Tax on foreigners and Saudis:
1. Taxes on Saudis:
In Saudi Arabia, Saudi nationals and fully Saudi-owned businesses are subject to Zakat, an Islamic wealth tax, instead of corporate income tax. The Zakat rate is 2% of the company’s capital or net worth (calculated based on financial statements).
Additionally, all businesses (Saudi or foreign) must charge 15% Value Added Tax (VAT) on taxable goods and services, which is ultimately paid by the consumer but collected and reported by the business.
2. Taxes on Foreigners with 100% Ownership:
Foreign-owned businesses (with 100% foreign ownership) do not pay Zakat but are instead subject to corporate income tax. The standard rate is 20% of net profits, calculated based on:
Audited financial statements (prepared by a Certified Public Accountant - CPA)
Banking transactions (must align with reported income)
Approved accounting software (must comply with Saudi tax authority requirements)
The tax is filed annually with the Zakat, Tax, and Customs Authority (ZATCA), and late payments can result in penalties.
3. Mixed Ownership (50% Saudi, 50% Foreign): How Taxes Apply:
For joint ventures (Saudi + foreign partners), taxation is split:
Saudi partner: Pays 2% Zakat on their share of the capital.
Foreign partner: Pays 20% income tax on their share of the profits.
All businesses (regardless of ownership): Must apply 15% VAT on sales (paid by customers).
This structure ensures compliance with Saudi tax laws while distinguishing between local and foreign tax obligations.
