Comprehensive Guide to Saudi Arabia Tax Rates for Expats
Saudi Arabia has no personal income tax, making it a popular destination for Americans living abroad. However, certain taxes still apply. In this guide, we’ll examine what US expats should know about the Saudi Arabian tax rate.
Overview of Saudi Arabia’s Tax System
Unlike most countries, Saudi Arabia does not impose a tax on any form of personal income. This is true for both residents and non-residents of Saudi Arabia. There is also no inheritance tax, gift tax, or stamp duty. Because of this, many expats consider Saudi Arabia to be a tax-free country. However, there are still some forms of taxation, such as:
- Corporate income tax
- Value-added tax (VAT)
- Social security tax (for residents)
- Zakat (a religious wealth tax on nationals of Saudi Arabia and other Gulf Cooperation Council [GCC] countries)
Income Tax Rates in Saudi Arabia
Most Americans living and working in Saudi Arabia will not have to pay an income tax. This policy applies to both residents and non-residents, which means most expats can take home their full earnings without any deductions for income tax going to the Saudi government.
However, there are still scenarios when you may have to pay a tax in Saudi Arabia.
Corporate Tax for Non-Residents and Businesses
While there is no personal income tax, non-Saudi and non-GCC residents who engage in business activities within Saudi Arabia are subject to a corporate tax rate of 20% on their net adjusted profits. This tax applies to:
- Non-Saudi and non-GCC individuals who hold shares in resident companies
- Non-residents who conduct business in Saudi Arabia through a permanent establishment (PE)
- Non-residents who earn Saudi-source income without having a PE (e.g., consultants, contractors)
In addition, non-resident entities must pay withholding taxes on certain types of income originating from Saudi Arabia, such as:
- 5% on dividends, interest, and royalties
- 20% on management fees
- 15% on technical services and other service payments
Taxation for Self-Employed Expats
For expats who are self-employed or run their businesses, business income is taxed similarly to corporate income. This means self-employed expats are subject to the same 20% tax on their net profits. Additionally, they may be required to register for a Tax Identification Number (TIN) and comply with other regulatory requirements set by the Saudi government.
Social Security Contributions
Expats working in Saudi Arabia are required to make contributions to the Saudi social security system, though at lower rates than Saudi nationals. The standard rate is 9% of gross income for employees, while self-employed individuals must contribute 18%. These contributions fund various social welfare programs, including pensions and unemployment benefits.
There is no US-Saudi Arabia totalization agreement. This means you may have to pay a portion of your income to both the US and Saudi Arabian social security systems.
Learn where the best tax havens are, common traps, and ways to save money on your US expat taxes.
Special Economic Zones (SEZs)
Saudi Arabia has established Special Economic Zones (SEZs) to attract foreign investment by offering various tax incentives. Companies operating in these zones can benefit from:
- Reduced corporate tax rates as low as 5% for up to 20 years
- Exemptions from withholding tax on profit repatriation
- Customs duty and VAT exemptions on goods exchanged within these zones
These incentives are particularly beneficial for industries like logistics, manufacturing, and technology, which are encouraged to set up operations in the SEZs.
Other Taxes in Saudi Arabia
While Saudi Arabia is known for its lack of personal income tax, several other taxes can impact both residents and non-residents, especially anyone involved in business activities.
Value-Added Tax (VAT)
Saudi Arabia imposes a VAT of 15% on most goods and services. This includes:
- Retail purchases: Everyday items like clothing, electronics, and groceries are subject to VAT.
- Services: This includes professional services such as consulting, legal fees, and even entertainment.
- Imports: Goods brought into Saudi Arabia are generally subject to VAT, making it essential for businesses to factor this into their pricing strategies.
Some goods and services are exempt from the VAT or taxed at a reduced rate, such as:
- Financial services
- Residential real estate leases
- Certain healthcare and educational services
Non-resident businesses can often request a refund on the VAT taxes they’ve paid. To receive this refund, you will need to submit a request by the end of June following the year the tax was paid.
When you live in the US, tax day is simple: April 15th! When you move abroad, it’s not so straightforward! Learn about all the expat deadlines and extensions you need to know to file.
Excise Tax
In addition to VAT, Saudi Arabia imposes excise taxes on specific goods that are deemed harmful to health or the environment. These taxes are significantly higher than VAT and are intended to curb the consumption of such products. The main categories for this tax are:
- Tobacco and related products
- Energy drinks
- Carbonated soft drinks
Zakat: Islamic Wealth Tax
Zakat is a religious obligation for Muslims, calculated at 2.5% of certain types of wealth held over a lunar year. In Saudi Arabia, Zakat is primarily applicable to Saudi and GCC nationals and their businesses. The Zakat base typically includes:
- Cash and bank balances: Any liquid assets available to the individual or business.
- Inventory: Goods held for sale are considered in the Zakat calculation.
- Net worth of a company: This includes the company’s retained earnings, reserves, and other non-fixed assets.
While expatriates are not required to pay Zakat, they may encounter it in a business context, especially if they have partnerships with Saudi nationals. In such cases, the business would be subject to both Zakat and corporate tax, depending on the ownership structure.
Dreading the last minute scramble pulling together your tax documents? Despair no more! This simple checklist lists the documents you need to have on hand when preparing to file.
Tax Filing Requirements
Because there is no Saudi Arabian tax on personal income, expats generally do not need to file tax returns. However, if you own a business, you must comply with corporate tax filing requirements. The Saudi government requires businesses to make advance tax payments throughout the year, with penalties for late payments.
Impact of Tax Treaties on US Expats Living in Saudi Arabia
There is no tax treaty between the US and Saudi Arabia. Tax treaties often help reduce or eliminate tax. However, the US Tax Code does have provisions that help prevent or eliminate double taxation.
Saudi Arabia Tax Rate FAQs
Do I need to pay income tax on my salary in Saudi Arabia?
No, there is no personal income tax on salaries or wages in Saudi Arabia.
What taxes do I need to be aware of as a business owner in Saudi Arabia?
If your business involves Saudi or GCC nationals, you may be subject to a 20% corporate tax on your net profits, VAT at 15%, and possibly the Zakat Islamic wealth tax.
Does the US have a tax treaty with Saudi Arabia?
No, there is no US-Saudi Arabia tax treaty. There is no totalization agreement between these countries, either.
Greenback Can Help with Your Saudi Arabian Taxes
Saudi Arabia’s lack of a personal income tax makes it ideal for many Americans moving overseas. However, if you own a business or make certain investments, you may still have tax obligations. And regardless, you will always have to file a US tax return.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.
