As a foreign business owner in KSA who is looking to set up shop in the Kingdom of Saudi Arabia, understanding the tax system present in the Kingdom may seem rather challenging. However, SetHub is here to reassure you that after understanding just a few key pointers, you’ll be well equipped with the know-how needed to confidently begin your business venture.

1. Overview of the Tax System

The Zakat and the Tax and Customs Authority has been tasked with overseeing the Saudi Arabian tax system. Below are some of the main tax types that you need to be familiar with.

• Corporate Income Tax: Levied on the income of foreign-owned companies at a rate of 20%.
• Zakat: An Islamic tax applied to Saudi-owned companies and GCC nationals at a rate of 2.5% of the company’s capital and reserves.
• Withholding Tax: Applied to payments made to non-residents for services performed in Saudi Arabia, with rates ranging from 5% to 20%.
• Value Added Tax (VAT): A 15% tax on goods and services.
• Excise Tax Saudi Arabia: Applied to specific goods such as tobacco and sugary drinks.

2. Corporate Income Tax

As a foreign company operating within the Kingdom, your income will be subjected to a 20% tax. This applies to all income generated within Saudi Arabia. As expected, any business expenses that are essential for the operation of your company can be deducted.

3. Zakat

Zakat is applicable to Saudi and GCC-owned companies. This tax is calculated based on the company’s capital, retained earnings, profits, and other assets. The tax rate for Zakat is set at 2.5% on the higher of the Zakat base or the net income, and a yearly Zakat return must be filled in.

4. Withholding Tax

Foreign payments for services, dividends, interest, and royalties are subject to withholding tax at the rate of 5% on dividends, interest, and royalties and up to 20% for technical services.

5. Value Added Tax (VAT)

The addition of a 15% VAT came into effect in Saudi Arabia recently. Businesses that cross a set revenue threshold are liable to pay VAT and must file regular VAT returns accordingly. VAT should be collected on sales and paid on purchases. Some entities that operate in the education or healthcare-oriented sectors may be exempt from paying VAT.

6. Tax Incentives and Treaties

In order to avoid double taxation, Saudi Arabia has numerous incentives and has tax treaties in place. This is true for specific sectors like technology and renewable energy. The system that is in place to protect businesses from double taxation ultimately reduces withholding tax rates and provides other benefits.

7. Filing and Compliance

• Tax Returns: Must be filed annually, with corporate tax returns due within 120 days of the fiscal year-end.
• Zakat Returns: Must be paid inside 120 days of the end of the Zakat year.
• Penalties: Significant fines and penalties may have to be paid if companies do not abide by the taxation guidelines

Need Help? Contact SetHub!

As the best business setup consultant in Dubai, SetHub is your go-to expert for all things related to Saudi Arabia business setup and much more. Whether you’re trying to figure out where to start or need help with any other legal or business setup matters, SetHub is here to make the Saudi Arabia Business Setup Process smooth and hassle-free. Our team of experts is ready to assist you with personalized, professional advice tailored to your unique situation.

Why Choose SetHub?

Our team of legal and business experts is well-versed in UAE regulations and procedures.

• Schedule a call with us and hear back within one business hour.
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• Reach out now and let us help you through every step of the process of starting a business in the Kingdom of Saudi Arabia.