Saudi Arabia’s income tax rules are governed by the Income Tax Law (Tax Law), which came into force in 2004. The Tax Law is supplemented by implementing regulations (by-laws).

Zakat (a payment under Islamic law that is used for charitable or religious purposes) is governed by the implementing regulations for zakat collection (zakat regulations). The Ministry of Finance issues ministerial resolutions concerning aspects of tax and zakat, and the Zakat, Tax and Customs Authority (ZATCA) regularly issues circulars and responses to frequently asked questions containing its interpretation or position on regulations.

Taxation System

Corporate income tax is assessed on the share of profits of the foreign partner in the local company and a non-resident who conducts business in Saudi Arabia through a permanent establishment (PE). The standard corporate income tax rate is 20%. This rate is applied to activities relating to natural gas investment, while taxes on the production of oil and hydrocarbons are taxed at between 50% and 85%, depending on the level of capital investment.

The tax year is the country’s fiscal year, which lasts from January 1 until December 31. A taxpayer’s taxable year starts from the date a commercial registration licence is obtained, unless other documents support a different date.


Ordinary expenses necessary for the realisation of taxable income are permitted. Expenses such as bad debt write-offs, interest deduction, depreciation expense repairs and maintenance, among others, are subject to certain rules.

Interest Expense Limitation 

The Tax Law does not stipulate any minimum debt-equity ratio, and an entity can be formed with the minimum required capital and funded by debt. However, deductions for interest expense incurred during a tax year cannot be the entities’ total interest income plus 50% of taxable income, before interest income and interest expense. Any disallowed interest because of this limitation is a permanent loss. The interest expense limitation is not applicable to banks. Interest paid by a branch to its head office is not considered a deductible expense except in the case of a branch of a bank.

Tax Losses

Carry forward is allowed indefinitely.

The maximum limit allowed to be deducted in each year must not exceed 25% of the annual taxable profit. Capital companies will be allowed to carry forward losses, irrespective of whether there has been a change in ownership or control, provided they continue to perform the same activity.

Deemed Profit Tax

ZATCA may assess the tax for activities associated with international expenses on an estimated basis when local expenses for practicing such activities are mixed with foreign expenses. In these cases, it is difficult to accurately separate the costs relating to activities in the Kingdom and, as a result, impossible to submit actual accounts for the local expenses.

The minimum deemed profit rates on various activities range from 80% for management fees to 10% for construction work contracts.

Filing & Payment

Tax returns for companies, branches of foreign companies and PEs must be filed online with ZATCA within 120 days from the end of the fiscal year, together with payment of tax due per the return. A taxpayer whose taxable income exceeds SR1m ($266,600) before the deduction of expenses must certify the tax return by a licensed and certified accountant. Audited financial statements must be filed with the Ministry of Commerce and Investment’s electronic portal Qawaem within 120 days of the fiscal year end.


ZATCA imposes delay fines and penalties if there is a delay in submitting the tax declaration or late settlement of income tax, as well as penalties for tax evasion. Failure to file a tax return or payment of due amount in time results in a fine amounting to the greater of:

• 1% of the gross revenue to a maximum of SR20,000 ($5330), or according to the following rates:

• 5% of the underpayment of tax if the delay is for up to 30 days after the due date;

• 10% of the underpayment of tax if the delay is more than 30 and no more than 90 days after the due date;

• 20% of the underpayment of tax if the delay is more than 90 days and no more than 365 days; and

• 25% of the underpayment of tax if the delay is more than 365 days after the due date. In addition, 1% of underpayment of tax for each 30 days of the delay is added in the following cases:

• Delay in payment of tax payable per the return; or

• Delay in payment of tax payable per the ZATCA assessment. A penalty for tax evasion is imposed at a flat rate of 25% on the additional tax assessed if a taxpayer intentionally conceals facts or information from ZATCA that would have resulted in an increase in the tax liability.

Advance Tax Payment

The Kingdom’s advance tax payment procedures are based on a formula. If the previous year’s tax liability was SR2m ($533,200) or more, the taxpayer is required to settle accelerated tax payments in three equal instalments.


The following forms of income are exempt from tax:

• Capital gains realised from the disposal of financial instruments traded in the Saudi Exchange acquired after implementation of the new Tax Law and gains resulting from the disposal of assets that are not part of the activity;

• Capital gains realised from the disposal of securities traded on a stock exchange outside the Kingdom provided the securities also are traded on the Saudi Exchange, irrespective of whether the disposal occurred through a stock exchange or through any other means; and

• Cash or in-kind dividends received from investments made by a Saudi resident capital company in a Saudi resident or non-resident company, provided the dividend recipient owns at least 10% of the investee company and for a period of at least one year.

Withholding Tax 

The Tax Law imposes direct withholding tax on payments for services from a domestic source to non-resident parties.

