Our new series will cover taxation in different regions starting with KSA.
The recent growth in KSA means the rise of companies registered in Saudi Arabia. Part of your company’s compliance in KSA is regular tax filings. Below is a short introduction to the different taxes in Saudi Arabia and their applicability to you as a business.
Income Tax or Zakat
Income tax and Zakat is annually charged on the adjusted profit or net assets of a business at the end of each financial year. The charge depends on the ownership structure of the organization.
| Share Holding Structure | Tax applicability |
| 100% local ownership | Zakat on 100% of profits |
| 50% local ownership and 50% foreign ownership | Zakat on 50% of the net profits and Income Tax on 50% of the net profits |
| 100% foreign ownership | Income Tax on 100% of the net profits |
Zakat is calculated as 2.5% of either net assets or net profits depending on whichever is highest. Income tax is calculated on 20% of net profits. The tax return must be submitted with the audited financial statements for the tax period within 120 days from the end of the financial year. ZATCA will issue a Zakat certificate once the tax returns are submitted, and all dues are settled for the financial year.
VAT
Tax is imposed on supplies of goods and services made in the Kingdom.
Whether a company is required to register for VAT depends on its taxable annual turnover. The registration thresholds are mentioned below:
| Exempted Registration | Voluntary Registration | Mandatory Registration |
| Value of supplies < SAR 187,500 | SAR 187,500 < Value of supplies < SAR 375,000 | Value of supplies > SAR 375,000 |
The applicable VAT rate is 15%. Companies that are VAT registered must charge all customers 15% VAT on their products and services. Companies also incur the same percentage charge on their purchases. At the time of filing, the net of VAT incurred on sales and purchases is either claimed or paid back to ZATCA. Companies that are not VAT registered cannot reclaim VAT incurred on their purchases.
The VAT deadline for a company depends on the value of the annual sales of the business.
– When the total annual sales amount is below 40 million SAR, then the taxpayer must file the return every quarter.
– When the total annual sales amount is greater than 40 million SAR, then the taxpayer must file a VAT return monthly.
The deadline for submission of VAT would be the last day of the month for the preceding VAT period, for example for monthly filing, VAT of Jan 2023 will be submitted on or before 28th Feb 2023.
Witholding Tax
All payments made to companies outside Saudi Arabia are subject to Withholding Tax rather than VAT. The amount of Withholding Tax to be paid depends on the category of payment that has been made to the foreign company. These categories are as follows:
| Category | WHT rate |
| Management Fees | 20% |
| Royalty or license fees | 15% |
| Technical or consulting services | 5% |
| International Telecommunications | 5% |
| Rent | 5% |
| Debt Interest | 5% |
| Dividends | 5% |
| Payments to head office or related parties (Except Interest or Dividends) | 15% |
The Withholding Tax should be paid to ZATCA within the first ten days of the month following the month during which the payment to the company was made. For example, all payments made in February 2023 must be declared to ZATCA in the first ten days of March 2023.
At Balance Consulting, we have extensive experience with tax filings for different industries. Therefore, we can perform an accurate calculation of your business taxes and ensure that this is filed on time to avoid any penalties. Get in touch today at [email protected] for further information.