In light of global economic changes and increasing financial needs to develop infrastructure and support development projects, taxes in Saudi Arabia have become a vital tool for enhancing economic sustainability and achieving financial balance. As the Saudi economy transforms into a more diversified and sustainable model, taxes become an essential part of this transformation, not only as a main source of government revenues but also as a means to stimulate investment and achieve social justice. In this context, taxes of various types emerge as a major axis that must be understood in depth in order to recognize their role in achieving the ambitious economic goals set by the Kingdom’s Vision 2030, from direct taxes imposed on income and profits to indirect taxes imposed on goods and services. So, in this article, we will get to know each one of them, so follow along.
What are the taxes in Saudi Arabia?
They are mandatory financial revenues imposed by competent authorities with the aim of financing government activities and public services. In the Kingdom of Saudi Arabia, these taxes include a variety of areas, such as economic activities, expenses, income, and jobs, and are imposed on both individuals and institutions.
The Zakat, Tax, and Customs Authority in Saudi Arabia is responsible for managing the tax system. It is worth noting that this authority is not only responsible for collecting taxes but also for implementing tax policies and decisions determined by the government. The tax rate is determined in advance according to specific laws and regulations, and these rates are imposed on individuals, whether they are employees or final consumers, as well as on commercial companies registered in the Kingdom.
The concept of direct and indirect taxes in Saudi Arabia
Direct taxes
These are the taxes that a person or institution pays directly to the government without the presence of any intermediary. These taxes are imposed on individuals and institutions. The most important types of direct taxes in Saudi Arabia are:
- Income tax: It is the tax imposed on the income that individuals receive from various sources: salaries, business gains, and asset income.
- Company tax: It is the tax imposed on the profits made by companies and institutions.
- Withholding taxes: It is the tax that is deducted from payments that individuals receive from other parties, such as wages, fees, and interests.
Indirect taxes
These are the taxes that the producer or seller pays to the government and are ultimately borne by the final consumer as part of the price of the good or service. The most important types of indirect taxes in Saudi Arabia are the following:
- Value-added tax: It is a tax imposed on goods and services at various stages of production and distribution.
- Excise tax: It is a tax imposed on certain goods such as tobacco, alcoholic beverages, and soft drinks.
- Customs duties are taxes imposed on imported goods when they are brought into the Kingdom.
Types of direct and indirect taxes in Saudi Arabia
The types of taxes in Saudi Arabia applied to individuals and companies are divided into two types, as we explained previously, but we will talk about them in some detail as follows:
Direct taxes
Income tax
Income tax is one of the main direct taxes in Saudi Arabia, as it is imposed on the income of individuals and institutions resulting from commercial activities, including salaries and employment income. It is worth noting that this tax is imposed on several categories that can be summarized as follows:
- Non-Saudi resident natural individuals: A 20% tax is applied to their income resulting from commercial activities in the Kingdom.
- Non-resident persons who carry out their activity through a permanent establishment are subject to the same rate of 20%.
- Non-resident individuals who receive income from sources within the Kingdom are subject to a tax of 20%.
- For those working in the field of natural gas investment, the tax rate is 30%.
- Those working in the field of oil and hydrocarbon production: The tax rate imposed on them ranges between 50% and 85% according to specific standards.
- A percentage is deducted from profits exceeding a certain limit, and the income tax rate increases with the increase in realized profits.
Company tax
It is also known as the capital tax, and it is imposed on the net profits of companies operating in the Kingdom. The rate of this tax is 20%, and this tax differs from that imposed on individuals, as it requires special adjustments according to the type of activity and the revenues resulting from it.
Withholding tax
This tax is imposed on non-residents who receive income or benefits from a person residing in the Kingdom. The non-resident person is responsible for deducting a specific percentage of the tax and paying it to the Zakat, Tax, and Customs Authority. It is worth noting that the tax rate here ranges between 5% and 20%, depending on the nature of the payments.
Indirect taxes
Excise tax
Excise tax is an important indirect tax in Saudi Arabia and aims to limit the consumption of goods that are harmful to health, such as tobacco and its derivatives. We cannot forget that this tax is imposed on specific products with the aim of reducing demand for them by increasing their prices, which encourages the adoption of healthier lifestyles.
Individuals and companies that wish to import selective goods are required to register with the General Authority of Zakat and Income. This ensures that all parties involved in the import, sale, and purchase comply with tax regulations and reporting requirements.
Customs duties and excise duties
Customs duties are one of the types of indirect taxes in Saudi Arabia, imposed on goods imported into the Kingdom of Saudi Arabia. These duties aim to regulate trade and protect local products from unfair foreign competition. The value of customs duties is determined based on a set of principles and standards followed by the General Authority of Customs, and among these standards are the following:
- The sale or price must not be linked to certain conditions that affect the value of the imported goods.
- The determined value of the goods should be clearly verifiable and assessable, without any considerations or conditions that might make it indeterminable.
