Gerard Associates Ltd. Financial Advisory Services does not provide individual tax advice, and nothing contained in this briefing should be construed as such. We make every effort to ensure the accuracy of the information but cannot be held responsible for any liability arising.
It is essential that all clients seek tax advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable to tax.
This has been prepared based on our understanding of current legislation and tax practice as at the date above. However, these are subject to change, and may result in income tax consequences different from those detailed below.
We cannot accept responsibility for its interpretation or any future changes to law.
Introduction
Like most of the Middle East states, the Saudi Government receives most of its revenues from the oil industry. Taxes are collected by the Department of Zakat and Income Tax (DZIT).
Tax Year
Usually 1st January – 31st December, although taxpayers can adopt the Hijra calendar as their tax year. Once a tax year has been adopted, any change will require the DZIT approval and certain transitional rules apply.
Assessment Basis
Taxation is imposed only on business income sourced in Saudi Arabia. Saudi citizens and Gulf Cooperation Council (GCC) nationals resident in Saudi are exempt from employment income tax, but are subject to Zakat (see Wealth Taxes below). Foreign companies and citizens are liable to tax on Saudi-source income subject to certain exemptions.
Income Tax
Remuneration from employment in Saudi Arabia is free from income tax regardless of a person’s residential status. However, business and professional income is taxed at 20%. Taxable persons in Saudi include residents doing business in Saudi, non-residents doing business through a permanent establishment, and non-residents with income subject to tax from sources within the Kingdom.
Withholding taxes are due on payments made to non-resident parties against services rendered in Saudi Arabia. Fees relating to certain services such as technical and consulting services are subject to withholding tax even if they are rendered outside Saudi Arabia. Withholding tax rates are 5% or 15% and vary according to the type of service performed and according to whether the beneficiary is a related party or not. Withholding tax is due within the first 10 days of the month
following the month the payments were made to a non-resident party.
Taxation of Investment Income
Dividends are subject to withholding tax at the rate of 5% when they are paid or deemed to be paid to a non-resident party.
Tax on Property Rental Income
There is no taxation of rental income in Saudi Arabia if the income is derived from outside the country.
Wealth Taxes
Zakat is a religious wealth tax levied on Saudi and GCC nationals at a rate of 2.5% on the higher of net income or net worth.
Capital Gains Tax
Capital gains tax is charged only on the sale/transfer of shares in a Saudi company or partnership, and is assessed as part of the business income of the seller. The DZIT should be informed about the sale within 60 days from the sale date and the income tax and capital gains tax should be settled within this period.
Other gains/losses on disposals of certain fixed assets are accounted for in the income tax return through a depreciation system as defined by the DZIT.
Inheritance and Gift Tax
There are no inheritance or gift taxes in Saudi Arabia.
Regional and Municipal Taxes
There are no municipal taxes in Saudi Arabia.
Property Taxes
There are no property taxes in Saudi Arabia.
Stamp Duty/Transfer Tax
There is no stamp duty in Saudi Arabia.
Sales Tax
There is no sales tax in Saudi Arabia.
Social Security Contributions
Employers pay social security contributions equal to 9% of the earnings of Saudi employees, also pay accident insurance equal to 2% for both Saudi and non-Saudi employees. Saudi national employees are required to pay 9% of their earnings, whilst other employees are exempt. Saudi social insurance contributions are payable monthly before the 15th of each month.
The basis for taxation in Saudi Arabia is based on the source of income rather than residency. All employees, regardless of their nationality, working in Saudi Arabia under employment contracts are exempt from the Saudi tax regime. The only exception is for those self-employed individuals who generate income from their own professional and business activities.
Saudi Arabia has concluded a limited number of tax treaties; so far 13 are in force. Some countries, including Britain, Germany, Japan, and the United States, allow taxpayers to take a credit against their taxable income in such countries for any Saudi Arabian income tax paid.
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