Personal Income Tax in Saudi Arabia: Everything You Need to Know
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Many people wonder: is there a personal income tax in Saudi Arabia? The direct answer is: no, Saudi citizens are not subject to income tax on their salaries or personal earnings. However, the topic includes important details that you should be aware of.
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In this article, we explain the income tax system in Saudi Arabia, who is affected, and the relationship between zakat and income tax.
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Do Saudis Pay Income Tax?
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Saudi Arabia does not tax Saudi citizens on their income. The salaries of Saudi employees and their personal earnings from independent activities within the Kingdom are not subject to income tax. Instead, a Saudi citizen pays zakat if they own a commercial business or investments exceeding the required threshold. The zakat rate is 2.5%.
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This is considered an advantage of the Saudi tax system. Many countries around the world impose income taxes starting at 10% and going up to 45% on employee salaries.
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Who Pays Income Tax?
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According to the Zakat, Tax and Customs Authority, income tax in Saudi Arabia applies to:
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- The share of non-Saudi partners in resident companies within the Kingdom. This means that if a Saudi company has a foreign partner, their share of profits is subject to income tax.
- Non-resident individuals (whether Saudi or not) who conduct business activities in Saudi Arabia through a permanent establishment or generate income from the Kingdom.
- Foreign companies operating in Saudi Arabia.
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As for foreign employees (residents), their monthly salaries are not subject to income tax in Saudi Arabia, which differs from many other Gulf and global countries.
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Zakat and Its Relationship with Income Tax
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Zakat in Saudi Arabia is imposed on:
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- Saudi citizens who own commercial businesses.
- Companies owned 100% by Saudis.
- Mixed companies: the Saudi portion pays zakat, while the foreign portion pays income tax.
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The zakat rate is fixed at 2.5% of the zakat base, while income tax for non-Saudis starts at 20% of profits.
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Withholding Tax
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In the case of distributing profits or intellectual property rights to non-residents, a withholding tax applies at specific rates:
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- Distributed profits: 5%
- Royalties: 15%
- Other services: 20%
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This tax is withheld by the Saudi party from the amount and remitted to the Authority.
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Frequently Asked Questions
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Is my salary as a Saudi employee subject to income tax?
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No, the salaries and social benefits of Saudi employees are not subject to income tax in Saudi Arabia.
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Does a foreign employee (expatriate) pay taxes on their salary?
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 national, what should I do?
Register with the Zakat, Tax and Customs Authority (ZATCA) and submit an annual zakat declaration. The rate is 2.5% (one-quarter of one-tenth).
Are stock market profits in the Saudi market subject to tax?
Trading on the Saudi Financial Market (Tadawul) for speculative purposes by non-Saudis is not included in income tax. However, distributed profits are subject to a 5% withholding tax for non-residents.
For a non-Saudi individual with a business in Saudi Arabia, what is the income tax rate?
The income tax on a non-Saudi’s share of the company’s profits generally starts at 20% and varies depending on the activity.
Summary
Saudi Arabia does not have a personal income tax on salaries. Saudis pay zakat on their business activities, while non-Saudis pay income tax on the profits of their businesses in Saudi Arabia. If you have other questions, 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
