Doing business guide

Understanding Saudi Arabia’s tax position

 Doing business guide | Understanding Saudi Arabia’s tax position

Contents

04 06 08 10
Saudi Arabia Market overview Industries of opportunity Entering the market

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Doing business guide | Understanding Saudi Arabia’s tax position

Saudi Arabia
Saudi Arabia is an oil- A country located in the Arabian Peninsula, Throughout this guide, we have provided

based economy with the

the Kingdom of Saudi Arabia (KSA, Saudi our comments with respect to KSA, unless
Arabia or The Kingdom) is the largest oil- noted otherwise.
largest proven crude oil producing country in the world.

reserves in the world.

Government type Monarchy

Population (2016) 28.1 million

GDP (2016) US $1,731 trillion

GDP growth (2016) 1.2%

Inflation (2016) 4.4%

Industrial production 0.6%

growth rate (2016E)

Labor force (2016E) 12.02 million

Key industries Crude oil production, petroleum refining, basic petrochemicals,

ammonia, industrial gases, sodium hydroxide (caustic soda), cement,
fertilizer, plastics, metals, commercial ship repair, commercial aircraft repair,
construction

Source: The Economist Intelligence unit, World Bank, Central Intelligence Agency FactBook

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Doing business guide | Understanding Saudi Arabia’s tax position

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Doing business guide | Understanding Saudi Arabia’s tax position

Market overview
• Saudi Arabia is an oil-based economy
Government
with the largest proven crude oil reserves
in the world. According to OPEC, Saudi Government type Monarchy
Arabia is also the largest exporter of
petroleum and possesses around 18 Chief of State King Salman Bin Abdul-Aziz Al Saud
percent of the world’s total proven
Head of Government King Salman Bin Abdul-Aziz Al Saud
petroleum reserves.
Legal system Islamic (Sharia’) legal system with some elements of Egyptian, French, and
• The Saudi Arabian economy reported customary law; note - several secular codes have been introduced;
commercial disputes are handled by special committees.
strong growth until 2014, primarily due to
high oil prices, strong private sector Administrative divisions 13 provinces (mintaqat, singular - mintaqah); Al Bahah, Al Hudud ash
activity, increased government spending Shamaliyah (Northern Border), Al Jawf, Al Madinah (Medina), Al Qasim, Ar
and the implementation of several Riyad (Riyadh), Ash Sharqiyah (Eastern), 'Asir, Ha'il, Jazan, Makkah (Mecca),
Najran, Tabuk.
domestic reform initiatives. Since 2014,
lower oil prices have put pressure on the
Source: Central Intelligence Agency Factbook, the Economist Intelligence Unit
economy and Saudi Arabia has sought to

The non-oil sectors,

diversify its revenue base to protect itself
Government
from oil price fluctuations.
especially construction,
• Saudi Arabia is a monarchy based on
Islam. The government is headed by the
real estate, healthcare
• The non-oil sectors, especially
King, who is also the commander in chief
construction, real estate, healthcare
and education, still offer
of the military. On January 23, 2015, King
and education, still offer business
Salman Bin Abdul-Aziz Al Saud was
business opportunities
opportunities although most businesses
declared as the King and Supreme
are currently more conservative in their
plans compared to the past.
Leader of the country following the death
although most
businesses are currently
of the late King Abdullah Bin Abdul-Aziz
Al Saud.
more conservative in
• Saudi Arabia holds membership of
several councils and international
their plans compared to
• The King governs with the help of the
organizations, such as:
Council of Ministers, also called the
the past.
- United Nations (UN)
Cabinet. There are 22 government
- World Trade Organization (WTO)
ministries that are part of the cabinet.
- Organization of Petroleum Exporting • The country is divided into 13 provinces,
Each ministry specializes in a different
Countries (OPEC) with a governor and deputy governor in
part of the government, such as foreign
- Gulf Cooperation Council (GCC) each one. Each province has its own
affairs, education and finance.
- Arab League council that advises the governor and
- Organization of Islamic Cooperation deals with the development of the
• The King is also advised by a legislative
(OIC) province.
body called the Consultative Council
- G20
(Majlis Al-Shura). The Council proposes
• As Saudi Arabia is an Islamic state, its
Source: OPEC website, Factiva, Saudi Arabia new laws and amends existing ones. It
judicial system is based on Islamic law
government website - consists of 150 members who are
http://www.saudi.gov.sa/wps/portal/saudi/home (Sharia’). The King acts as the final court
appointed by the King for four-year terms
of appeal and can issue pardons. There
that can be renewed.
are also courts in the Kingdom. The

