One probably to know is — Working a business in the Kingdom of Saudi Arabia (KSA) implies working in the biggest economy of the Middle East. Nevertheless, entering this market requires you to have full knowledge of local finance laws. You need a very good understanding of zakat and vat obligations first to manage your regulatory compliance here.
These requirements are regulated by Zakat, Tax and Customs Authority (ZATCA). If you fail to meet a deadline or miscalculate your numbers, you may face heavy fines, and eventually stop blocking your operations of the day. This guide outlines exactly how these regulations operate, who owes what, and when you shall obtain your essential certificates.
Saudi Arabia is using a unique combination of traditional religious systems and modern global consumption taxes for a tax framework.
Your corporate ownership structure determines which rules you abide by. If your company has both foreign and GCC shareholders, your liability will be divided pro rata.
All this should be done on the premise of assuring compliance, which means that you will have to review your company shareholder registry comprehensively. ZATCA assesses your remittances with a direct taxation that depends on nationality.
Regular corporate tax in Saudi Arabia applies only to the shares that the business has foreign ownership (non-GCC shareholders). Today, the corporate tax rate is equal to 20% of your net-adjusted profits.
There is no corporate income tax if your business is 100% owned by nationals of Saudi or GCC countries. Instead, you pay Zakat. The general amount of Zakat payable arithmetically is 2.5% of your total Zakat base, which consists of capital (particularly retained earnings and net profits, but excluding qualifying long-term physical assets).
In 2018, Saudi Arabia introduced a value-added tax to increase its whole revenue. The official Saudi Arabia vat rate is 15%. The flat rate is also applicable for the majority of commercial goods, digital services and imports in transit via the Kingdom.
But not all transactions are liable to be charged at the standard rate. The law separates these transactions into two distinct categories:
While registering the new corporate entity with the Ministry of Commerce, a unique Tax Identification Number (TIN) is assigned by default. This number is directly connected to your business profile on the official ZATCA online portal. From where you first sign in to make your e-filings.
In order to start legally charging your client with vat, you must obtain a valid vat certificate ksa. Here are the operational steps to protect it:
Filing your tax returns on time is crucial to keeping a clean business profile in Saudi Arabia.
Filing windows depend on your annual revenue for VAT. You need to file a monthly VAT return if your annual taxable sales are above SAR 40 million. If your sales are below that mark, you shall file quarterly. You should file your return and pay any taxes owed no later than the last day of the month following the close of your tax period.
You must file your annual return as well as clear your balances for Zakat and corporate income tax in 120 days from the close of its fiscal year-end.
Source: All the tax rates, thresholds and operational rules are based on the published regulation of ZATCA (Zakat, Tax and Customs Authority) – Saudi Arabia.
In Saudi Arabia, remaining 100% compliant boils down to three tasks:
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