Accounting Basics

Tax In KSA: Income Tax, Zakat, And Other Taxes Simply Explained

Tax In KSA Income Tax Zakat

Taxation is a tough due diligence that everyone must get right. Despite the excessive official material available, the subject can still be confusing—that’s why we compiled this article, where we showcase three of the most commonly applicable taxes and levies in KSA.

Zakat (Net Worth Tax) In KSA Simply Explained

What Is Zakat?

In Saudi Arabia, net worth tax—also known as Zakat—is a religious taxation that Saudi or GCC nationals must pay on their net worth or the base for Zakat—as modified for Zakat purposes.

Who Is Subject To Zakat?

A Saudi or GCC person who resides in Saudi Arabia and engages in business operations meant to generate profit or benefit, such as investments, services, or commercial, industrial, or financial activities, is subject to the Zakat obligation.

How Is Zakat Calculated?

Zakat is calculated in accordance with the following guidelines:

Zakat is determined as 2.578% of the net assessable wealth or the Zakat base (excluding net adjusted profits) + 2.5% of net adjusted profits if the Zakat base exceeds the net adjusted earnings attributable to Saudi and GCC national shareholders.

Zakat is determined at 2.5% of net adjusted earnings if the Zakat base is less than those profits.

What Are Net Assessable Funds In Zakat?

In general, net assets less amounts invested in fixed assets, long-term investments, plus deferred expenses, and the adjusted income for the year, make up net assessable funds in Zakat.

Note: The computation of Zakat liabilities is subject to complicated laws. Thus, it is advised that Zakat payers obtain personalized guidance according to their situation.

Income Tax In KSA Simply Explained

Who Is Subject To Income Tax In KSA?

The following individuals are subject to income tax according to the law:

  • A resident capital corporation, excluding the below (in which case the underlying resident firm would be liable to Zakat), with respect to shares owned directly or indirectly by non-Saudi/non-GCC individuals and individuals engaged in the production of oil and hydrocarbons.
  • Shares purchased for speculation by trading on the Saudi stock market that belong to a resident capital corporation listed there.
  • Shares held either directly or indirectly by individuals engaged in the oil and gas industry in capital firms, as well as shares held directly or indirectly by these businesses in resident capital companies listed on the Saudi stock exchange.
  • A natural person who resides outside Saudi Arabia and engages in activities there.
  • A non-resident individual who uses a PE to conduct operations in Saudi Arabia.
  • A non-resident with additional income from Saudi sources that is liable to tax without a PE
  • An individual working in the natural gas investment sector.
  • A person who produces oil and other hydrocarbons.

Full list of articles in detail about VAT and e-invoicing.

What Is The Income Tax Rate In KSA?

20% of the net adjusted earnings are subject to income tax.

WHT rates range from 5% to 20%. 2.5% of the company's basis for Zakat is taxed as Zakat. The entity's net value, as determined for Zakat purposes, is represented by the Zakat base.

Exceptional Income Tax Rates

It should be mentioned that although the standard income tax rate is 20%, two separate rates apply to the income from the following two activities:

  • The tax rate on income from the extraction of oil and other hydrocarbons ranges from 50% to 85%.
  • A person's tax basis should be separate from their tax base for their other activities if they operate in the natural gas investment industry.

Important Amendments

Natural gas investments should be taxed in accordance with the general provisions of the income tax regulatory framework, including being subject to the general income tax rate of 20%, as of 1 January 2018, after the income tax was added to revoke the Natural Gas Investment Tax (NGIT) provisions.

Social Security In KSA Simply Explained

Saudi social insurance tax (GOSI) is a requirement that employers pay on behalf of their staff.

The payments are taken from the base wage, which includes housing benefits. Saudi nationals must pay 2% in unemployment insurance premiums and 18% in pension payments, respectively (shared equally between employer and employee).

The contributions of other GCC citizens are determined by the regulations of each individual country. Pension contributions are not necessary for other overseas workers, though.

Both Saudi and non-Saudi employees must have their employers contribute to occupational risks insurance at a cost of 2%.

Employees who are citizens of other GCC nations are subject to different rates. In general, the rates that apply to Saudi employers in relation to citizens of other GCC nations are equivalent to the rates that would otherwise be in effect if the concerned persons were employed in their birth country, plus the obligatory 2% workplace insurance tax.

The Conclusion

Taxation in KSA is a complex topic, but with appropriate research, anyone can find their way out of this maze of due diligence.

Still, if you don’t feel fully confident in what you’re doing, it is always best to seek professional advice and act accordingly.

Start For Free

If you’d like to get your finances right first, check out Wafeq - the best e-invoicing complaint with Zatca which will have noticeable effects from day one!

For official instructions and live updates always refer to The Official Zakat, Tax and Customs Authority.