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 Doing business guide | Understanding Saudi Arabia’s tax position

largest are the Sharia’ courts, which hear

Saudi Arabia is working on improving the
business climate and increasing access
most cases in the Saudi legal system.

to finance, especially for small and

• In recent years, conscious efforts have
been made by the government to reduce

medium enterprises.
bureaucracy at all levels and transform
government departments by introducing
online services and increasing
automation in several ministries.

• King Salman chairs the Saudi Supreme • The construction of “economic cities” is • To increase the private sector's
Economic Council, which is in charge of central to development plans. The contribution from 40% to 65% of GDP
overseeing the formulation of economic government has launched projects to
policy and encouraging foreign establish new cities at different locations • To increase foreign direct investment
investment. across the country. These cities are from 3.8% to the international level of
planned as hubs for petrochemicals, 5.7% of GDP
Source: About Saudi Arabia – Government.
http://www.saudiembassy.net/about/country-
mining and logistics industries as well as
information/government/ for a knowledge-based economy. • To rise from the current position of 25
to the top 10 countries on the Global
Economy – overview Vision 2030 Competitiveness Index
• The economy of Saudi Arabia is primarily The Council of Ministers has approved
dependent on revenues from the oil and Vision 2030, and the salient features are • To increase the Public Investment Fund’s
gas sector. Rising oil prices in the last as follows: assets, from SR600 billion to over SR7
decade (until 2014) fueled the Kingdom’s • To raise the non-profit sector’s trillion
growth and resulted in the lowering of contribution to GDP from less than
government debt and an increase of 1% to 5% • To increase the localization of oil and
fiscal surpluses. However, post summer gas sectors from 40% to 75%
2014, the economy is under the impact • To increase household savings from 6%
of declining oil prices. to 10% of total household income • To move from the current position as
the 19th largest economy in the world into
• In order to reduce its reliance on the oil • To raise ranking on the E-Government the top 15
and gas sector, the government aims to Survey Index from the current position
diversify its economy by continuously of 36 to be among the top 5 nations • To increase women’s participation in
utilizing the revenues from the oil and gas the workforce from 22% to 30%
sector to support the growth of non-oil • To raise ranking in the Government
sectors, such as infrastructure, Effectiveness Index, from 80 to 20 • To increase SME contribution to GDP
construction, education, tourism and from 20% to 35%
manufacturing. • To increase non-oil government revenue
from SR163 billion to SR1 trillion • To lower the rate of unemployment
• Saudi Arabia is also working on improving from 11.6% to 7%
the business climate and increasing • To raise the share of non-oil exports
access to finance, especially for small and in non-oil GDP from 16% to 50% • To have three Saudi cities be recognized
medium enterprises. in the top-ranked 100 cities in the world
• To raise global ranking in the Logistics
Performance Index from 49 to 25 and
ensure the Kingdom is a regional leader

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Doing business guide | Understanding Saudi Arabia’s tax position

Industries of opportunity
Real estate, hospitality • Real estate, hospitality and construction The summary of procedures is as follows:

and construction are the

are the key industries in terms of • Obtain the investment license from the
opportunities in Saudi Arabia. A growing Saudi Arabian General Investment
key industries in terms of population, increasing urbanization, Authority (SAGIA)

opportunities in Saudi
inflow of religious tourism, ease of doing
business, and a focus on economic • Open a bank account with a local bank in
Arabia. diversification have all paved the way for KSA for depositing the initial capital
increased investment potential in the
country. • Obtain a commercial registration (CR)
from the Ministry of Commerce and
• The government plans to construct Industry (MOCI)
multiple schools and hospitals in the
Kingdom in the next 5 years. Moreover, • Register with the Chamber of Commerce
the government is also focusing on
developing economic cities, industrial • Register with the Customs department
hubs and healthcare facilitates that offer
investment and business opportunities. • Obtain a municipality license

