Saudi Arabia

Corporate - Significant developments

Last reviewed - 01 July 2023

Merger of Kingdom of Saudi Arabia (KSA) tax and customs authorities

The Saudi Council of Ministers in May 2021 approved merging of the General Authority of Zakat and Tax (GAZT) and the General Authority of Customs to form the Zakat, Tax and Customs Authority (ZATCA).

Any references to GAZT in this document should be read as references to ZATCA.   


On 28 May 2021, the ZATCA has published the e-invoicing resolution setting out the controls, requirements, technical specifications, and procedural rules covering the generation and integration phases, which includes value-added tax (VAT) invoices, debit notes, and credit notes. A detailed set of requirements and guidelines were also published.

The generation phase will be mandated from 4 December 2021, and the integration will be implemented in phases starting from 1 January 2023.

Special tax rules for the Special Integrated Logistics Zone (ILBZ or 'the Zone')

The ILBZ is a special economic zone (SEZ) located adjacent to the King Khalid International Airport in Riyadh, KSA following the issuance of Royal Order (A/17) dated 10 October 2018.

The General Authority of Civil Aviation (GACA) has issued the Special Tax Rules (the 'Tax Bylaws') setting out the tax and customs incentives (and the associated conditions) that apply to entities established in the ILBZ to carry out specific activities.

The Tax Bylaws specify that, provided certain conditions can be met, ILBZ entities would be subject to corporate income tax (CIT) at 0% on the income earned from carrying on their specific activities for up to 50 years. Further, provided certain conditions can be met, ILBZ entities would also be exempt from deducting withholding tax (WHT) on certain payments relating to the specific activities to non-residents.

From a customs perspective, goods imported into the ILBZ would be under a customs duty suspension arrangement. While these goods are under the customs duty suspension arrangement, transactions relating to these goods would be outside the scope of VAT in the Kingdom of Saudi Arabia.

Further guidance will be issued by the ZATCA to specify the conditions and the procedures that ILBZ entities will need to follow to access these tax and customs incentives.

Real Estate Transaction Tax (RETT)

In accordance with the directions stipulated in Royal Order Number A/84 regarding imposition of a new ‘transaction tax’ on real estate disposal transactions, the Minister of Finance, as well as the Chairman of Board of Directors for the GAZT, issued Ministerial Resolution Number 712 dated 15/2/1441 H (corresponding to 2 October 2020) approving the Implementing Regulations related to the newly imposed transaction tax on real estate disposal transactions. 

This decision has entered into force as of 4 October 2020.

In accordance with the provisions of the Implementing Regulations (‘Regulations’) of the transaction tax on real estate, a tax is imposed at a rate of 5% of the total real estate disposal value regardless of its condition, shape, or use at the time of the disposal. 

This includes the land and what is being constructed or built on it, whether the disposal occurred on this land at its current state or after an establishment was built on it, irrespective of whether the entire property was disposed of or only a part of it, such as a detachment, a communal, a residential unit, or any other types of real estate, and whether the disposal was authenticated or not.

The rules provide for certain exemptions that could be available in certain cases.

Amendments to the VAT Implementing Regulations

In accordance with the directions stipulated in the Royal Order Number A/84, the Board of Directors of the GAZT has approved the amendments/additions of some articles of the KSA VAT Implementing Regulations and repealed some other articles. This decision enters into force on 4 October 2020.

Pursuant to the Royal Order A/84 consisting of exempting the supply of real estate properties in the Kingdom of Saudi Arabia from VAT and refunding input VAT for real estate licensed developers, the Board of Directors of GAZT has approved amendments/additions to some articles in the VAT regulations and repealed other articles.

Amendment to the Income Tax and Zakat Regulations

Effective 1 January 2020, the direct and indirect investment of oil and hydrocarbon producing companies into Saudi Arabian listed companies and subsidiaries of these listed companies shall be subject to Zakat.  

A Ministerial Resolution (MR) No. 5122, dated 24/12/1441 AH corresponding to 14 August 2020, has been issued to amend Article (1) Para. (1) of the Saudi Income Tax By-Law, on the same date MR No. 5123 has been issued to reflect the same amendment from a Zakat perspective.

The amended Article (1) Para. (1) of the Saudi Income Tax By-Law defines the persons subject to tax in the Kingdom of Saudi Arabia as follows:

"1. The provisions of the Income Tax Law (The Law) apply to:

  1. Resident capital company with respect to shares; owned either directly or indirectly by non-Saudis, except for the shares owned in a resident capital company listed in the Saudi stock market acquired for the purpose of speculation through trading in the Saudi capital market.
  2. Shares owned directly or indirectly by persons engaged in oil and hydrocarbons production, whether natural or corporate, residents or non-residents, except for the shares owned either directly or indirectly by persons working in the field of oil and hydrocarbons production in a resident capital company listed in the Saudi stock market, and the shares owned either directly or indirectly by these companies in capital companies.
  3. The tax base of a resident capital company is determined independently from the tax base of its shareholders, partners, or subsidiaries even if they were consolidated for accounting purposes, also the tax base shall not include its share of profits/losses resulting from its investments declared based on the equity method. The term 'subsidiaries' means companies with capital owned more than 50% or in which has control to form their Board of Directors.
  4. Non-resident persons, natural or corporate, Saudi or non-Saudi, who carry out activities in the Kingdom through a permanent establishment (PE) located in the Kingdom or who derive income from a source in the Kingdom.”


