exceeds 20%.
- Income from oil and hydrocarbon production is subject to tax at a rate ranging from 50% to 85% effective from 1 January 2017.
Local income taxes
There are no local, state, or provincial government taxes on income other than the regular income tax or Zakat as mentioned above.