In accordance with Article 68 of the Tax Law and Article 63 of its by-laws, a taxpayer has to withhold and pay to ZATCA a withholding tax on payments made to non-residents. The taxpayer is required to file online a monthly withholding tax return (WTR) within 10 days of the end of the month in which the payment was made to the non-resident. Failure to settle the withholding tax would result in a delay fine of 1% for every 30-day delay in payment.

For transactions with related parties, the date of recording the transaction has been defined as the date of payment if transactions are settled through account rather than making payments.

The withholding tax is calculated at flat rates ranging from 5% to 20%, depending on the nature of services, on payments made to non-residents.

In addition, a taxpayer is required to file an annual WTR within 120 days of the end of the fiscal year. For partnerships, the annual WTR should be submitted within 60 days of the fiscal year end.

ZATCA may request information relating to payments made to non-residents at the time of assessment. Records such as copies of contracts, as well as supporting documents relating to withholding tax, should be maintained for a minimum of 10 years after payment. If the subject is still under the review of ZATCA or the relevant authorities, maintenance of such records should be continued till the finalisation of such review or the issuance of a final decision by the appeal committee.

Withholding Tax Refund

After the accession to the World Trade Organisation, the Saudi tax treaty network grew rapidly. In order to curb any misuse of treaty benefits for withholding taxes purposes, ZATCA issued Circular No. 3228/19, dated 23-Rabi Al Thani 1431H (corresponding to May 23, 2010), which provided for the payment of withholding tax at the rates prescribed in Saudi tax regulations first and claiming the refund of overpaid taxes based on the provisions of tax treaties later. However, ZATCA subsequently issued Circular No. 5068/16/1434, dated 30-Rajab 1434H (corresponding to June 9, 2013), advising certain amendments in the procedure of claiming tax treaties’ benefits as provided in ZATCA’s previous Circular No. 3228/19.

Based on ZATCA’s circular later, a Saudi entity making taxable payment to a non-resident service provider can apply the provisions of effective tax treaties (i.e., not settle withholding tax on payment to non-resident parties from a treaty country or apply a reduced rate) if it complies with the following requirements:

• Reporting of all payments to non-resident parties (including those payments that are either not subject to withholding tax or subject to withholding tax at a lower rate as per the provisions of effective tax treaties) in the monthly withholding tax returns (on a prescribed format);

• Submission of tax residency certificate issued by the tax authorities in the country where the beneficiary is residing. Such tax residency certificate should confirm that the beneficiary is resident in that country in accordance with the provisions of Article 4 of the treaty and the amount paid is subject to tax in that country. Such forms should be on the prescribed format (Form Q7/B). The aforementioned document should be attested by the Saudi Embassy in the country of non-resident and the Ministry of Foreign Affairs in Saudi Arabia; and

• Submission of an undertaking from the Saudi entity that it would bear and pay any tax or fine due on non-resident payees due to an error of submitted information or a computational error or misinterpretation of the provisions of tax treaty (Form Q7/C), attested by the Chamber of Commerce. The aforementioned Circular No. 5068/16/1434 also specified that Saudi Arabian entities that cannot comply with the aforementioned requirements may follow the procedure provided in the previous circular, i.e., Circular No. 3228/19.

As per the circular, when making payments to a non-resident belonging to a country with which Saudi Arabia has a tax treaty, taxes should be withheld in accordance with the withholding tax rates as per domestic tax law in Saudi Arabia – without regards to the concessional provisions of tax treaty at the first instance.

Overpaid Taxes

The circular also sets out procedures that need to be followed to obtain a refund of overpaid taxes in cases where the tax rate under an applicable tax treaty is lower than the tax rate under domestic tax law in Saudi Arabia. The circular rules that the beneficiary (payee) should submit a letter to ZATCA requesting a refund of the overpaid taxes, along with the following documents:

• A certificate issued by tax authorities of the beneficiary’s country, certifying that the beneficiary is a resident of that country (in accordance with Article 4 of the relevant tax treaty), and that the amount paid is subject to tax in that country; and

• A copy of withholding tax form used to pay the tax, together with the bank receipt confirming settlement of WHT with ZATCA.

Saudi tax laws provide that the taxpayer is entitled to a refund of any overpayment made under the provisions of the Tax Law within a period of five years from the year for which the overpayment was made.

Assessment & Limitations

A final assessment is raised by ZATCA after a full and thorough review of the declaration submitted. This review may result in further details being requested before raising a final assessment. The Tax Law, however, provides that a declaration will be considered as finalised/ accepted as filed by the taxpayer in the case that five years have lapsed from the date of filing the declaration, without ZATCA requesting any additional information or raising an assessment.

The Tax Law empowers ZATCA to:

• Raise an additional tax assessment within five years of the statutory fling deadline to rectify errors in the application of regulations;

• Raise an additional tax assessment within 10 years of the statutory fling deadline correcting material errors in the declaration or the assessment; and

• Raise an additional assessment at any time with taxpayer’s consent.

