saudi-arabia-tax-rate

Saudi Arabia Tax Rates

Saudi Arabia Income Tax

Saudi Arabia residents are not subject to income tax. Only nonresidents pay personal income tax in Saudi Arabia, which is the same as companies (Currently 20%).

Saudi individuals or nationals of GCC states who conduct business in the Kingdom of Saudi Arabia in commercial goods are subject to an Islamic Tax called 'Zakat'.

Zakat is an Islamic direct tax on property and income. Zakat is levied at a flat rate of 2.5%. See 'Zakat' (Islamic Tax) section below, after 'Saudi Arabia Corporate Tax' section.

Only business income earned by individuals is taxable. There is no tax on employment income. Business and professional income is taxed in the same way and under the same rules as corporate profits. Individuals not carrying on a business or professional activity are not taxed on interest and dividend income.

Individuals carrying on a business or professional activity are taxed at the same rate (i.e. 20%) and under the same rules as corporate entities. Income tax can be paid by instalments throughout the tax fiscal year. Income tax is payable within 120 days of fiscal year end.

Note: "GCC" stands for Cooperation Council for the Arab States of the Gulf. The member states are Saudi Arabia, Bahrain, Kuwait, Qatar, Oman and the United Arab Emirates.

Persons subject to personal income tax in Saudi Arabia

A non-Saudi natural person is subject to tax if he meets any of the following conditions:
- a resident who does business in the Kingdom.
- a partner in a resident partnership (personal company).
- a general partner in a resident company limited by shares.

A business activity: includes any commercial activity of any form, such as commercial, industrial, agricultural, financial and service business, equipment rental, insurance, banking and transportation. It also includes trade, professional activity, or any similar investment activity carried out to make profit. This includes the use of movable or immovable property.

A natural person is resident in the Kingdom for a taxable year if he meets any of the following conditions:
- He has a permanent place of abode in the Kingdom and is physically present in the Kingdom during not less than 30 days in aggregate during the taxable year.
- He is physically present in the Kingdom during not less than 183 days in the tax year.

A permanent place of abode is a place of residence a taxpayer owns, or leases for a duration not less than a year, or provided to him by any party for a duration not less than a year.

Saudi Arabia Tax on individuals - Tax Rate:
The tax rate on a non-Saudi resident natural person who does business in the Kingdom is 20% of tax base.

Social security contributions: Employees in Saudi Arabia pay a contribution of 9% for insurance relating to old
age, disability and death.

Certain employees such as civil servants, artisans, farmers, seamen, domestic servants, etc are excluded from the insurance scheme. Note, however, that the three latter categories of persons may be covered by the scheme on the basis of a ministerial decision. Furthermore, persons carrying on independent business activities such as professionals, tradesmen, artisans, etc and employer's family members employed in a family-run enterprise where no other workers are employed may request to be covered by the scheme.

Saudi Arabia Corporate Tax Rate

Saudi Arabia corporate income tax rate for 2009: 20%.

The tax rate of a resident capital company is 20% of its tax base, with the exception of tax rates for the gas and oil industries.

The income tax rates applicable to companies engaged in natural gas investment activities is 30%. (Such companies are subject to a higher tax rate from 30% to 85% based upon the cumulative rate of return.)

The income tax rate applicable to companies engaged in the production of oil and other hydrocarbons is 85%.

Zakat

Additionally, Saudi companies of all types and companies owned by nationals of GCC states that conduct business in the Kingdom, and shares of Saudis and nationals of GCC states in joint companies are subject to 'Zakat'.

Zakat is an Islamic direct tax on property and income. Zakat is levied at a flat rate of 2.5% (See section 'Zakat' below)

Note: "GCC" stands for Cooperation Council for the Arab States of the Gulf. The member states are Saudi Arabia, Bahrain, Kuwait, Qatar, Oman and the United Arab Emirates.

Corporate Income tax - Persons Subject to tax:

a. A resident capital company on non-Saudi shares. Investment funds are considered capital companies.
b. Total shares in net profits of non-Saudi limited partners in limited partnerships.

A company is a resident company if it meets any of the following conditions:
- it is formed under the Companies Regulations;
- its place of central control and management is situated within the Kingdom.

Taxation of dividends: Dividends received are taxed as income.

Capital gains tax: a 20% capital gains tax is imposed on the disposal of shares in a resident company. Capital gains on the disposal of shares traded on the Saudi Stock Exchange are tax exempt if the shares were acquired after 2004.