Doing business in Saudi Arabia • Register with the Ministry of Labor

The official language is Arabic, therefore
all documents are first required to be • Register with the General Organization
translated into Arabic by an official for Social Insurance (GOSI)
translator and thereafter submitted to the
relevant government authority. • Register with the General Authority
of Zakat and Tax (GAZT)

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 Doing business guide | Understanding Saudi Arabia’s tax position

Procedures for starting a business in Saudi Arabia The non-resident who intends to set up a
branch or an LLC in KSA is required to
Number Procedure Minimum time to Associated cost obtain the investment license from Saudi
complete
Arabian General Investment Authority
01 Reserve the company name and submit 5 days on average No charge (SAGIA) before starting the above
Articles of Association
procedures. Given that all the required
02 Notarize the Articles of Association 1 days No charge documents should be translated into
with the Notary Public Arabic language for filing with the
03 Pay company registration fees Less than one day SR1,200 for commercial authorities, it may take approximately 3 to
(online procedure) registration + SR2,000 a 4 months to obtain the Commercial
fee to become member of Registration (CR) from the Ministry of
Chamber of Commerce +
SR 500 e-magazine
Commerce and Industry
publication fee

04 Open an ‘under-formation’ bank account 1 day No charge

05 Obtain a business location license 4 days SR 1,000

from the Municipality

06 Register with the Ministry of Labor 1 day No charge

07 Register with the post office ‘Wasel’ Less than one day SR500
(online procedure)

08 Make a company seal 1 day SR50

09 Register with the General Organization 1 day No charge

for Social Insurance (GOSI)

10 Register with the General Authority 3 days No charge

of Zakat and Tax (GAZT)

Source: Doing Business report Saudi Arabia, World Bank Group

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Doing business guide | Understanding Saudi Arabia’s tax position

Entering the market

Doing business in Saudi Arabia venture “shall enjoy all the benefits, more detailed legislation to flesh out
Foreign investment incentives incentives and guarantees enjoyed by the framework established by the FIA.
and restrictions a national project”. The FIA includes However, SAGIA’s primary goal is to
In April 2000, the Supreme Economic guarantees on the free repatriation of facilitate and encourage investment (both
Council enacted the Foreign Investment profits and capital, and it provides a local and foreign) wherever possible.
Act (FIA), which is a broad framework within clause that foreign-owned assets may
which non-Saudis are permitted to invest be expropriated only in exceptional SAGIA’s Investors Service Center (ISC)
in the Kingdom in minority, majority or circumstances, in return for full (https://www.sagia.gov.sa/en/) serves as a
100%-foreign-owned ventures. In February compensation. It offers the right to buy one-stop shop to facilitate the investment
2001, Saudi Arabia’s Supreme Economic property and allows ventures to sponsor process for foreign companies, minimizing
Council approved a “negative list” of their own employees (previously denied to the number of bureaucratic steps required
economic sectors barred to majority- 100%-foreign-owned ventures). before investment can take place. The ISC
foreign-owned firms, thus clarifying the comprises of three divisions, each focused
issue of where in the economy foreigners
In April 2000, the on particular steps in the investment