Appeal Committees

A Royal Order was issued to approve the operating rules of the Tax Violations and Disputes Resolution Committees, as well as the Appellate Committee of Tax Violations and Disputes Resolution (ACTVDR) – collectively appeal committees – populated as per the memo issued by the Ministry of Finance dated 24-Rabii 1441 AH (corresponding to December 21, 2019).

The committees’ operating rules state the statutory period of each phase of the tax, zakat and value-added tax (VAT) litigation process, starting from the assessment issued by ZATCA until the resolution of the dispute.

ZATCA’s assessment becomes final and unappealable if the tax, zakat and VAT payer did not appeal against the assessment within 60 days following the notification date. All undisputed dues should be paid before filing an appeal within 60 days of the assessment.

Following 30 days of ZATCA’s full or partial rejection of the appeal, the assessment becomes final and unappealable if the tax, zakat and VAT payer did not request to transfer the dispute to the internal settlement committee or the Tax Violations and Disputes Resolution Committee (TVDRC) within 30 days of the earlier of the following:

• Notification of ZATCA’s response against the appeal;

• Lapse of 90 days after the appeal without response from ZATCA; or

• Notification of the settlement committee ruling. In all cases, the notice (fulfilling all the requirements) is considered registered from the date of submitting the notification.

Dispute Escalation

In the event that the notification requirements are incomplete, the taxpayer should provide the information needed to complete the submission within 15 days of the notification of the missing requirements. If the missing requirements have not been completed within the prescribed period, the notification is considered to no longer exist.

However, the notification could be escalated and the Appeal Memorandum could be submitted to the Appeal Committees through the available electronic means by the General Secretariat of the Tax Committees (GSTC).

If the defendant is not reachable and all the stated notification means as per the operating rules have been utilised to reach them without success, the ruling is being issued in absentia. In this case, the ruling should be published in the official or any local gazette. The party against which the ruling has been issued has the right to object against it in front of the committee within 30 days following the publishing date.

The GSTC will notify the defendant with the escalation requirements and they should respond within 30 days. This could be extended to an additional 30 days based on a justified request, subject to the approval of the committee. In the event of no response, the GSTC reviews the case and escalates it. Hearing sessions can be conducted using the technological means made available by the GSTC.

The committee should issue a verdict within 60 days from the date of the first hearing session, except in any cases that require more time as per the committee’s assessment.

Arabic is the official language for the dispute, and any non-Arabic documents should be officially translated. Non-Arabic speakers can attend with a translator.

The committee should not rely on the documents of either dispute parties unless the other party has checked it. Before the final decision, either dispute parties or their representatives have the right to review the dispute case file and obtain copies of it.

Cancellation & Holding

Without breach of the provisions of the Disciplinary Procedures Act and the Legitimate Procedures Act, the plaintiff’s dispute case is deemed cancelled if they did not commit to perform any procedure concerning their case within either the stated period by the committee or 30 days (whichever is longer), or in the case the committee could not notify the plaintiff with any substantial procedures through their specified address as per the dispute escalation journal.

The dispute could be put on hold for a period of 180 days, based on the mutual agreement of the disputing parties and following the committee’s confirmation of such mutual agreement. Following the completion of this 180 days, if the parties do not resume the process of the dispute within 10 days, the plaintiff’s dispute case is deemed cancelled.

Final Ruling

The internal committee (i.e., settlement committee) may negotiate with the tax, zakat and VAT payer for concluding or settling their appeal against ZATCA’s ruling at any stage of the review.

Following the TVDRC’s ruling, either party may appeal this ruling within 30 days to be reviewed by the ACTVDR.

The TVDRC’s ruling is considered final in any of the following cases:

• For the case in which the disputed amount does not exceed SR50,000 ($13,300);

• Passing the appellate statutory period without appellation; or

• The mutual resolution agreement between the parties in front of the TVDRC. Following the ACTVDR’s ruling, either party may request reconsideration of the ruling within 30 days following the original ruling. The ruling is issued based on voting according to the votes of the majority. In the case of equal votes, the ruling of the voters with which the committee chief has voted is considered as final.

The party against which an appellate has been submitted has the right – before closing the procedures phase – to present sub-appellate following the original appellate following the regular procedures or with a memo including the reasons of their sub-appellate. The rulings of the ACTVDR are final and unappealable in front of any other judicial body.

Virtual Permanent Establishment

Payments for services that are sourced in Saudi Arabia are subject to withholding tax, unless exempted by an applicable tax treaty.

If exemption is claimed under a tax treaty, ZATCA may assert a virtual PE if the services are provided for more than a threshold number of days for there to be a service PE under the tax treaty. This is irrespective of whether there are employees or other personnel in Saudi Arabia on those days.

If a virtual PE is asserted, ZATCA will raise an assessment. If exemption under a tax treaty is not claimed and the withholding tax is paid, ZATCA generally will treat the withholding tax paid as final tax.

