Saudi Arabia's Tax Reforms - Introduction
Saudi Arabia's tax landscape has undergone significant transformations in alignment with the ambitious Saudi Vision 2030.
In this article, we'll look at some of the incentives designed to attract investments to the Kingdom.
Saudi Arabia's Tax Framework
Overview
Taxation in Saudi Arabia falls under the purview of the
Zakat, Tax and Customs Authority (ZATCA).
The tax regime is unique due to the inclusion of zakat and its approach to personal income tax which is levied only on non-residents.
Income Tax and Zakat
The fundamental distinction in the Saudi tax system is between:
- non-Saudi investors, who are subject to income tax, and
- Saudi and Gulf Cooperation Council nationals, who are subject to zakat—a religiously mandated form of almsgiving.
For non-Saudi businesses, income tax is levied on profits while zakat is calculated on the net worth for Saudi entities, at a rate of 2.5%.
The Income Tax Law imposes a 20% tax rate on profits, while income from hydrocarbons is taxed between 50% and 85%.
Notably, a new draft tax law introduced in December 2023 - which is open for public feedback - is set to further align Saudi tax policy with international standards.
Customs Duty and Other Taxes
Customs duties in Saudi Arabia protect local production, with rates up to 25%.
Value Added Tax (VAT) experienced an increase from 5% to 15% in 2020, with excise taxes levied on products like tobacco and energy drinks to discourage consumption.
Furthermore, a Real Estate Transaction Tax (RETT) applies to property transactions at a rate of 5%.
Investment Incentives
Regional Headquarters Incentives
To attract multinational corporations to set up regional headquarters in Saudi Arabia, ZATCA has introduced lucrative tax exemptions for income tax, WHT on dividends, and more.
These incentives can last up to 60 years.
Regional Development Incentives
The Kingdom provides incentives for investments in certain underdeveloped regions, offering deductions on training, education expenses, and salaries of Saudi personnel.
Withholding Tax (WHT)
Payments to non-residents from within Saudi Arabia are subject to WHT, with the rate depending on the type of payment.
Conclusion - Saudi Arabia's Tax Reforms
Saudi Arabia’s revised tax framework reflects its attempts to foster a competitive, integrated global economic environment.
Final thoughts - Saudi Arabia's Tax Reforms
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