Generally, non-Saudi investors are liable for income tax in Saudi Arabia. In most cases, Saudi citizen investors (and citizens of the Gulf Cooperation Council (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 with respect to shares owned either directly or indirectly by non-Saudi / non-GCC persons and persons operating in oil and hydrocarbon production except for the following (in which case the underlying resident company would be subject to Zakat:
- Shares owned in resident capital company listed in the Saudi stock market acquired for the purpose of speculation through trading in the Saudi capital market.
- Shares owned either directly or indirectly by persons working in the field of oil and hydrocarbons production in resident capital company listed in the Saudi stock market, and the shares owned either directly or indirectly by these companies in capital companies.
- 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 PE.
- A non-resident person who has other income subject to tax from sources within Saudi Arabia without having a PE.
- A person engaged in natural gas investment fields.
- A person engaged in oil and other hydrocarbon production.
The rate of income tax is 20% of the net adjusted profits. 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:
- Income from oil and hydrocarbon production is subject to tax at a rate ranging from 50% to 85%.
- The tax base of a person who works in natural gas investment should be independent of the tax base relating to other activities of this person.
Effective 1 January 2018, the income tax legislation was amended to repeal the Natural Gas Investment Tax (NGIT) provisions; natural gas investment should be taxed under the general provisions of the income tax legislation (including being subject to the general income tax rate of 20%).
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.