Zakat Compliance

Zakat is an obligatory payment required from Muslims according to sharia law and forms one of the five pillars of Islam. In most Muslim countries the payment of zakat has been left to individuals, whereas in Saudi Arabia the collection of zakat is governed by regulations.

In the Kingdom, Zakat is assessed on Saudi and GCC nationals, and on companies wholly owned by those nationals or their equity interest in companies with foreign (non-Saudi/GCC) participation.

Zakat is assessed based on earnings and holdings. All earnings from business, industry, personal work, salaries, property, monetary acquisitions of whatever kind or description – including commercial or financial transactions, dividends, and generally all income on which sharia law has levied a zakat – is subject to zakat. All holdings that are intended for sale are also subject to zakat.

There are certain rules that apply to the method of calculating the zakat liability. In general, zakat is levied at a fixed rate of 2.5% on the higher of the adjusted zakatable profits or the zakat base – which generally comprises equity, loans and provisions reduced by deductible investments and fixed assets.

On March 14, 2019 the Ministry of Finance issued new zakat regulations replacing previous zakat regulations. The new regulations were effective for fiscal years beginning on or after January 1, 2019. Some of the key observations include the following:

• Specific article on definitions have been included, such as the definition of zakat payer, assessments and resident.

• The zakat rate of 2.5% is applicable on the lunar year (354 days). However, if a zakat payer is following the Gregorian year (365 days), they will be required to pay zakat based on the number of days that would result in an increased zakat rate proportionately.

• Zakat will be payable on the higher of zakat base or zakat-related profits.

• Listed companies are subject to zakat except for the founding shareholders.

• Appeal procedures have also been updated, requiring zakat payers to pay the zakat liability on the undisputed amounts. In addition, for an appeal to be accepted in form, a zakat payer is required to pay a minimum of 10% to a maximum of 25% of the assessed Zakat liability, or provide bank guarantee equal to 50% of the assessed zakat liability.

• Limited relief has been granted to real estate and insurance/re-insurance businesses in the form of deduction of long-term projects under development (certain conditions apply) and statutory deposits.

• Addition to zakat base of long-term loans and similar balances has been restricted to long-term assets deductible for zakat purposes.

• Lower of accumulated brought forward losses as per audited financial statements or ZATCA’s assessment is allowed.

• Net book value of fixed assets as per audited financial statements will be allowed as deduction from the zakat base.

• An adjustment to the value of transaction between related parties would be made if the transaction is not at arm’s length.

• The introduction of the concept of PE for zakat purposes also, which was previously tax subject only. Accordingly, a PE of a non-resident Saudi or GCC national would be subject to zakat if any two of the three conditions laid down in the regulations are met, i.e., the board of directors holds regular meetings in Saudi Arabia; or executive decisions are made in Saudi Arabia; or the non-resident PE earns more than 50% of its revenue from Saudi Arabia.

Multilateral Instrument

The multilateral instrument (MLI) is one of the outcomes of the OECD project tackling base erosion and profit shifting (BEPS). The MLI provides signatory jurisdictions an efficient and swift means to implement their tax treaties-related measures developed by the OECD BEPS project, without the need to renegotiate each tax treaty.

The MLI modifies the application of a tax treaty where both jurisdictions:

• Are signatories of the MLI;

• Have specified the tax treaty is covered by the MLI (covered tax agreement); and

• Have ratified the MLI. When the aforementioned conditions are met, the MLI will apply subject to the countries’ reservations and choices in relation to the optional provisions. The MLI will apply to the extent there is concurrence between the particular tax treaty jurisdictions.

As of May 1, 2020 the MLI has applied to covered tax agreements with the following 14 countries: Cyprus, France, India, Ireland, Japan, Luxemburg, Malta, the Netherlands, Poland, Russia, Singapore, Sweden, Ukraine and the UK. Key MLI measures adopted by Saudi Arabia include:

• Article 6: Additional wording in the preambles of its covered tax agreements specifying that they should not create opportunities for tax evasion or avoidance; and

• Article 7: The application of a principal purpose test to deny benefits in the event of treaty abuse;

It also includes measures to address the artificial avoidance of PE status through:

• Article 12: Commissionaire arrangements and similar strategies;

• Article 13: Listed specific activity exemptions;

• Article 14: Splitting contracts;

• Article 15: An update of the definition of a person closely related to an enterprise;

• Article 16: Mutual agreement procedures to address disputes in relation to the application of covered tax agreements; and

• Article 17: A requirement to make appropriate corresponding adjustments in transfer pricing.

There were three key changes from Saudi Arabia’s initial and final position in relation to the MLI measures to be adopted:

• Article 5: Provided for the use of a foreign tax credit regime. A reservation has been made and hence the measure has not been adopted.

