Tax in GCC
- Overview of tax in GCC
- Taxes in UAE
- Taxes in Saudi Arabia
- Taxes in Qatar
- Taxes in Oman
- Taxes in Kuwait
- Taxes in Bahrain
Taxes in Saudi Arabia
Excise tax was introduced as from 11 June 2017. The rate is 50% on soft drinks and 100% on energy drinks and tobacco products.
In order to comply with the Saudi Arabian Excise Tax Law, manufacturers and importers of such goods are required to register with the General Authority of Zakat and Tax.
A Value Added Tax (VAT) of 5 % was introduced on 1 January 2018. For more info information visit General Authority for Zakat and Tax.
The Saudi government announced an increase in the VAT rate from 5% to 15%, effective 1 July 2020.
The tripling of the VAT rate is intended to address the fiscal imbalance caused by a decrease in consumer and commercial spending, the loss of oil and tax revenues and the cost of healthcare initiatives put into place in response to the pandemic.
Reduced Tax Rate
Certain goods and services are zero-rated, including exports of goods and services outside the GCC, the supply of qualifying medicines, medical goods and investment precious metals and international transport services.
Goods and Services Exempted from VAT
Certain products and services are exempt from VAT, including financial instruments, operation of current, deposit and savings accounts, life insurance and residential property rental, Islamic finance products and residential real estate leases (excluding hotels and similar).
Method of Calculation, Declaration and Settlement
VAT applies to almost all supplies of goods or services.
- All companies, businesses or entities which make an annual taxable supply of goods and services in excess of SAR 375,000 are legally required to register for VAT with the General Authority for Zakat and Tax.
- Those which make an annual taxable supply of goods and services in excess of SAR 187,500 but less than SAR 375,000 are eligible for to register voluntarily. Voluntary registration provides significant benefits for the companies since it allows the deduction of input tax.
- Businesses which are generating less than 187,500 SAR annual revenue are exempt from the need to register.
Monthly tax periods are mandatory for taxable persons with annual revenues exceeding SAR 40 million. For all other VAT registered persons, the standard tax period is three months. The VAT return must be filed, and the corresponding payment of net tax due made, no later than the last day of the month following the end of the tax period to which the VAT return relates.
Other Consumption Taxes
Other consumption taxes are levied at the national level and the local level (e.g. gasoline tax, aviation fuel tax, liquefied petroleum gas tax, petroleum tax, motor vehicle tax, etc.)
There is no individual income tax scheme in Saudi Arabia. Income tax is not imposed on an individual’s earnings if they are derived only from employment in Saudi Arabia.
A flat income tax rate of 20% is applied to the tax-adjusted profit of resident non-Saudi and non-GCC individuals. Management fees are taxed at 20%.
Non-employment income is taxed as an entity or permanent establishment (PE). Refer to corporate tax rates.
*An individual is resident in Saudi Arabia if
- he/she has a permanent residence and is physically present in the Kingdom for a period more than 30 days in a tax year, or
- he/she does not have a permanent residence and is physically present for more than 183 days in a tax year.
Social Insurance Tax
Social insurance tax is paid monthly based on (i) basic wage, (ii) cash or in-kind housing allowance, and (iii) commissions, with an upper limit of SAR 45,000, is computed at 2% for non-Saudi employees, and is paid by the employer. For Saudi employees, the rate is 22% and is paid by both the employee (10%) and the employer (12%).
Zakat is levied at a flat rate of 2.5%.
The standard corporate income tax rate is 20% on a non-Saudi’s share in a resident corporation and on income derived by a nonresident from a permanent establishment in Saudi Arabia.
|Non-Saudi taxpayer’s share of a resident company or a Non-resident’s income from a permanent establishment in Saudi Arabia||20% + 2.5% Zakat|
|Saudi Shareholder – Zakat||2.5% on the higher of the zakat base (balance sheet basis) and the net adjusted profit of a Saudi or GCC shareholder following the Hijri year; while for zakat payers following the Gregorian year, the rate applicable to the zakat base is 2.578% based on the balance sheet basis|
|Businesses involved in production of oil and hydrocarbons||85% (for investments up to USD 60 billion), 75% (for investments between USD 60 and 80 billion), 65% (for investments between USD 80 and 100 billion), 50% (for investments exceeding USD 100 billion)|
Double Taxation Treaty
In May 2018, the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) signed the Double Tax Treaty (DTT). It is expected to further boost cross-border trade and investment between these two countries.
Capital Gains Tax
A 20% capital gains tax is imposed on the disposal of shares in a resident company by a non-resident shareholder.
