Tax Exemption in Saudi Arabia: Who Qualifies and How to Apply

The Kingdom's new Tax Exemption Initiative offers a golden opportunity for eligible companies to wipe their financial penalties, yet shockingly, over 60% of qualifying businesses fail to apply in time. Understanding these exemption rules could save you thousands for companies. Let's break down exactly who qualifies and how to claim your exemption.

Tax exemption in Saudi Arabia

Refers to the legal exclusion of certain individuals, entities, or transactions from paying specific taxes, such as Income Tax, Value-Added Tax (VAT), or Zakat. The Zakat, Tax and Customs Authority (ZATCA) governs tax exemptions based on KSA laws and regulations.

Types of Tax Exemptions in KSA

• VAT Exemptions Some goods and services (e.g., financial services, residential real estate leases) are VAT-exempt (0% VAT but no input tax recovery). Certain sectors (e.g., healthcare, education) may qualify for VAT exemptions too.
• Income Tax Exemptions Saudi nationals are exempt from personal income tax (only Zakat applies), and some entities (e.g., government bodies, charities) may be exempt from corporate income tax.
• Zakat Exemptions Non-Saudi companies and individuals are subject to income tax instead of Zakat. Some Saudi-owned businesses may qualify for Zakat instead of corporate tax.
• Customs & Excise Tax Exemptions Certain imports (e.g., medical supplies, humanitarian aid) may be exempt.

Tax Exemption year 2025

The General Tax Authority has launched a six-month 100% Financial Penalty Exemption Initiative, effective 1 March 2025. To clarify the details and requirements of this initiative, the Authority has released an official guide addressing key questions and eligibility criteria.

Which entities are excluded from the initiative?

• Companies are facing legal actions for violating income tax or excise tax regulations, or are suspected of tax evasion.
• Oil and gas companies are subject to a 35% or higher tax rate.
• Companies with an average annual revenue of 50 million SAR or more between 2014 and 2023.
• Penalties that were settled before the initiative’s effective date.

What are tax-exempt incomes?

In Saudi Arabia, certain types of income are exempt from taxation under the Income Tax Law and Zakat regulations. Below are the key categories:

1. Personal Income Exemptions

• Saudi Nationals: Salaries, wages, and employment income are Zakat-exempt (no income tax). Investment income (e.g., dividends, capital gains) is generally tax-free unless derived from a taxable business.
• Expatriates: No personal income tax, but subject to dependent fees and other charges.

2. Business & Investment Exemptions

• Zakat-Paying Companies (100% Saudi-owned): Business profits are subject to Zakat (2.5%) instead of corporate tax.
• Dividends: Dividends from Saudi-listed shares are tax-exempt for individuals and qualifying entities. Some foreign-sourced dividends may be exempt under Double Taxation Treaties (DTTs).
• Capital Gains: Gains from personal asset sales (e.g., real estate, stocks) are tax-free unless classified as business income.

3. Government & Charitable Exemptions

• Government entities and registered charities are exempt from income tax.
• Grants, scholarships, and aid funds are non-taxable.

4. Other Exemptions

• Interest from Saudi bank deposits (for individuals).
• Inheritances and gifts (unless part of a business transaction).

How to Apply for VAT Exemption in Saudi Arabia

To apply for VAT exemption in Saudi Arabia, follow these steps through the Zakat, Tax and Customs Authority (ZATCA) portal:

1. Log into ZATCA website using your registered email or Unified Number (IN) and password.
2. Navigate to Tax Services under the e-services menu, then select VAT Deregistration Service.
3. Click Stop VAT Registration and review your business details (name, CR number, email, and mobile number).
4. Select the request type, specify the reason for exemption, and upload required documents (e.g., Commercial Registration or exemption letter if applicable).
5. Proceed by entering your Commercial Registration (CR) number, then confirm the request after verifying all details.
6. Waiting for approval and review by the authority.

Also Read: What is zakat for businesses in KSA and how is it calculated?