Branch Remittance Tax: A 5% branch remittance tax is imposed on the remittance of profits abroad.

Real estate tax: There is no real estate tax in Saudi Arabia but Zakat (religious tax) may be payable on real estate if held for speculative purposes.

Losses: Operational losses of a business may be carried forward indefinitely. However, the annual deduction is limited to 25% of the profits as shown in the annual return. Losses related to exempt activities may not be deducted or carried forward.

Foreign sourced income: Resident companies are taxed on their worldwide income, i.e. including income from transactions carried on, or branches situated, abroad. This means that all forms of overseas income are subject to tax under standard rules.

Foreign tax relief: No relief for foreign taxes is granted under Saudi tax regulations.

Corporate groups: There is no group tax regime in Saudi Arabia.

Social Security: For Saudi employees, the employer must contribute 9% of the employee's salary to the General Organisation for Social Insurance (GOSI); the employee also contributes 9%. The employer also pays accident insurance equal to 2% of the salary for both Saudi and non-Saudi employees.

Zakat (Islamic Tax)

Zakat is an Islamic direct tax on property and income. Zakat is levied at a flat rate of 2.5%.

Zakat is payable by individual Saudis and other GCC nationals. Zakat is calculated at the rate of 2.5% and is chargeable on the total of the taxpayer's capital resources and income that are not invested in fixed assets. These include the company's capital, net profits, retained earnings and reserves not created for specific liabilities. Only resources (including income) which have been held for at least 12 months are subject to zakat.

Persons Subject to Zakat

1. Saudi individuals or nationals of GCC states who conduct business in the Kingdom of Saudi Arabia in commercial goods.
2. Saudi companies of all types and companies owned by nationals of GCC states that conduct business in the Kingdom, and shares of Saudis and nationals of GCC states in joint companies.

Zakat - Base Items

Items Added to Zakat Base

a. Capital : Capital amount that has been held to account for one year is added to zakat base, but Increments to capital during the year are not added unless it is a capitalized equity item that has passed one year.

b. Balances of all provisions and reserves : Balances of all provisions and reserves that have been held to account for one year are added to zakat base with exception to the balance of depreciation provision.

c. Carried over profits : Carried over profits are profits realized in prior years and retained (not distributed among partners). These profits are considered additions to the entity's capital.

d. Retained profits for distribution : "Retained profits for distribution" means the amount of profits the company decided to distribute to shareholders but has not yet distributed. However, such profits are not added to zakat base if they are no longer in possession of the company but are deposited at a bank for the benefits of shareholders and the company can not withdraw or draw interest on them.

e. The year's net profit as adjusted : The year's net profit as adjusted for zakat purposes is added to zakat base.

f. Loans : Loans used to finance acquisition of capital assets or investments for the entity are added to zakat base. Loans used for finance inventories are also added to zakat base but after the completion of one year.

g. The owner's / partners' credit current account : The owner's / partners' credit current account, the beginning or ending balance whichever is less, is included in zakat base as it is considered an investment in the entity's business. However, the higher balance is included in zakat base when the increment is resulted from closing carried profits and similar items in the account.

h. Subsidies : Subsidies are considered income (compensation) to recipient companies. The subsides are added to zakat base of recipient companies in the year of actual receipt and notwithstanding the one year term.

Items Charged to Zakat Base

a. Fixed assets net value :
The net value of fixed assets is an allowed deduction provided the following conditions are met:
1- The assets are fully paid.
2- Assets' value does not exceed the total of paid-up capital, prior years profits carried over, provisions, reserves and the credit current account.

b. Carried over losses as adjusted

c. pre-incorporation or pre-setting up expenses : The balance of pre-incorporation or pre-setting up expenses is a deduction from zakat base.

d. Entity's construction in progress (capital expansion) : The value of the entity's construction in progress is an allowed deduction for zakat purpose because it is considered fixed assets.

e. Investment :
1- Long-term investments are not included in zakat base.
2- Short-term investments that are kept to be resold are included in zakat base because they are in this case considered goods for trade.
3- Investments in capital of local companies are not included to avoid double subjection to zakat as they have already been subject to zakat in companies where they are invested.
4- Long-term Investments by banks in Saudi governmental bonds are deducted from zakat base.

f. Lands : The value of lands and buildings is a deduction from zakat base if owned by the entity; either of the following is considered ownership by the entity:
1- Lands owned by a partner and contributed to the entity as the partner's in-kind share in capital and is used in the entity's activity.
2- The partner owning the land has a credit current account that fully covers the value of the land.

