Income Tax for Individuals in Saudi Arabia: Everything You Need to Know
Many people ask: Is there income tax on individuals in Saudi Arabia? The direct answer: No, Saudi citizens do not pay income tax on their salaries or personal income. However, the topic has important details you should be aware of.
In this article, we explain to you the income tax system in Saudi Arabia, who the concerned individuals are, and the relationship between Zakat and income tax.
Do Saudis Pay Income Tax?
Saudi Arabia does not impose income tax on Saudi citizens. The salaries of Saudi employees and their personal income from freelance work within the Kingdom are not subject to income tax. Instead, Saudi citizens pay Zakat if they have commercial or investment activities exceeding the Nisab threshold. The Zakat rate is 2.5%.
This is considered one of the advantages of the tax system in Saudi Arabia. Many countries around the world impose income tax starting from 10% and reaching up to 45% on employee salaries.
Who Pays Income Tax?
According to the Zakat, Tax and Customs Authority (ZATCA), income tax in Saudi Arabia applies to:
- The share of non-Saudi partners in resident companies in the Kingdom. This means if a Saudi company has a foreign partner, their share of the profits is subject to income tax.
- Non-residents (Saudi or non-Saudi) who conduct business activities in the Kingdom through a permanent establishment or earn income from within the Kingdom.
- Foreign companies operating in Saudi Arabia.
The monthly salaries of foreign employees (residents) are not subject to income tax in Saudi Arabia, which differs from many other Gulf countries and the rest of the world.
The Relationship Between Zakat and Income Tax
Zakat in Saudi Arabia is imposed on:
- Saudi citizens who own commercial activities.
- Companies fully owned by Saudis.
- Mixed companies: The Saudi portion pays Zakat, while the foreign portion pays income tax.
The Zakat rate is fixed at 2.5% of the Zakat base, while the income tax rate for non-Saudis starts at 20% on profits.
Withholding Tax
In cases where profits or intellectual property rights are distributed to non-residents, a withholding tax (deduction at source) applies at specific rates:
- Distributed profits: 5%
- Royalties: 15%
- Other services: 20%
This tax is deducted by the Saudi party from the amount and paid to the Authority.
Frequently Asked Questions
Is my salary as a Saudi employee subject to income tax?
No, salaries and employment benefits for Saudi employees are not subject to income tax in Saudi Arabia.
Do foreign employees (expatriates) pay tax on their salaries?
No, the salaries of foreign employees in the private or public sector are not subject to income tax in Saudi Arabia.
If I have a small business as a Saudi, what should I do?
Register with the Zakat, Tax and Customs Authority and submit an annual Zakat declaration. The rate is 2.5% (one-fortieth).
Are profits from stocks in the Saudi market subject to tax?
Trading in the Saudi stock market (Tadawul) for speculative purposes by non-Saudis is not included under income tax. However, distributed profits are subject to withholding tax at a rate of 5% for non-residents.
If a non-Saudi has a business in Saudi Arabia, what is the income tax rate?
The income tax rate on the non-Saudi share of company profits typically starts at 20%, varying depending on the activity.
Summary
Saudi Arabia does not have income tax on individuals (salaries). Saudis pay Zakat on their commercial activities, while non-Saudis pay income tax on their business profits in the Kingdom. If you have further inquiries, you can contact the Zakat, Tax and Customs Authority at the unified number 19993 or visit their website zatca.gov.sa.
Reference: Executive Regulations of the Income Tax System – Zakat, Tax and Customs Authority