    According to the amended paragraph, the key outcomes could be summarised as follows:

    • The shares owned by oil and hydrocarbon companies in listed companies in the Saudi Stock Market, either directly or indirectly, are subject to Zakat.
    • The shares owned by oil and hydrocarbon companies in capital companies through listed companies are also subject to Zakat.
    • The indirect ownership definition by which the indirect ownership was limited to the second level no longer exists, meaning that the indirect ownership goes to the ultimate owner (i.e. see through the ownership structure until the ultimate owner). This means that a corporate entity with non-Saudi / Gulf Cooperation Council (GCC) owners at the higher levels that were potentially not subject to tax will be subject to tax regardless of the level of the non-Saudi / GCC owner.
    • Listed companies are subject to tax / Zakat based on the nationalities of the founders for all the company’s shares regardless of the nationalities of the owners of shares acquired through trading in the stock market.
    • The amendments are applicable to the fiscal years starting on or after 1 January 2020.
    • It’s worth mentioning that the Zakat by-law has also been amended to reflect the applicability of zakat as mentioned above.

    Increase in customs duty rates

    The Kingdom of Saudi Arabia has announced an increase in the customs duty rates for an extensive range of goods, including foodstuff, mineral and chemical products, plastic, rubber, leather goods, textile and footwear, base metals (e.g. steel, iron, nickel, copper, aluminium), cement, ceramic, machinery, equipment and electrical equipment, toys, furniture, vehicles, and various other manufactured goods. The measure affects a total of 57 Chapters and more than 2,000 Tariff Lines of the KSA Integrated Customs Tariff. The date on which such increase becomes effective is yet to be announced (originally, such update was due to become applicable from 10 June 2020, but such a date was later postponed by the government). 

    Increase in standard VAT rate

    The Kingdom of Saudi Arabia has announced several measures to counter the financial and economic impact of COVID-19 on the government budget, including an increase in the standard VAT rate to 15% applicable from 1 July 2020 onwards.

    Amendments to the Saudi Arabian Income Tax, VAT, and Excise Tax Laws

    The Council of Ministers amended, on 24 December 2019, the Saudi Arabian Income Tax, VAT, and Excise Tax Laws to align relevant provisions regarding litigation and appeals (Article 66 of the Tax Law, Article 49 of the VAT Law, and Article 27 of the Excise Tax Law) to the approved work rules/guidelines of the Tax/Zakat Dispute Resolution Committees.  

    Approval of Tax/Zakat Dispute Resolution Committee's work rules/guidelines

    The work rules/guidelines of the Tax/ZakatDispute Resolution Committee (DRC) were approved through Royal Order No. 26040, dated 21/4/1441H (corresponding to 19 December 2019). More specifically, the Royal Order provides for the items summarised below:

    • Approval of work rules/guidelines of the DRC.
    • These rules should apply to all cases currently at the level of the GAZT that have not been settled as at the date of this Royal Order.
    • The Board of Grievances should continue to look into cases already raised to it before the date of this Royal Order.
    • The DRC is responsible for hearing and deciding on Zakat cases per their work rules/guidelines. 

    The Organisation for Economic Co-operation and Development's (OECD's) Multilateral Convention (MLI) to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS)

    The Kingdom of Saudi Arabia has signed the MLI to Implement Tax Treaty Related Measures to Prevent BEPS issued by the OECD on 18 September 2018.

    The MLI allows countries to implement the anti-tax treaty abuse BEPS measures and other aspects of the OECD BEPS programme into existing double tax treaties (DTTs). The MLI (once ratified) does not directly amend the underlying text of a DTT, but will instead be applied alongside existing DTTs, modifying their application.

    The Kingdom of Saudi Arabia has made the following key notifications/reservations:

    Purpose of a DTT - Changes adopted

    The Kingdom of Saudi Arabia has made a notification to update the preamble of its DTTs to clearly indicate the KSA’s position against treaty abuse. Specifically, the KSA’s DTTs (to the extent such wording has not already been included in the KSA’s existing DTTs) would include the following as their expressed purpose:

    • 'Intending to eliminate double taxation with respect to the taxes covered by this agreement without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this agreement for the indirect benefit of residents of third jurisdictions).'
    • 'Desiring to further develop economic relationship with its treaty partners and enhance cooperation in tax matters.'

    Inclusion of the above updated preamble wording is a requirement to meet the BEPS Action 6 (Prevention of Treaty Abuse) minimum standard.

    Prevention of treaty abuse through targeted anti-avoidance provisions - PPT (by default)

    The Kingdom of Saudi Arabia is one of a minority of countries not to have expressly confirmed its chosen method of combating treaty abuse. As such, there will be a difference between the position chosen by the Kingdom of Saudi Arabia and its treaty partners.

