Saudi Arabia – Tax Measures to Boost Investments and Economy

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Saudi Arabia is an important region in West Asia and host to a large number of global enterprises. In this write-up, we have attempted to explain the corporate tax regime in Saudi Arabia and the recent tax incentives announced by the Kingdom.

Corporate Tax in Saudi Arabia

Generally, non-Saudi investors are subject to income tax in Saudi Arabia. However, Saudi citizen investors and citizens of GCC countries, treated as Saudi citizens for tax purposes, are liable for Zakat, an Islamic assessment.

- In case where a company is owned by both Saudi and non-Saudi interests, the taxable income attributable to the non-Saudi interest is subject to income tax, while the Saudi share is used for Zakat assessment.

- Various entities are subject to income tax, including resident capital companies with non-Saudi interests, resident non-Saudi natural persons conducting activities in Saudi Arabia, non-resident persons with a Permanent Establishment (PE) in Saudi Arabia, and those with other taxable income from Saudi sources.

Tax Rates in Saudi Arabia

The general income tax rate is 20% of the net adjusted profits, including investments in the natural gas sector. There are specific rates for income from oil and hydrocarbon production ranging from 50% to 85%. Withholding Tax (WHT) rates vary between 5% and 20%. This applies to payments made to non-Saudi entities, and the rates depend on the nature of the payment. Zakat, an Islamic assessment, is charged at 2.5% on the company's Zakat base, representing the net worth of the entity calculated for Zakat purposes.

30–year Tax Incentive

Recently, Saudi Arabia has introduced a comprehensive 30-year tax incentive package for The Regional Headquarters (RHQ) Program. This strategic initiative aims to streamline the process for multinational companies (MNCs) to establish their regional headquarters in Saudi Arabia, solidifying the Kingdom's position as a leading commercial, industrial, and investment hub for the MENA region. The incentive package provides for a 0% rate for corporate income tax and WHT related to the approved RHQ activities. Under the terms of the RHQ tax relief, companies will enjoy these benefits from the day they obtain their RHQ license, creating a favorable and stable business environment for long-term planning and growth. The RHQ program is effective from 1 January 2024.

Extension of Tax Amnesty Scheme

Saudi Arabia has extended its Amnesty Scheme, initially set to conclude on December 31, 2023. The Scheme will now run for an additional 6 months, spanning from January 1, 2024, to June 30, 2024. This extension applies universally across tax regimes, encompassing VAT, income tax, withholding tax, real estate tax, and excise tax. The Amnesty Scheme covers fines linked to various aspects, including late registration, payment, submission, corrections, and those arising from non-compliance with on-the-spot checks on invoices and general provisions. To qualify, taxpayers must be registered in the tax system, submit all overdue returns, disclose undeclared taxes, and settle the entire tax debt on the corrected return. Taxpayers may also apply for an installment payment plan, as per the approved schedule.

Conclusion

In conclusion, Saudi Arabia's corporate tax landscape is witnessing transformative changes, with a strategic 30-year tax incentive for the RHQ Program and an extended Amnesty Scheme offering a favorable business environment. These initiatives solidify the Kingdom's position as a regional hub for multinational companies.

Related articles covering the same subject matter

• The Strategic Implications of Relocating Regional Headquarters to Saudi Arabia: An In-Depth Analysis

• Establishing a Regional Headquarters in Saudi Arabia

• All About KSA’s RHQ Program

• Tax Incentives for Regional Headquarters in Saudi Arabia

• The UAE Tax Case Study : Zero Rate for the RHQ in Saudi Arabia and the Emirati Participation Exemption

Disclaimer: Content posted is for informational and  knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.