Saudi Arabia's Tax System and Regulatory Framework in 2025

Taxation plays a pivotal role in Saudi Arabia’s strategy to diversify government revenue, support economic transformation, and achieve fiscal sustainability under Vision 2030. As the Kingdom reduces its reliance on oil income, it simultaneously seeks to attract foreign investment while ensuring robust tax compliance. The primary authority overseeing tax administration is the Zakat, Tax and Customs Authority (ZATCA), accessible at https://zatca.gov.sa/en/Pages/default.aspx, operating under the Ministry of Finance.

Saudi Arabia enforces two parallel tax systems based on ownership structure. GCC nationals and companies owned by them are subject to Zakat, a religious wealth tax rooted in Islamic principles. Non-GCC entities, on the other hand, are liable for corporate income tax. For mixed-ownership businesses, tax obligations are apportioned according to shareholder nationality and equity stakes. Key taxes currently in effect include Zakat, corporate income tax, value-added tax (VAT), withholding tax, excise tax, customs duties, real estate transaction tax, vacant land tax, expatriate levy, and capital gains tax. Notably, there is no personal income tax, digital services tax, or carbon tax in the Kingdom. Businesses must prioritize strategic tax planning to ensure full compliance with evolving regulations.

Key Taxes and Applicable Rates in Saudi Arabia

Corporate Tax Obligations (No Personal Income Tax)

Zakat (Religious Wealth Tax)

Zakat, one of the five pillars of Islam, applies to Muslim-owned enterprises and functions similarly to corporate income tax. It is assessed at 2.5% of net assets rather than profits. Recent reforms have expanded the tax base to include real estate held for trade or lease, as well as undeveloped or under-development land. Exemptions apply to non-profits and charitable organizations. Certain long-term liabilities—such as commercial loans, government debt, payables, and shareholder advances—may be deducted if held for one year or more. Inventory, receivables, and raw materials used in operations are now included in the taxable base.

Corporate Income Tax

The standard corporate income tax rate is 20% for most businesses. However, oil and hydrocarbon producers face tiered rates based on capital investment: 85% for investments up to USD 60 billion; 75% for investments between USD 60–80 billion; 65% for USD 80–100 billion; and 50% for investments exceeding USD 100 billion. Saudi Arabia follows a territorial tax system, meaning only income sourced within the Kingdom is taxable, unless exempt. Losses can be carried forward but are limited to offsetting 25% of taxable income annually. For further details, visit ZATCA’s tax regulations portal: https://zatca.gov.sa/en/RulesRegulations/Taxes/Pages/default.aspx?catid=2.

Value-Added Tax (VAT)

VAT in Saudi Arabia is uniformly set at 15%, increased from 5% in July 2020 to strengthen public finances. Businesses with annual taxable supplies exceeding SAR 375,000 must register; those below may opt-in voluntarily. VAT applies to most goods and services, including imports. Exemptions include certain financial services, while zero-rated supplies cover exports outside the GCC, international transport, qualifying medical products, and pharmaceuticals. Real estate transactions are exempt from VAT but subject to a 5% real estate transaction fee. Citizens purchasing first homes, private education, or healthcare services are also exempt from VAT on these items.

Engineering, procurement, and construction (EPC) firms must carefully assess VAT implications related to offshore contracts, importation of equipment, intra-group services, and permanent establishment risks. Digital service providers must comply with place-of-supply rules: foreign suppliers serving Saudi customers must register and remit VAT directly. Covered digital services include:

1. Telecommunications via wired, wireless, optical, or electromagnetic systems;
2. Transfer of transmission capacity rights;
3. Internet access services;
4. Publicly available audiovisual content;
5. Digital media such as e-books, games, films, online magazines, and on-demand programming;
6. Website hosting;
7. Remote software and device maintenance;
8. Software and updates;
9. Online advertising and associated rights.

For comprehensive guidance, refer to the VAT Implementing Regulations: https://zatca.gov.sa/en/RulesRegulations/Taxes/Pages/VATImplementingRegulations.aspx.

Withholding Tax (WHT)

Payments made by Saudi entities to non-residents are subject to withholding tax, ranging from 5% to 20%:

1. Management fees: 20%;
2. Royalties and intra-group service charges: 15%;
3. Rent, dividends, interest, insurance, air and sea freight, reinsurance, technical or consulting services, and telecom services: 5%;
4. All other payments: 15%.