• Article 9: Established the anti-abuse rule with regards to taxation of capital gains on the sale of shares of company, deriving their substantial value from immovable properties. However, a reservation has been made and hence the measure has not been adopted.

• Article 17: A requirement to make appropriate corresponding adjustments in transfer pricing cases. The reservation was removed, and the measure has been adopted.

Social Insurance

Social insurance contribution is collected by the General Organisation for Social Insurance (GOSI). The social insurance is levied on salaries at the following rates (see table). The minimum and maximum amounts used to calculate GOSI are SR1250 ($333.20) and SR45,000 ($12,000).

Wage Protection System

The Ministry of Labour (MoL) has implemented a wage protection system (WPS) in Saudi Arabia. Under the WPS entities are required to disburse salaries to their employees using a standard wages or electronic payroll file provided by the MoL. Each entity is required to submit a completed wages or electronic payroll file to its bank in Saudi Arabia for the disbursement of salaries to its employees. A copy of the electronic file provided to banks in Saudi Arabia is also required to be filed with the MoL.

Financial Statements

Effective 2018, all businesses are required to prepare annual financial statements under the International Financial Reporting Standards (IFRS) as adopted by the Saudi Organisation for Certified Public Accountants. Local banks and insurance companies have already been preparing their financial statements under IFRS. Recently the Ministry of Commerce and Investment has mandated companies to upload their audited financial statements on Qawaem. ZATCA has access to this e-system, from which it can compare the financial statements of taxpayers.

Book year, Accounting & Currency

Generally, the taxable year for taxpayers is the Kingdom’s fiscal year (i.e., January 1 to December 31). However, a taxpayer may use a different fiscal year after obtaining approval from ZATCA. The taxpayer’s first fiscal period will start from the date of its commercial registration or licence, and can be for less than 12 months or more than 12 months (generally up to 18 months) if the company’s articles of association provides for a long first fiscal period. A branch’s first fiscal period, under no circumstances, can exceed 12 months.

Business entities registered in Saudi Arabia must maintain a book of accounts in the local currency (Saudi riyal) and in the Arabic language.

Gross revenue and taxable profits must be calculated in Saudi riyal. Where the calculation of income involves an amount in foreign currency, the amount is converted at the exchange rate published by the Saudi Central Bank (SAMA) on the date of the transaction.

Indirect Tax

Since the introduction of VAT in 2018, ZATCA continues to develop its capacity to administer taxes in support of the Vision 2030 goal of economic diversification.

VAT was introduced in 2018 at the standard rate of 5% on the supply of the majority of goods and services, and is based on the GCC Unified VAT Agreement, Saudi VAT law and the Saudi VAT implementing regulations.

The Kingdom now boasts over 300,000 VAT taxpayers with VAT collections for FY 2021 expected to reach SR209bn ($55.7bn), accounting for approximately 43% of non-oil revenues for the fiscal year.

The VAT system in the Kingdom allows for the zero rating and exemption from VAT of certain supplies of goods and services to provide relief to consumers. Examples of zero rating include the export of goods and services, international transport, the supply of investment metals, medicines and medical goods, and health care and educational services to nationals. Examples of exemptions include the supply of real estate and certain financial services. Similarly to other VAT jurisdictions across the globe, taxpayers that make exempt supplies are restricted in their ability to deduct tax incurred on purchases.

The compliance requirements for VAT taxpayers remain straightforward, with the obligation to file monthly returns – or quarterly if the annual turnover is below SR40m ($10.7m) – and to pay the tax by the end of the month following the tax period. The returns contain summary-level numbers of turnover and VAT on output and input transactions.

ZATCA continues to publish detailed guidelines on various indirect tax matters ranging from employee benefits to rules of origin. Rulings have also been issued to taxpayers that have applied for clarifications. ZATCA also remains active in conducting audits and issuing assessments and rulings. As a consequence, the number of disputes with ZATCA has risen dramatically at objection and appeal levels.

Customs Duty

The GCC Customs Union uniformly imposes Customs duties on the majority of goods entering the region. These duties should be charged at the first point of entry into the GCC and the duty paid goods then generally move freely between member states without payment of any further duty.

Customs duties are imposed on imports at predetermined rates according to the tariff classification at the time of importation in line with the harmonised system of classification.

ZATCA announced an increase in duty rates with effect from June 2020 on the following categories of goods, among others:

• Foodstuffs;

• Mineral products;

• Chemical products;

• Plastic products;

• Rubber products;

• Leather products;

• Textiles and footwear;

• Base metals such as steel, iron and aluminium;

• Cement;

• Ceramics;

• Machinery and electrical equipment;

• Toys;

• Furniture;

• Vehicles; and

• Other various types of manufactured goods. ZATCA continues to update its approach to the administration of Customs duties. In a recent development, in 2021 specific conditions for the verification of the rules of origin for the GCC Customs Agreement were issued by ZATCA to the public to provide clarity and ensure compliance with these regulations.