Value Added Tax (VAT)
Value-added tax is one of the types of indirect taxes in Saudi Arabia and is applied to all goods and services that are sold and purchased by establishments, with the exception of some cases. This tax is imposed at every stage of the supply chain, from the purchase of raw materials to the sale of the final product to the consumer. The final consumer is the one who bears the cost of the tax, while establishments collect value-added tax from sales operations and recover what they paid to their suppliers. The value-added tax rate is 15%.
Establishments can recover the value-added tax they paid on their purchases from their suppliers, and thus this helps reduce the impact of this tax on business costs and enhance competitiveness.
How value-added tax works in the Kingdom of Saudi Arabia
Value-added tax (VAT) is an indirect tax imposed on goods and services at every stage of production, distribution, and sale. Although the final consumer is the one who bears this tax when purchasing the product, the process includes several steps in which the burden of collection is distributed among the various establishments without them bearing the cost of this tax in the end. It is worth noting that collecting VAT goes through several stages, which are as follows:
Production
When purchasing raw materials, producers pay VAT, which they can recover later when selling finished products.
Example
If a factory buys raw materials, it pays an additional tax on these materials but recovers it when the tax is collected from the final sales.
Supply
The finished product is sold to suppliers with VAT added to the price. The supplier pays this tax when purchasing the products and then adds it again when selling the products to suppliers. The supplier does not always bear the tax but rather recovers what he paid upon supplying the tax he collected from distributors.
distribution
The distributor purchases products from suppliers while paying VAT and adds the tax to the selling price for the final consumer. When collecting the tax from consumers, the distributor pays what he collected to the Zakat, Tax and Customs Authority, and recovers the tax he paid when purchasing products from suppliers.
Tax refund and payment mechanism
Each party in the supply chain, starting from the producer through the supplier and distributor, pays VAT when purchasing materials or products. However, each party is allowed to recover the tax paid when submitting periodic reports and paying the tax collected from sales operations to the authority.
How to calculate VAT from the Qoyod VAT Calculator
Value Added Tax (VAT) is one of the important taxes in Saudi Arabia that companies in many countries face. Given the complexity of this tax and its large financial implications, the use of advanced accounting software, such as Qoyod, is extremely important. It provides powerful capabilities for calculating VAT accurately and efficiently. All you have to do is follow the following:
Start entering basic data.
This is the first step. Information must be entered, such as the value of the invoice or the good or service sold, in addition to the applied percentage of value-added tax. This information will enable the Qoyod program to perform the necessary calculations.
Automatically calculate the amount.
After entering this data, the Qoyod program will automatically calculate the value-added tax amount based on the entered value and the specified tax percentage. This feature ensures the accuracy of the calculations, saving the user time and effort.
Access reports
In addition, the Qoyod program enables users to access advanced reports and analyze value-added tax data. It is worth noting that these analytical tools help companies monitor their tax expenditures and work to improve their financial performance.
Make the necessary corrections.
In the event of any errors or amendments to the tax data, the Qoyod program allows users to make the necessary corrections and recalculate taxes in Saudi Arabia, such as value-added tax, according to the changes. This flexibility helps companies comply with regulatory requirements and maintain the accuracy of their financial records.
Generate tax reports.
Moreover, the Qoyod program can generate the required tax reports, such as value-added tax returns and tax audit reports. This feature makes it easier for companies to meet tax compliance requirements and deal smoothly with the relevant authorities.
Tax return form
After you know what types of taxes are in Saudi Arabia, if you want to use the tax return form, all you have to do is download it, modify it, and start using it.
Conclusion
The pivotal role that different types of taxes play in Saudi Arabia in achieving financial sustainability and economic growth is clearly evident. Through an integrated tax system that includes direct taxes, such as income tax and corporate tax, and indirect taxes, such as value-added tax and withholding tax, the Kingdom seeks to enhance economic justice and provide the necessary funding to develop infrastructure and public services. It is worth noting that a deep understanding of these tax systems is not only the responsibility of companies and investors but is also an essential step towards achieving the effective participation of citizens in building a bright and sustainable economic future. Thanks to the efforts of the Zakat, Tax, and Customs Authority in implementing tax policies and following up on compliance, Saudi Arabia remains at the forefront of countries seeking to achieve an ideal balance between stimulating investment and achieving social justice, which paves the way towards a promising economic future for all.
It is worth noting that Qoyod Accounting Software plays a vital role in facilitating knowledge of taxes and managing them accurately and effectively. Thanks to advanced technology, business owners and accountants are able to easily track all financial transactions, which provides a comprehensive view of the organization’s financial situation. It is worth noting that it also provides all its clients with electronic invoice systems as well as point-of-sale systems, warehouses, customers, etc. Which makes it the best integrated accounting program.
After learning what types of taxes are in Saudi Arabia, try Qoyod now for free for 14 days and benefit from this wonderful technology to achieve what you desire.
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