Zakat - Allowed Deductions

All expenses that are necessary and normal to the business and were spent by the taxpayer during the year of audit and contributed to the making of income subject to zakat are allowed expenses. Examples of such expenses as follows:

a. Wages and Salaries : Wages, salaries and similar benefits are allowed deductions if they meet the above conditions. The taxpayer should attach a certificate by the General Organization for Social Insurance (GOSI) stating wages that are subject to social insurance system and a certificate by the taxpayer's chartered accountant certifying wages that are not subject to social insurance system.

b. Depreciation : The following conditions apply for depreciation:
- The asset is a fixed asset.
- The asset is owned by the entity.
- The asset is of depreciable nature.
- The asset is used in the entity's business.
- The straight-line method only is used.
- Depreciation rates used are the legally prescribed rates.

c. School Fees : School fees paid by taxpayers to their employees' children are deductible expenses provided that they do not exceed four children per employee and five thousand Saudi riyals per child.

d. Bad Debts : Bad debts are deductible provided the following conditions are met:
- Serious efforts have been exerted by the taxpayer to collect the debt with no success.
- A decision was made by the taxpayer's Board of Directors approving the write off of the debt confirmed by deleting it from the taxpayer's records.
- A certificate by the taxpayer's chartered accountant certifying the writing off the debt from the taxpayer's books and records.
- Undertaking by the taxpayer to reinstate any written off debts if ever collected in the year of collection.

e. Prior Years' losses : Prior years' losses are allowed expenses provided it is confirmed that they were not deducted during the loss years.

Zakat - Disallowed Deductions

a. Provisions or Reserves : With except to banks that are allowed a bad debt provision provided two conditions are met:
- Submittal of a certificate by the Saudi Arabian Monetary Agency of amount of frozen debt (doubtful debts).
- The debt is reported once it is collected.

b. Expenses not Related to the Entity's Activity : Such as personal expenses.

c. End-of-Service Provision : Is not an allowed deduction. However, Actual paid end-of-service payments are allowed deductions provided they are document-supported.

d. Fees to the Board of Directors : As they are considered distribution of profit.

e. Salaries and Awards to Partners : As they are considered distribution of profit.

Determination of Zakat Base : For Books and Records

For zakat payers with books and records, Zakat Base is determined as follows:

a. Adjustments to book result : Net profit (loss) per books, additions to book result:
- Reserves formed during the year of audit
- Social Insurance paid abroad
- Fixed assets depreciation differences
- Expenses not related to the activity
- Zakat or tax paid and charged to accounts
Net profit as adjusted for zakat purposes

b. The following items are added to net profit (loss) as adjusted for zakat purposes :
Paid-up capital,
Additions to paid-up capital:
- Balances of all provisions and reserves that completed one year, with exception to depreciation provision (not added).
- Prior years' profits carried forward (if any)
- Loans used to acquire/finance fixed assets or investments
- The owner's/partner's credit current account
- Retained profits for distribution (If any)
The year's adjusted net profit

Total items included in zakat base
Deductions:
- Fixed assets net value
- Carried over loss as adjusted by DZIT
- The year's loss as adjusted
- Pre-setting up expenses balance
- Entity's construction in progress
- Investments in other entities that were subject to zakat at these entities
- Investments in the Kingdom's government bills (average of 12 months)

Zakat base
Payable zakat is 2.5 percent of zakat base

Determination of Zakat Base : Presumptive Cases

Zakat base of some taxpayers may be determined under a presumptive method in any of the following:
1- The taxpayer has no reliable accounts to determine the zakat base.
2- The Department has not accepted the taxpayer's books due to essential shortfalls in them.
3- The taxpayer has not filed return and accounts during the legally prescribed dates.

Zakat base is determined as follows:

1. Operating Capital :
The operating capital may be determined using any method possible: DZIT may refer to relevant documents to determine the operating capital, such as the entity's commercial register, the articles of association, or any other documents, or it may resort to any means possible. If it becomes evident that the operating capital is different from the declared/determined capital, DZIT may change it to agree with the volume of activity, number of capital cycles per year based on common practice of each type of activity.

2. Net profits :
Net profit will be determined to be not less than 15 percent of the taxpayer's annual gross receipts. Annual gross receipts will be based on documents submitted by the taxpayer, on the basis of number of annual capital cycles, or based on other indicators or information available at DZIT and derived from different activities.