Customs duties are imposed either on an ad valorem basis (i.e., percentage of the value of the goods) or specific basis (i.e., an amount imposed on the number of units to be imported). If the goods in question are subject to ad valorem duty, this is calculated on the landed cost of the imported goods. The landed cost is calculated based on the actual paid or payable to the seller.

Typically, the price paid or payable comprises the price of the imported goods; packing costs; freight and insurance costs to the Saudi port; and loading and unloading costs – all converted to the Saudi riyal at the exchange rates published by SAMA on the date of the declaration. In the event that this procedure is not achievable, the imported goods will be valued based on the most proximate comparable value that could be ascertained, as determined according to the rules of valuation.

Imported goods that are subject to a specific rate of Customs duty are identified in the HS code. For example, imports subject to a rate of duty based on weight are assessed on the gross weight or the net weight as shown in the tariff schedules. Gross weight includes the weight and all internal and external packing materials. Net weight of the goods excludes all internal and external packing materials, including the items used for separating and arranging the goods. Every importer is required to file customs declaration and other relevant Customs documentation at the time of import to Saudi Arabia, as prescribed in the GCC Customs Law.

Excise Tax

Excise tax was introduced in the Kingdom in June 2017 based on the GCC unified agreement for excise taxes. The law states that businesses undertaking any of the following activities must register for excise tax:

• Importation of excisable goods;

• Production of excisable goods; and/or

• Acquisition of excisable goods under a duty suspension arrangement. The excise tax executive regulations, published in June 2017 and updated in 2019, provide additional guidance regarding the application of the law and taxpayers’ responsibilities in terms of registration and compliance.

The tax is calculated on the tax base of the goods, which is defined as the retail sales price. The tax is due on the following activities:

• Importation into the Kingdom;

• Production in the Kingdom;

• Removal of good from an excise warehouse;

• Possession of excisable goods for which tax has not been paid; and/or

• Damage/loss in respect of excisable goods while in an excise warehouse – unless this was due to circumstances beyond the taxpayer’s control. Excise tax applies to the following:

• Tobacco products (100%);

• Soft drinks (50%);

• Energy drinks (100%);

• Sweetened drinks (50%);

• Electronic devices and tools used for smoking, vaping and the like (100%); and

• Liquids consumed in electronic devices and tools used for smoking, vaping and the like (100%). It is possible to suspend the payment of excise tax under specific circumstances, as well as on application through the use of excise tax warehousing arrangements.

Penalties apply in cases of evasion of up to three times the value of the tax due and for failure to submit returns of up to 25% of the tax due if the return is outstanding for more than 120 days after the filing deadline.

Real Estate Transaction Tax

On October 1, 2020, a real estate transaction tax (RETT) was introduced in the Kingdom at the rate of 5% to all real estate transactions and calculated on the value of the transaction. Consequently, all real estate transactions that have taken place since October 4, 2020 are subject to the RETT.

In addition, it was announced that all real estate transactions would be exempt from VAT from that date, with the exception of commercial leasing or rental, as well as the provision of short stay hotel accommodation.

ZATCA is responsible for managing and collecting RETT as per the regulations and policy documents. The following transactions are subject to RETT:

• Transfer of ownership;

• Sale of commercial, residential or agricultural real estate; and

• Sale of developed and undeveloped land. Transfer of ownership/sale includes gifting, inheritance, financial leasing, long-term usufruct contracts exceeding 50 years, lease to own and Islamic murabaha (cost-plus financing).

RETT is levied on all individuals and organisations involved in real estate disposals, including natural and legal persons, corporations, companies and government agencies.

There is no registration threshold for RETT. Therefore, all transactions are taxable, except those specifically exempted. Examples of exemptions from RETT include:

• The transfer of real estate by inheritance;

• The disposal of properties as part of a legitimate will;

• Free transfer of property to licensed non-profit organisations and endowments;

• The disposal of property as a gift to a spouse or to relatives to the second degree of affinity;

• Disposal of property to a government agency, public corporate persons, or entities and projects of public interest;

• Compulsory disposals of real estate (e.g., seizure of ownership for public benefit);

• The sale of real estate to foreign governments, international organisations and diplomatic missions accredited by the Kingdom;

• The disposal of property as a dividend in kind in joint stock companies (the stocks should not be disposed of for five years);

• The temporary transfer of property for use as a financial or credit guarantee; and

• Temporary transfer of property between a fund and its trustee, the trustee and the fund, or the trustees of the same fund. RETT should be declared and paid for each transaction by the seller before or during the process of conveyance authentication by the competent authorities, or before or during the processing of disposals as authenticated by the competent authorities.

The declaration of RETT is mandatory even in the case of exemption and the competent authority will not process conveyance until RETT is paid or proof of exemption is provided.