    The MLI confirms that, in cases of differences between the reservations made by two jurisdictions and their mutually agreed DTT in relation to how they combat treaty abuse, and in the event the KSA’s treaty partner has also not chosen a specific method of combating treaty abuse (e.g. Egypt), the ‘default’ 'PPT without the ability to refer to the competent authority for final assessment' method would apply.

    Including the above adoption of a position to assess availability of treaty relief by the Kingdom of Saudi Arabia is a requirement to meet the BEPS Action 6 (Prevention of Treaty Abuse) minimum standard.

    Mutual agreement procedures (MAP) and corresponding adjustments - Changes adopted

    The Kingdom of Saudi Arabia has chosen to ensure that all applicable DTTs would include an MAP process that would efficiently address a dispute in relation to the application of DTT provisions.

    Specifically, all of the 53 DTTs chosen by the Kingdom of Saudi Arabia would be amended (to the extent the existing DTTs do not already have the necessary provisions and the treaty partner has made the same notifications) so that:

    • The taxpayer that initiates the MAP procedure will have a specific period (i.e. three years) to present their case to the relevant competent authority.
    • The taxpayer can present their case to either competent authority of the DTT.
    • Where the competent authorities fail to resolve the dispute, the dispute can be escalated via formal procedure, irrespective of any domestic time limits.

    Artificial avoidance of permanent establishment (PE) and related anti-abuse measures - Changes adopted

    The Kingdom of Saudi Arabia has chosen to update the PE definition in its DTTs (to the extent the existing DTTs do not already include the following provisions and the treaty partner makes the same notifications) to:

    • Include instances where an agent 'habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise' would give rise to a PE.
    • Include instances where a person acting exclusively (or almost exclusively) on behalf of its ‘closely related enterprise’ would not be considered as an independent agent.
    • Narrow the list of the specifically exempt activities that would not give rise to a PE to only apply to circumstances where the activity is of a 'preparatory or auxiliary' nature.
    • Ensure a PE would now arise where such presence was previously mitigated through artificially splitting contracts.
    • Include a definition of a ‘closely related enterprise’.

    As the MLI requires mutual agreement before a DTT is amended, the KSA’s relevant DTT articles with respect to PEs would not be updated unless the other treaty partner has also elected to adopt the same changes to the PE definition.

    Capital gains from the disposal of ‘land rich’ entities - Changes adopted

    The Kingdom of Saudi Arabia has chosen to amend the capital gains article in the 53 chosen DTTs to allocate the taxing right upon disposal of a ‘land rich’ entity to the sourcing jurisdiction.

    Specifically, the Kingdom of Saudi Arabia has chosen to (i) adopt the proposed definition of a ‘land rich’ entity to be an entity having more than 50% of its value derived directly or indirectly from immovable property located in the Kingdom of Saudi Arabia at any time during a 365-day period prior to the date of the disposal and (ii) extend the scope to the disposal of shares or comparable interest.

    As the MLI requires mutual agreement before a DTT could be amended, the KSA’s relevant DTTs would not be updated unless the other treaty partner has also elected to adopt the same changes to the capital gains article.

    Methods for the elimination of double taxation - Changes adopted

    The Kingdom of Saudi Arabia has confirmed that its intended mechanism to relieve double taxation on income is through a tax credit mechanism.

    Under the mechanism, tax paid by a KSA taxpayer in the other treaty partner’s jurisdiction in respect of income arising in the other treaty partner’s jurisdiction can be deducted from the KSA taxpayer’s KSA CIT liability up to the amount of the KSA CIT payable on the foreign-sourced income.

    The tax credit mechanism would apply to KSA residents irrespective of the treaty partner’s position.

    Entry into force

    For the provisions of the MLI to apply to the Kingdom of Saudi Arabia and its DTTs with other treaty partner jurisdictions, the Kingdom of Saudi Arabia and its treaty partners must ratify the MLI through their respective domestic legislative process.

    Typically, following the ratification of the MLI into domestic legislation, the MLI would generally enter into force from the beginning of the fourth month following its ratification. The dates for which the MLI provisions would modify the wording of the relevant DTTs are typically:

    • For WHT-related changes, from 1 January following the latest MLI entry into force date of the jurisdictions.
    • For changes relating to other tax types, in six months from the latest MLI entry into force date of the jurisdictions.
    • For MAP-related changes, from the latest MLI entry into force date of the jurisdictions.

    The above are the 'typical' dates, and other dates may be agreed between individual jurisdictions.  

    The Kingdom of Saudi Arabia has ratified the MLI through Council of Ministers Order No. 191 dated 8/3/1441H (corresponding to 6 November 2019) and Royal Decree No. M/29 dated 9/3/1441H (corresponding to 7 November 2019).  

    The Kingdom of Saudi Arabia deposited the MLI with the Secretary-General of the OECD on 23 January 2020, and the MLI entered into force for the Kingdom of Saudi Arabia on 1 May 2020.