Accounting (Tax) Service
In the Middle East, there is no tax system for income tax, value-added tax, corporate tax, and others based on Islamic law. Two major corporate tax systems can be divided into Non-Saudi, Non-GCC Companies (foreign companies) and Saudi Arabian domestic companies, GCC-Company. Foreign-invested corporations in Saudi Arabia pay 20% corporate income tax, down from 30% in 2004 to 20%. Foreign investors’ tax payment, collection, and processing procedures take a short time and are simple, so the investment environment related to tax is evaluated positively, and taxes are low compared to the world standard. In the Middle East, most foreign-invested companies, in the case of domestic-invested companies and joint ventures, must pay religious tax corresponding to the share and corporate income tax of the foreign-invested share, respectively, according to the proportion of the invested share.
From our results of promotions and relationships with numerous organizations doing business in the Middle East, we provide industry “best practices” that enable us to set up and implement processes to diagnose, identify problems, design solutions, and auto-channel business operations. The growth goals and services for this purpose are as follows.
Subject to corporate tax
- Non-Saudi Arabia interests in resident capital companies
- Non-Saudi Arabian natural persons residing in Saudi Arabia and engaged in business in Saudi Arabia
- Non-residents conducting business in Saudi Arabia with a permanent establishment (limited liability company, joint stock company, branch of a foreign company, etc.)
- Non-residents with other taxable income in Saudi Arabia
- Entities (such as companies) involved in natural gas investment activities
- Oil and hydrocarbon related entities
Saudi Arabia residence regulations
- You have a permanent residence in Saudi Arabia and have been in Saudi Arabia for at least 30 days during a tax year
- You reside in Saudi Arabia for at least 183 days during a tax year (even a short stay within a day in Saudi Arabia during a tax year counts as 1 day, but not when transiting between two points)
Corporate tax rate for foreign-invested companies
For foreign shares in foreign-invested companies or joint ventures, corporate tax is payable on profits generated in Saudi Arabia. According to Saudi Arabia’s tax laws, the corporate tax rates for foreign-invested companies are applied as follows, depending on the industry in which they operate.
- All corporate taxpayers under the Saudi Arabian Income Tax Law: 20%
- Taxpayers participating in natural gas sector investments: 30%
- Taxpayers participating in oil and hydrocarbon production: 85%
Taxation is calculated annually, regardless of retained earnings or dividends. Saudi Arabian investors in joint ventures or investors from GCC member countries must pay ZAKAT 2.5% (fixed) on the capital not invested in fixed assets. On the other hand, foreign companies must pay 20% of their profits (= sales – expenses) as corporate tax.
Taxable Income
In general, taxation applies to the total income of a company. In addition to company income and profits, all types of profits derived from business activities, such as income generated from using business-related facilities and service provisions, capital income, and incidental profits, are subject to taxation. However, employees’ salaries are exempt from taxation. In the case of construction, revenue is calculated based on progress, not completion. Profits from the sale of assets in Saudi Arabia must be declared. Foreign income is subject to tax if the foreign activity is incurred by the same entity at the same time as the activity in Saudi Arabia. Although taxation is difficult in practice, income from overseas operations of a foreign entity resident in Saudi Arabia is also subject to tax.
If a foreign corporation operates in Saudi Arabia through a local agent, it is subject to tax if it sells goods abroad to buyers in Saudi Arabia, and the supply contract involves services (installation in the case of plants) in Saudi Arabia. If the service in Saudi Arabia is indicated in the supply contract and the value is fixed, that value is taxable income. If the value of the service is not fixed, 10% of the contract amount is applied as the service value for each type of service. If a supply contract does not involve services in Saudi Arabia, the supply of goods is tax-free, even if the supply is made in Saudi Arabia.
If the goods supply part and the service part in Saudi Arabia are separated into a separate contract, the goods supply part can be excluded from taxation. Royalty payments from joint ventures are entirely regarded as the profits of foreign investors and are subject to corporate tax. When royalties are paid, the company paying the royalties must withhold corporate tax and report it to the Zakat Income Tax Office (DZIT). Capital gains from the disposal of securities traded on the Saudi Arabia stock market and gains from the disposal of property other than assets used for business activities are exempt from income tax.
Deduction
All operating expenses incurred in Saudi Arabia, i.e., salaries (DZIT requires detailed payment information when filing tax returns), service charges, rent, depreciation, interest to foreign investors, payments for foreign technology and engineering services, and intercompany fees, are deductible from corporate tax. However, interest on foreign investors is taxed on 15% of the fictitious profits. Dividend payments are not deductible, and dividends paid to foreign shareholders are subject to a 5% withholding tax. Taxes paid are non-deductible, whether paid inside or outside Saudi Arabia. A Saudi Arabian limited-liability company may claim a tax deduction for taxes paid while operating abroad. Expenses without evidence, agent commissions exceeding 5% of the contract amount, expenses unrelated to company operations, general reserves, and headquarters management expenses are not deducted.
Zakat
Zakat is a type of religious tax stipulated by Islamic law (Shariah). It is levied on companies owned by Saudi Arabians or GCC nationals and joint ventures involving Saudi Arabians. It is usually levied at the level of 2.5% of individual net assets or total corporate capital. However, capital invested in fixed assets, long-term investments, and deferred costs is exempt from taxation. If the Zakat payment target is negative, 2.5% Zakat is applied to the Saudi Arabia investor’s share of profits. Zakat taxpayers in the industrial and commercial sectors must have appropriate accounting records.
Tax Exemption
Saudi Arabia’s tax system is so simple that there are few exemptions or tax-related incentives. In the case of foreign-invested companies, there is almost no tax exemption except for some companies, according to the Royal Decree. However, we are informed that the government is considering offering incentives such as corporate tax exemption to companies moving into industrial complexes that will be created in the streets of major industrial complexes in the future.
Information on the tax laws of the country you’re doing business in is very important because tax laws in the Middle East and foreign tax accounting differ from country to country. We build a better Middle East business with all our customers connected to us with our diverse experience and know-how in this region.
Our tax experts provide connected services across all tax disciplines to help you succeed in times of rapid change. We combine our unparalleled knowledge and experience with a people and technology platform that makes us the ideal partner for your tax-related needs.
Our tax consultants or advisors are experts in tax law, planning, and compliance and provide services to businesses and individuals. Our tax experts provide updates on tax laws and practices and advise on planning your tax liability by helping you file your taxes hassle-free and error-free. They also help your business find eligible credits and deductions.
The Middle East Biz Center has expertise in business tax, international tax, transaction tax, and tax matters related to personnel, compliance, and reporting. We use our experience, knowledge, and business acumen to help you succeed.
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