Penalties are levied at between 2-5% of the value of the unpaid tax for every 30-day delay in payment at an amount equal to the tax due with a minimum of SR10,000 ($2670) for non-compliance. In case of tax evasion, the penalty will range between one and three times the value of the tax due.

The exemption of supplies of real estate has a direct impact on the deduction of related input VAT. For example, construction costs will remain subject to VAT at the rate of 15%. However, the related input VAT will not be deductible unless the real estate developer is licensed by ZATCA.

ZATCA has issued the rules and conditions for real estate developers to be considered eligible for the recovery of input tax related to exempt real estate supplies.

To support Saudi nationals, the government has committed to meet the cost of RETT due on the purchase of a first home up to a value of SR1m ($267,000), provided the citizen produces a certificate of exemption from the Ministry of Housing (MoH). The real estate developer will declare and pay the tax due on the full value of the transaction, and submit a claim for a refund of the tax to the MoH based on the citizen’s certificate.


Saudi Arabia implemented the first phase of e-invoicing on December 4, 2021 as part of its ongoing efforts to improve the compliance with tax laws and regulations, raise the efficiency of the filing process and align with international administration standards. Phase two is due to commence on January 1, 2023.

E-invoicing applies to all taxable supplies of goods and services (i.e., both standard and zero-rated supplies); the export of goods and services from the Kingdom; intra-GCC supplies; nominal supplies; and advance payments/receipts.

Phase one requires that taxpayers must be able to generate and store electronic invoices and notes, with effect from December 4, 2021. Phase two requires taxpayers to transmit electronic invoices and notes, and share these documents with ZATCA with effect starting January 1, 2023.

ZATCA has issued multiple detailed publications that address the controls, requirements, technical specifications and procedural rules for implementing the provisions of the e-Invoicing regulations, XML implementation standards and security features implementation standards to support taxpayers.

Preparation for the second phase remains challenging. In order to comply with the regulations, that taxpayers must:

• Issue invoices in XML, PDF/A-3 formats;

• Implement anti-tampering features; and

• Implement other technical features such as a universally unique identifier and integrate with ZATCA systems.

Special Zones

Saudi Arabia has announced the establishment of new special economic zones in the Kingdom. The first such zone, known as the Integrated Logistics Bonded Zone (ILBZ), will be built at King Khalid International Airport in Riyadh.

Other similar zones would be established after approval by the Council of Economic and Development Affairs. The zones intend to provide preferential tax treatment for specified activities to be carried out in the zones. Key features of the preferential tax treatment include:

• Non-residents conducting activities directly related to specified goods inside the zone shall not be treated as having a PE in the Kingdom;

• Goods situated inside the zone will be under Customs suspension. Therefore, Customs duties and VAT should not apply while goods remain in the zone;

• VAT will not be charged on supplies of goods in the zone; and

• The temporary transfer of goods between mainland and the zone for the purposes of repair and maintenance shall not be subject to VAT.

Specified activities that would enjoy preferential tax treatment include:

• Repair, maintenance and processing of goods;

• Sorting, repackaging and similar actions in relation to goods, including simple manufacturing processes;

• Imports, exports and re-exports;

• Logistics and after-sales services; and

• Certain recycling activities.


Saudi Arabia issued the main regulations for the ILBZ in October 2018 at King Khalid International Airport in Riyadh. In accordance with the Royal Order, the zone will, among other things, provide direct and indirect tax benefits and exemptions to local companies and foreign investors.

Entities and branches of foreign companies performing prescribed activities in the ILBZ will benefit from:

• A 50-year holiday from income tax and the obligation to withhold tax;

• No restrictions on borrowing from overseas, repatriating capital or remitting dividends, profit, commissions and similar payments;

• Special rules permitting work and residence permits to be issued within the ILBZ; and

• No restrictions on ownership of tangible and intangible assets.

Transfer Pricing

On February 15, 2019 transfer pricing (TP) regulations were formally enacted through issuance of transfer pricing by-laws by ZATCA. The ZATCA website also features answers to frequently asked questions concerning this topic.

The first edition of the TP guidelines was released in early March 2019, followed by a second edition released in May 2020. The TP guidelines provide detailed practice approach and represent ZATCA’s view on implementation of the TP by-laws in the Kingdom.

TP Regulations

The TP by-laws are applicable on all taxable persons, as defined in the income tax law. This includes entities that are jointly owned by GCC and foreign shareholders (mixed entities).

Companies that are owned 100% by GCC nationals and are subject only to zakat are not subject to TP documentation requirements (i.e., master file, local file and a Disclosure Form of Controlled Transaction). Such entities are only subject to requirements relating to the filing of a country-by-country report (CbCR), provided they are part of a multinational enterprise group with consolidated group’s revenue exceeding SR3.2bn ($853.1m).

Transactions Subject to TP

From the perspective of the Kingdom, all controlled transactions should be documented. A controlled transaction is defined as any transaction between related parties or parties under common control.