Saudi employees contribute 10% of their basic income, allowances and commissions to social security (9% social insurance + 1% unemployment insurance).
A “White Land” tax applies at a rate of 2.5% on the market value of urban vacant land designated for residential or commercial use.
Capital gains are subject to the normal income tax or Zakat rate, as appropriate. However, capital gains deriving from the disposal of securities traded on foreign stock markets are tax exempt if they are also traded on the Saudi stock market.
Special Expatriate Tax Regime
Resident Saudis and non-residents who conduct business through a permanent establishment and/or with income sourced from Saudi Arabia are subject to tax. However, they are not taxed on personal or employment income but only on business income earned. Individuals not conducting business or professional activity are not taxed on interest or dividend income.
Starting from July 2017, expats began paying a family tax of SAR 100 per month for every minor or unemployed relative living in the country.
Property Transfer Tax
There is no transfer tax. An annual tax will be levied on vacant lands owned by non-government persons at the rate of 2.5% of the value of the land, payable per annum.
There are no inheritance taxes in Saudi Arabia.
Guests staying in hotels and furnished apartments in Saudi Arabia will now have to pay more on room tariff by way of the newly introduced municipality tax.
The new tax comes on top of the value-added tax (VAT) and the already existing service tax. According to hotel industry sources, a guest will now have to pay somewhere between 25% and 30% extra on their room tariff.
There is no stamp duty in Saudi Arabia.
The General Authority of Saudi Customs on 27 May 2020 announced increased rates of customs duties for certain commodities and goods.
The customs duties are to increase at rates ranging from 0.5% to 15% for various products, beginning from 10 June 2020.
Products potentially affected by increased customs duty
The products potentially affected by the increased customs duty rates include poultry, meat, dairy products, certain consumer products, some types of drinks and vegetables, spare parts, chemicals, building materials, and vehicles.
- Foods and beverages such as poultry and meat products, live sheep and goats, fish, cold-water shrimps and prawns, dairy products, juices, yogurt, dairy spreads, vegetables and olive oil. The customs duty rates for these products may increase from the current levels of 0%, 5%,12%, and 20% to rates ranging from between 6% and 25%, depending on the product.
- Chemicals such as carbon, silicon, zinc oxide, sulphonamide, propylene copolymers. The customs duty rate for these products may increase from current rate of 5% to 6.5%.
- Building materials such as tiles, marble, travertine and alabaster, pipes and tubes, electric wire and cable. The customs duty rates for these products may increase from the current rates of 5% and 12% to rates ranging between 12% and 15%.
- Vehicles (other than railway) such as private vehicles and emergency vehicles. The customs duty rate for these products may increase from the current rate 5% to rates ranging 5% and 7%, depending on the product.
Tourist Facility Tax
The Ministry of Municipal and Rural Affairs has imposed a flat levy of 5% on each room occupied in hotels and furnished apartments across the Kingdom.
The levy for rooms in three-star hotels and downwards will be 2,5 %.
This is on top of 5% VAT which is collected by the General Authority of Zakat and Tax (GZAT).
Tax Rate For Foreign Companies
A resident company is taxed on income sourced in Saudi Arabia. Only non-Saudi investors are liable for income tax in Saudi Arabia, and GCC nationals are considered as Saudi citizens for tax purposes. If a company has both Saudi and foreign shareholders, the corporate income tax is calculated on the portion of taxable income attributable to the non-Saudi, while the Saudi part contributes to the tax base of Zakat.
A non-resident company carrying out business activities in Saudi Arabia through a permanent establishment is taxed on income arising from or related to the permanent establishment.
No foreign tax relief is provided for foreign entities in Saudi Arabia.
Withholding Tax in KSA
The withholding tax rate is:
- 15% on Royalties
- 5% on Technical fees, Interest and Dividends and
- 15% on Commissions, attendance fees and other services in case of Saudi-sourced income.
The taxpayer is required to file online a monthly Withholding Tax Return (‘WTR’) within 10 days at the end of the month in which the payment was made to the non-resident.
Failure to settle the withholding tax would result in a delay fine of 1% for every 30 day- delay in payment.
For transactions with related parties, the date of recording the transaction is construed as the date of payment if transactions are settled through account rather than making payments.
The records such as copies of the contracts, etc., as well as supporting documents with respect to withholding tax should be maintained for a minimum of 10 years after payment.
If the subject is still under the review of the Department or the competent authorities, maintenance of such records should be continued till the finalization of such review or the issuance of a final decision by the Appeal Committee.