Supreme Economic
may invest. The list was published as process:
secondary legislation to the FIA and was • The Investors Service Unit - ensures that
earmarked for annual revision. It is also, in
the words of the government, to be
Council enacted the initial approval forms are completed and
that documentation is handled properly.
interpreted “flexibly”. By default, those Foreign Investment Act
(FIA), which is a broad
sectors not included on the list should be • The License Follow-up Unit - rechecks
regarded as legally open to majority- investment applications, notifies the
foreign-owned companies. framework within which investor of any omissions, collects the

non-Saudis are permitted

appropriate application fees and then
In August 2002, a new, shorter list registers the new venture.
consisting of 15 areas of the economy
restricted from foreign investment
to invest in the Kingdom • The Government Relations Unit - helps
replaced the original negative list of 22 in minority, majority or investors to establish contacts with other

100%-foreign-owned
areas. The present negative list includes oil government agencies to eliminate
exploration, drilling and production; real obstacles hindering the licensing of a
estate brokerage; and land and air ventures. project. Nine ministries are represented
transport. Foreign investment is now at the ISC.
officially permitted in insurance, power
transmission and distribution, education The FIA established SAGIA, an entity with The government has courted foreign
and pipelines. sole responsibility for approving foreign- companies willing to invest in the
investment projects. This includes a petrochemicals business (which is not
The FIA aims to provide equal treatment mandate to regulate the investments included on the negative list), especially
for non-Saudi firms, stating in Article 5 of made by foreign entities to ensure around the industrial cities of Jubail and
the Implementing Regulations for the consistency with national interests. SAGIA Yanbu. The substantial incentives it has
Foreign Investment Law that a foreign also has responsibility for developing made available have already attracted a

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 Doing business guide | Understanding Saudi Arabia’s tax position

number of firms to the sector. However, with Saudi partners in other sectors as There is a series of labor
regulations that require
the foreign investors that have been most well. Prior to the passage of the FIA,
successful in petrochemicals have typically operations that were 100%-foreign-owned
been those seeking joint ventures with
Saudi Arabian Basic Industries Corporation
could not gain access to the same tax
treatment, funding and other incentives
foreign companies
(SABIC), the majority-state-owned available to joint ventures. Fully foreign- operating in the Kingdom
to employ and train
industrial giant. The government has owned companies still remain the
looked most favorably on joint ventures exception rather than the norm.
Saudi nationals.

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Doing business guide | Understanding Saudi Arabia’s tax position

The government has There is a series of labor regulations that - Arab Fund for Economic and Social

granted 10-year tax

require foreign companies operating in the Development (AFESD) - participates in
Kingdom to employ and train Saudi financing economic and social

concessions to six nationals. All investment schemes must

show that they meet requirements on
development projects in Arab countries.
- Arab Monetary Fund - promotes the
underdeveloped employing and training Saudi nationals. development of Arab financial markets

provinces in the
After the commencement of the project, and trade among member states;
depending upon the nature of its work, an advises member states on investment
Kingdom, with the entity should, on a continuing basis, of resources.

intention of attracting
maintain its Saudization ratio; a failure to - Arab Trade Financing Program -
do so may lead to problems with provides medium and long-term loans

more investment on the authorities in renewals. Labor-intensive

projects receive preferential treatment
to individuals and organizations for
private and commercial trade.
start of any project. since the government seeks to combat - Inter-Arab Investment Guarantee
rising local unemployment. Priority is given Corporation - provides insurance
to high-technology projects which offer coverage for inter-Arab investments and
significant skills transfer. These export credits against commercial and
requirements have been in place for some non-commercial risks.
time but are being enforced with - Islamic Development Bank (IDB) -
increasing rigor, and the licensing process participates in equity capital and grants
offers officials a good opportunity to loans for productive projects and
ensure that standards are being met. enterprises. It accepts deposits to
mobilize financial resources through
100% foreign ownership is now allowed in Sharia’-compatible avenues.
trading activity on a case-by-case basis.
Exchange controls
Tax incentives There are no significant restrictions on
The government has granted 10-year tax the inward or outward movement of funds
concessions to six underdeveloped by companies. Transfer operations are
provinces in the Kingdom, with the increasingly sophisticated and rapid,
intention of attracting more investment although occasional constraints on
on the start of any project. Investors will be working hours or working days may cause
granted a tax credit against the annual tax a delay of one or two days in implementing
payable in respect of certain costs incurred orders.
on Saudi employees.
Although there are no restrictions, the
The tax credits will be offered in the Saudi Arabian Monetary Authority (SAMA –
following regions: the central bank) closely monitors foreign
• Ha’il exchange transactions to deter
• Jazan speculation, fraud and money-laundering.
• Najran
• Al-Baha Banks must report the export of riyal bank
• Al-Jouf notes to SAMA and gain approval prior to
• Northern Territory the participation of foreign banks in riyal-
denominated syndicated loans or foreign-
Financial incentives currency syndicated transactions arranged
• The ability to carry forward tax losses on for non-residents. SAMA has shown
balance sheets indefinitely (subject to considerable flexibility in its approach to
change of ownership and performing such arrangements, however, and has co-
same activity rules). operated speedily with the vast majority of
transactions.
• Foreign investors have access to
generous regional and international
financial programs, including:

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 Doing business guide | Understanding Saudi Arabia’s tax position

Choice of business entity and setting up a company The Saudi Arabian

Monetary Authority
Principal business entities
Limited liability company (LCC) , joint stock company (JSC) and branch of a foreign entity.

Types of licenses, minimum capital requirements and percentage of Saudi

(SAMA – the central bank)
partnership closely monitors foreign
exchange transactions to
deter speculation, fraud
Number License Type Minimum acceptable capital (SR) Minimum Saudi
participation (%)

01 Service * -
and money-laundering.
02 Industrial 1,000,000 -

03 Commercial ** 26,666,667. Foreign capital shareholding 25

not less than SR20,000,000 and partnership
not more than 75%.

04 Agricultural 25,000,000 -

05 Communications - 40

06 Communications - 30
value added
07 Insurance 100,000,000 40

08 Reinsurance 200,000,000 40

09 Real estate financing 200,000,000 40

10 Real estate development The value of each project is not less than -
30,000,000 (covering land and construction); the
land and building will be outside the perimeter of
the two Holy Mosques

11 Management of - 25
construction
projects, detailed
engineering
design and EPC contracts

Source: https://www.sagia.gov.sa/en/InvestorServices/InvestmentServicesGuide/Documents/GENERALRULES.pdf

* It remains generally SR500,000 for foreign-owned companies. There is no express requirement for a specific
minimum capital requirement for Saudi-owned companies.

** Trading activity - per the decision No. 377 dated 13 June, 2016 (the "CM Decision"), the Saudi Arabian
Council of Ministers approved criteria for the licensing of foreign companies desiring to engage in retail
and wholesale trading in Saudi Arabia through local corporate entities that they fully own. Previously,
foreign investment in the trading sector was limited to 75%. According to the CM Decision:
1. Licensing applicants must have a presence in at least three different regional or international markets.
2. The cash capital of the entity to be established locally must not be less than SR30 million.
3. Licensing applicants must commit to invest at least SR200 million within five years from having obtained
a foreign investment license from the SAGIA. The cash capital may be counted within such an amount.
4. Licensing applicants must commit to realize the Saudization proportions imposed by the Ministry of Labor
and Social Development and must formulate a durable plan to place Saudi nationals in managerial
positons within the first five years.
5. Licensing applicants must commit to train at least 30% of their Saudi Arabian personnel each year.
6. Licensing applicants must commit to fulfil at least one of the following objectives: (a) to manufacture locally
at least 30% of all locally-distributed products, (b) to direct at least 5% of all sales revenues towards local
research and development programs, and/or (c) to establish a local logistical and distribution center and
to offer after-sale services. An exemption may be obtained in respect of this requirement for licensing
applicants that commit to invest more than SR300 million within five years from having obtained a foreign
investment license.

The CM Decision authorizes SAGIA’s Management Board to grant exemptions, provided that exemptions are
granted pursuant to clear, general, and unbiased criteria.

The CM Decision also requires SAGIA to assess the effectiveness of the above requirements, within the
coming five years, and to propose any recommendations.

It is worthwhile to note that recently a foreign investor received a trading license allowing 100% ownership.