Individuals are considered as related parties if they are relatives (up to the fourth degree) or partners in a partnership.

To determine if an individual is related to a juridical person, ZATCA applied the concept of control. If the individual is able to control the juridical person, they should be considered as related.

Two juridical persons are related for Saudi TP purposes if one person has effective control over the other, or a third person has effective control over both juridical persons. ZATCA provides a long list of examples of how effective control could be established between persons. Ultimately, ZATCA concludes that effective control can be established by governance, funding or business.

The approach is wider in scope, and over and above routinely followed OECD principles and guidelines. Under the ZATCA approach, any exclusivity agreement will also lead to the conclusion of a related party scenario and potential TP documentation requirements.

Another important aspect is the fact that Saudi Arabia’s TP regulations also include domestic transactions.

TP Methods

In Article 7 of the TP by-laws, ZATCA lists the approved methods, which are identical to the five OECD TP methods. ZATCA highlights the fact that there is no hierarchy that the taxpayer should follow when applying a TP method.

Taxpayers may even use a non-approved method, provided the taxpayer can demonstrate that the non-approved method delivers better results than the traditional TP methods.


While taxpayers and mixed companies are subject to documentation requirements as defined by Saudi Arabia’s TP by-laws, the payers of zakat are only subject to CbCR obligations.

The Disclosure Form of Controlled Transactions (DFCT) is required to be filed along with tax returns. Within the DFCT, the following detailed information needs to be submitted:

• Details of all controlled transactions undertaken for or without monetary consideration, such as barter arrangements.

• A list of all shareholders. For listed entities, information of all shareholders directly owning more than 5% shares needs to be disclosed.

• When there has been an internal reallocation of functions, assets and risks within a group, the same needs to be reported as part of the DFCT for the reporting year relevant to the change. The DFCT should form part of annual tax declaration and submitted electronically by every person engaged in controlled transactions, irrespective of the value of transaction.

Along with the DFCT, taxpayers are also required to produce an auditor’s certificate confirming that the TP policy of the multinational enterprise (MNE) has been consistently applied by and in relation to the taxpayer. ZATCA has adopted the new OECD three-tier approach for preparing TP documentation. Taxpayers need to prepare a master file, local file and CbCR, as applicable. The master file contains broader information on the global business organisational structure, operations and TP policies of the MNE group to which the taxable person belongs.

In respect of any intangibles, the master file should provide for identity of legal and de-facto owners of intangibles.

The local file contains detailed information on all controlled transactions of the taxable person and information in respect of any business restructuring (transfers of risks, functions, tangible or intangible assets impacting directly or indirectly the taxpayer in Saudi Arabia) in the current or preceding year.

The requirement to maintain a master file and local file is not necessary for the following:

• Natural persons; and

• Small-sized enterprises (entities with arm’s-length value of controlled transactions not exceeding SR6m [$1.6m] in a 12-month period).

Country-by-country Reporting

The CbCR and the notification need to be submitted by members of MNE groups with consolidated group revenue exceeding SR3.2bn ($853.1m) as per the consolidated financial statements of the MNE group.

Where the CbCR is being filed in another country that has signed the MLI and the qualifying competent authority agreements (QCAA), the filing of only the CBC notification to ZATCA should suffice. However, if the foreign country systematically fails to provide a copy of CbCR to ZATCA, then the local constituent entity is required to provide a copy of the CbCR submitted in the foreign jurisdiction.

The DFCT needs to be filed together with the annual tax declaration not later than 120 days after the fiscal year end. ZATCA may seek a taxpayer to provide a copy of their master file or local file, or any part thereof at any time by issuing a notice of no less than 30 calendar days.

Foreign Account Tax Compliant Act

In line with its efforts to improve international tax compliance and transparency, the Kingdom has signed several exchange of tax information agreements. The Foreign Account Tax Compliance Act Intergovernmental Agreement Model 1 (IGA) with the US to exchange information on US accounts and the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters (Multilateral Convention) covers various means of exchanges, including the Common Reporting Standard Multilateral Competent Authority Agreement (CRS MCAA).

Under the Model 1 IGA, Saudi Arabia would annually exchange information on financial accounts held by US-specified persons and maintained by Saudi financial institutions. This agreement is non-reciprocal, i.e., the US will not exchange similar information with the Kingdom. Contrary to the signed IGA, under the CRS MCAA, Saudi Arabia has concluded a wide range of reciprocal exchange agreements.

For individual tax residents, Saudi Arabia will receive the name, address, tax identification numbers (TIN), date and place of birth, account number, name of financial institutions where the account is held and the balance or value of the accounts. For entity tax residents, Saudi Arabia will receive the name, address, TIN, account number, name of financial institutions where the account is held and the balance or value of the accounts .

In the event that the specified entity is a passive entity and it is controlled by a reportable person, the Kingdom will receive – in addition to the aforementioned entity details – the name, TIN, and date and place of birth for each controlling person.