Under the China-Saudi tax treaty, reduced WHT rates apply: 5% on dividends, 10% on interest, and 10% on royalties. Further information is available at: https://zatca.gov.sa/en/RulesRegulations/Taxes/Pages/WithholdingTax.aspx.

Excise Tax

Excise tax targets harmful or luxury goods using an ad valorem basis—calculated on the higher of retail price (excluding VAT) or customs valuation. Products subject to excise tax include:

1. Tobacco and related products: 100%;
2. Soft drinks (carbonated and sugary): 50%;
3. Energy drinks: 100%;
4. E-cigarettes: 100%;
5. E-liquid for vaping: 100%.

Manufacturers, importers, distributors, and warehouse operators handling these goods must register, file returns, and may apply for refunds per ZATCA guidelines. More details: https://zatca.gov.sa/en/RulesRegulations/Taxes/Pages/ExciseTax.aspx.

Customs Duties

Saudi Arabia, a WTO and World Customs Organization member, applies tariffs under the GCC Common External Tariff. Most imports face a standard 5% duty, though essential goods like food, medicine, and agricultural inputs are often duty-free. Luxury or health-sensitive items incur higher rates: tobacco (100%), textiles (5–12%), steel (5–20%), chemicals (5–20%). Alcohol, pork, pornography, and alcohol-containing products are banned. Vehicles require type approval before import.

Free zones in western, central, eastern, and northern regions offer zero tariffs, tax incentives, and unrestricted profit repatriation, making them attractive for foreign investors. Additional information: https://zatca.gov.sa/en/RulesRegulations/Customs/Pages/default.aspx.

Other Levies and Fees

Stamp Duty: Regular stamp duties have been abolished.

Real Estate Transaction Tax: A flat 5% tax applies to all property transfers, sales, and long-term leases.

Vacant Land Tax (White Land Tax): Urban landowners holding undeveloped plots in designated zones must pay 2.5% of the land’s assessed value annually. This policy aims to stimulate housing supply and stabilize prices. Learn more at: https://land.housing.gov.sa/.

Expatriate Levy: Employers pay an annual fee per foreign worker: SAR 9,600 if Saudization targets are met; SAR 10,800 otherwise. This supports national employment initiatives.

Capital Gains Tax: Gains derived from assets located in Saudi Arabia are taxed under corporate income tax rules. No separate capital gains regime exists for individuals or corporations.

Notably, Saudi Arabia does not impose personal income tax, digital service taxes, or environmental levies such as carbon pricing.

Corporate Income Tax Calculation and Filing Process

Calculating corporate income tax in Saudi Arabia involves determining taxable income and applying the relevant rate. The process is straightforward but requires meticulous record-keeping and adherence to regulatory timelines.

Determining Taxable Income

Taxable income equals gross revenue minus allowable deductions. Eligible expenses include:

1. Direct production and procurement costs;
2. Operating expenses such as salaries, rent, and administrative overhead;
3. Depreciation and amortization calculated per ZATCA guidelines;
4. Approved deductions like charitable contributions and R&D expenditures meeting specific criteria.

Taxable Income Formula

Taxable Income = Total Revenue – Allowable Deductions

Calculating Tax Liability

Standard tax liability is computed by multiplying taxable income by the applicable rate—typically 20%. Special rates apply to oil and gas producers, as outlined earlier.

Tax Payable = Taxable Income × Applicable Rate

Tax Credits and Incentives

Saudi tax law allows certain credits, including foreign tax relief and R&D incentives. Companies engaged in innovation or operating in priority sectors may qualify for reductions. Applications must be supported by documentation and submitted within prescribed periods.

Filing Corporate Tax Returns

Businesses must file their tax returns within 120 days after the end of their fiscal year. The filing process includes:

1. Preparing audited financial statements;
2. Computing taxable income and tax due;
3. Completing the official tax return form;
4. Submitting the return and supporting documents to ZATCA;
5. Paying the assessed amount.

Accuracy and timeliness are critical to avoid penalties. Multinational corporations and complex structures are advised to engage local tax advisors. SailGlobal offers expert cross-border compliance solutions tailored to international businesses expanding into the Gulf region, ensuring seamless integration with Saudi regulatory requirements.

In summary, while Saudi Arabia’s corporate tax framework is relatively transparent, ongoing reforms and sector-specific rules demand vigilance. Proactive tax governance, supported by professional advisory services, enables sustainable growth in this dynamic market.