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Doing business guide | Understanding Saudi Arabia’s tax position

Specialized activities which require approval by other government agencies

Number Government agency Issue of license Activity requiring approval

01 Ministry of Health After approval • Management and operation of a hospital and all healthcare services
except those included in the negative list

02 Ministry of Petroleum and After approval • Mineral exploration licenses (services)

Mineral Resources • Mineral exploitation and production
licenses (industrial)

03 General Authority of After approval • Cargo air transport

Civil Aviation (GACIA) • Airline companies
• Aircraft maintenance training centers
• Aviation training centers

04 Ministry of Education After approval • Management and operation of elementary, intermediary and high secondary
schools for teaching in Arabic or any other language (the activity is currently
suspended by the decision of the Council of Ministers)
• Management and operation of institutes, colleges or universities for teaching
and issuance of graduation certificates in Arabic or any other language

05 Capital Market After approval • Financial activities, such as financial

Authority (CMA) advice, custody or safekeeping and underwriting, etc.

06 Saudi Arabian Monetary After approval • Insurance, finance, leasing, banking, etc.
Agency (SAMA)

07 Ministry of Interior (MOI) After approval • Manufacture of civil explosives (deleted from the negative list)

08 Ministry of Defense or any military After approval • Temporary licenses for the performance of time-limited contracts
agency or government institution

09 Higher Economic Council After approval • For derogation of any of the activities of the negative list

10 Saudi Food & Drug Authority (SFDA) Before approval • Manufacture of human and animal drugs
(restricted activity) • Manufacture of cosmetics
• Scientific and technical offices

11 General Organization for Technical Before approval • Management of higher institutes

Education & Vocational Training (restricted activity)

12 Ministry of Transport Before approval • Maritime transport (shipping) intermediaries

(restricted activity) • Management and operation of vessel fleets flying the Saudi flag or foreign flags
• Service centers on the highways

13 Saudi Standards, Metrology and Quality Before approval • Quality assurance laboratories
Organization (SASO) & Ministry of Trade (restricted activity)
and Industry

14 Ministry of Agriculture Before approval • Poultry

(restricted activity) • Livestock breading
• Fish and shrimp farming

15 Supreme Commission for Tourism and Before approval • Travel and tourism agencies, except for ticket issuance by GACIA
Antiquities (SCTA) (restricted activity) • Management and operation of hotels

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 Doing business guide | Understanding Saudi Arabia’s tax position

16 Ministry of Culture Before approval • Advertising agencies

and Information (restricted activity) • Printing presses
• Photography
• TV & radio studios
• Foreign media offices & their representatives

17 National Program for Exhibitions and Before approval • Organization and management of exhibitions and conferences
Conferences (restricted activity)

18 Ministry of Municipalities and Before approval • Service centers on the highways

Rural Affairs (MOMRA) (restricted activity)

Source: https://www.sagia.gov.sa/en/InvestorServices/InvestmentServicesGuide/Documents/GENERALRULES.pdf
Note: Construction can be done by a contracting company which can be established without the need for any “special” license.

