Many residents and expatriates in Saudi Arabia ask: Are non-Saudis subject to income tax? And does the situation differ if they are residents or non-residents? The short answer: Yes, non-Saudis are subject to income tax, but under a different system depending on residency status and type of income. In this article, we clarify the difference between residents and non-residents from a tax perspective, according to the Zakat, Tax and Customs Authority (ZATCA).

Who is subject to income tax in Saudi Arabia?

According to the Saudi income tax system, the following individuals are subject to tax:

  • Non-Saudi resident who conducts commercial or professional activities in Saudi Arabia
  • Non-resident who conducts activities through a permanent establishment (PE) in Saudi Arabia
  • Non-resident who earns income from a Saudi source without a permanent establishment
  • Companies owned by non-Saudis (fully or partially)
  • Workers in the oil, gas, and hydrocarbons sector

Meanwhile, Saudi nationals and citizens of GCC countries are subject to the Zakat system at a rate of 2.5% on the Zakat base.

Difference between residents and non-residents

Let’s clarify the difference simply:

First: Non-Saudi resident (resident in Saudi Arabia)

  • Employment income (salary): There is no income tax on salaries and wages in Saudi Arabia. The expatriate employee does not pay tax on their salary.
  • Income from business activities: If the resident conducts commercial activities or owns a sole proprietorship or company, they are subject to income tax at a rate of 20% on net profit.
  • Mixed companies: If the company has Saudi and non-Saudi partners, the non-Saudi share is subject to income tax (20%), while the Saudi share is subject to Zakat (2.5%).

Second: Non-resident (outside Saudi Arabia)

  • Has a permanent establishment (PE) in Saudi Arabia: Subject to income tax at a rate of 20% on the profits of the establishment.
  • Does not have a permanent establishment: Subject to withholding tax on income from Saudi sources, with rates ranging between 5% and 20% depending on the type of income.

Withholding tax rates for non-residents

If a non-resident earns income from a Saudi source without a permanent establishment, tax is withheld at source (by the payer) according to the following rates:

  • Dividends / profit distributions: 5%
  • Royalties and franchise fees: 15%
  • Technical or consultancy services: 15–20%
  • Rent: 5%
  • Directors’ fees: 20%

Note: These rates may be reduced if a double taxation avoidance agreement exists between Saudi Arabia and the beneficiary’s country.

Illustrative example

Ahmad is an Egyptian engineer residing in Saudi Arabia
Mohammed is a non-resident Jordanian investor who owns a residential building in Saudi Arabia that he rents out → Subject to a ٥٪ withholding tax on the rent.
Takaful Company is owned ٦٠٪ by a Saudi and ٤٠٪ by a Kuwaiti partner → ٤٠٪ of the profit is subject to ٢٠٪ income tax, and ٦٠٪ is subject to ٢٫٥٪ Zakat.

Frequently Asked Questions

Does an expatriate pay tax on their salary in Saudi Arabia?

No, there is no income tax on salaries and wages in Saudi Arabia for any employee, whether Saudi or expatriate.

What is the income tax rate for non-Saudis?

The basic income tax rate is ٢٠٪ on net profit for commercial establishments and businesses. In the oil and hydrocarbons sector, it ranges between ٥٠٪ and ٨٥٪.

What is the difference between a tax resident and a non-tax resident?

A resident conducting commercial activity in Saudi Arabia is subject to ٢٠٪ income tax. A non-resident is either subject to income tax through a permanent establishment (٢٠٪) or withholding tax (٥–٢٠٪) depending on the type of income.

Are Gulf Cooperation Council (GCC) citizens treated the same as Saudis for tax purposes?

Yes, citizens of GCC countries are treated the same as Saudis for tax purposes and are subject to Zakat instead of income tax.

When should an establishment register for income tax?

Every establishment owned by a non-Saudi must register with the Zakat, Tax and Customs Authority within ٣٠ days of starting operations and submit an annual tax return.

Does income tax apply to listed joint stock companies?

Shares traded in the Saudi market for speculative purposes are not subject to income tax. Shares owned by non-Saudis in non-listed companies are taxed according to their shares.