What is Income Tax?
Income tax is a tax levied on the taxable profit of businesses or individuals. In Saudi Arabia, corporate income tax applies to the non-Saudi/GCC shareholder portion of resident companies and to permanent establishments of non-resident entities. Saudi and GCC natural and legal persons are subject to zakat instead. There is no personal income tax for individuals.
How It Works
- Determine residency and taxable presence (permanent establishment).
- Compute taxable profit: accounting profit adjusted for non-deductible expenses, depreciation differences, etc.
- Apply the statutory rate to the non-Saudi/GCC share of profits (20% standard; 30-85% in oil and gas).
- Pay advance installments where required and final balance with the return.
- File the income tax return with ZATCA within 120 days of year-end.
Saudi Context
ZATCA administers income tax under the 2004 Income Tax Law and its bylaws. Standard rate is 20%. Hydrocarbon producers pay 20-85% depending on capital. Saudi natural gas investment is 20%. Withholding tax (5-20%) applies to outbound payments to non-residents. Saudi/GCC shareholders pay zakat (2.5%) on their share of the zakat base instead of income tax.
Example
A mixed-ownership company has 60% Saudi and 40% non-Saudi shareholders, with taxable profit of SAR 5,000,000. Income tax base = 5,000,000 * 40% = SAR 2,000,000. Tax due = 2,000,000 * 20% = SAR 400,000. The Saudi 60% share is subject to zakat instead.