Corporate Income Taxes in Saudi Arabia
Corporate Income Tax is defined as the tax levied on corporate profits. the reason is that taxes are paid on corporations’ taxable income. Corporations’ taxable income includes revenue minus cost of goods sold and all other related expenses such as general and administrative expenses, marketing and selling expenses, research and development, depreciation expenses, and all other operating costs. Rates of corporate tax varies widely from one country to another, and some countries are considered as tax havens due low tax rates or no taxes charged on income.
Corporations do not always pay corporate taxes on the net income generated; the rates can usually be lowered in the light of several kinds of deductions and exemptions allowed by different governments. Therefore, the effective corporate tax rate, which means the rate a corporation actually pays, is usually lower than the statutory rate or the imposed or stated rate by tax authorities before any deductions or exemptions.
In the Kingdom of Saudi Arabia, only foreign investors are liable for income tax Are meant by foreign investors, all investors who are not Saudi nor GCC countries citizens, such as UAE, Qatar, Kuwait, Bahrain, and Oman. Whilst all Kingdom of Saudi Arabia and GCC countries citizens are not subject to corporate income taxes, they are required to pay Zakat (one of the pillars of Islam consisting in a financial contribution) on annually calculated working capital (with a rate of 2.5%).
In case of a corporation partially owned by foreign investors and Saudi or GCC citizens investors, the portion of taxable income attributable to the non-Saudi investors is subject to corporate income tax, which equals 20% of the corporation income while the Saudi and GCC citizens share pays 2.5% of annually calculated working capital.
The Following table indicates people or corporations subject to income tax
| No. | Who is subject to Income Taxes? | Type of Tax | Tax Rate in KSA |
| 1. | Resident company with shares directly or indirectly owned by foreign investors (non-Saudi and non GCC citizens) | Corporate Income Tax | 20% |
| 2. | Resident non-Saudi natural person who carries on activities in Saudi Arabia. | Corporate Income Tax | 20% |
| 3. | Non-resident person who carries out activities in Saudi Arabia through a permanent establishment | Corporate Income Tax | 20% |
| 4. | Non-resident person who has other income subject to tax from sources within Saudi Arabia without having a permanent establishment | Withholding Taxes | 5%, 10%, 15% or 20% |
| 5. | Companies engaged in natural gas investment fields. | Corporate Income Tax | 30% |
| 6. | Companies engaged in oil and other hydrocarbon production industry | Corporate Income Tax | 50% to 85% depending on the size of investment |
Tax rates for corporate income vary for corporations and people engaged in oil and other hydrocarbons production industry as follow:
- 50% for investments exceeding $100 billion
- 65% for investments between $80 to $100 billion
- 75% for investments between $60 to $80 billion
- 85% for investments up to $60 billion
To sum up, we can say that, corporate income tax generated by foreign investors in the Kingdom of Saudi Arabia is subject to 20% rate, while withholding tax rates vary between 5% and 20% according to the type of income generated and on people’s occupations subject to taxation. At the same time, the income of foreign investors engaged in oil and hydrocarbon production industry, is subject to corporate income taxes of 30%, 65%, 75%, and 85% respectively according to their size of investment. Foreign investment in natural gas used to be subject to 35% tax rate, however, that rate was amended in January 2018 to 30% rate and ??
It is worth noting that there are no local taxes imposed on income in the Kingdom of Saudi Arabia other than the ones mentioned above.
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Abdelrahim ElbakheitHead of Operation & Development