New Saudi Company Law - Shareholders in an LLC can no longer - Reduction from 50% to 30% of the
• The Saudi Arabian MOCI introduced a be held personally liable for a statutory reserve which needs to be
new Company Law, effectiveMay 2, 2016. company's debts if losses exceed 50% put aside each year by the company
Some of the key changes compared to of the company's capital. Instead the
the old Company Law are as follows: company is dissolved by operation of • Following are the different types of
-The ability for a LLC to be formed by one law unless the shareholders resolve business structure provided under the
shareholder rather than a minimum of otherwise regulations for companies:
two as required previously - The MOCI is responsible for supervising - Branches of foreign company -
- Reducing the minimum share capital for and regulating matters relating to all commonly used for foreign investors
JSCs (SR500,000 instead of SR2,000,000) types of companies under the new - LLC - commonly used for foreign
- Reducing the minimum number of regulation, except for “listed companies” investors
shareholders in JSCs to become two as these will be the specialty of the - JSC
shareholders instead of the previous Capital Market Authority (CMA) - Limited partnership
minimum requirement of five - Special treatment for family companies - Joint ventures
shareholders and a legal framework specifically for - General partnership
- Enforcing the need for an audit holding companies
committee to monitor the company's - Introduction of provisions relating to the • The procedure for setting up a branch of
business issuance of debt instruments and sukuk a foreign company or LLC normally takes
- Prohibition on the role of the chairman financing by “listed companies” three to six months.
of the board and any other executive in accordance with the regulations of
role in a company being combined the capital markets
- Dictating the “accumulated voting” - Allowing companies to mortgage their
methodology in electing the board of shares and the shareholders of listed
directors (i.e. each shareholder has companies to participate in annual
voting rights equivalent to the number general meetings and vote on the
of shares it holds, which can be used for decisions via modern technology
one nominee, or divided between (i.e. no need for physical presence)
nominees, without any duplication of - Requirement for companies to value
votes. This system tends to favor their in-kind share capital contribution
minority shareholders) by a certified valuer

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Doing business guide | Understanding Saudi Arabia’s tax position

Key differences between foreign branch, LLC and JSC months from the end of the financial year
on the MOCI’s web portal.
Branch of foreign LLC JSC
company
Taxation in Saudi Arabia
Minimum Normally SR500,000 SR500,000. SR500,000 or SR5,000,000 Overview
capital (but can be lower or (in case of single shareholder).
requirement higher depending upon
• Like most other states in the GCC, Saudi
the nature of activity). Arabia levies corporate income tax on the
non-resident's share in a resident
Minimum Not applicable. One shareholder. Two shareholders. corporation; the share of Saudi and GCC
shareholder
If the number of shareholders Single shareholder is
nationals is subject only to a religious levy
exceeds 50, the company has allowed with a minimum called Zakat, which is levied on net equity.
to be converted into a JSC capital of SR5,000,000 and If a company is a joint venture between a
within a year. If the company certain other conditions. Saudi/GCC shareholder and a foreign
is not converted into a JSC,
the LLC will be dissolved by
shareholder, the portion of taxable
operation of law with certain income attributable to the foreign party
conditions. is subject to income tax and the Saudi
Losses In case of a foreign branch, If losses exceed 50% of If losses exceed 50% of
party’s share of net equity is subject
exceed 50% the HO’s liability may not capital, the shareholders will capital, the shareholders will to Zakat.
of capital be restricted to the extent not be held personally liable not be held personally liable
of the branch's capital. for company debts. for company debts. • Corporate tax rates for foreign
Shareholders must meet Shareholders, once aware,
If losses exceed 50% of within 90 days and decide must meet within 45 days in companies vary widely among GCC
capital, the shareholders whether to dissolve or an extraordinary general states. The Saudi cabinet approved a
must meet within 90 days continue the business and meeting and decide whether new tax law on 12 January 2004. The
and decide whether to publish their decision. The to dissolve or increase share
executive by-laws covering the new
dissolve or continue the company will be deemed to capital. If the increase in share
business. dissolve by operation of law capital is not materialized, the corporate tax law were published in
if no decision is made. company will be deemed to August 2004. The tax regulations provide
dissolve by operation of law. the income tax flat rate of 20%, effective
Maintenance Transfer 10% of net profit Transfer 10% of net profit Transfer 10% of net profit
for accounting years commencing on or
of statutory to statutory reserve until to statutory reserve until it to statutory reserve until it after 30 July 2004. Investments in certain
reserve it reaches 30% of share reaches 30% of share capital. reaches 30% of share capital. strategic resources are still taxed at
capital.
higher rates: 30% for gas and at rates
ranging from 50% to 85% depending on
Accounting principles/financial adopt IFRS as of December 31, 2017, with the capital investments for taxpayers
statements January 1, 2016 being the transition date engaged in the production of oil and
• Saudi Organization for Certified Public for IFRS convergence (the beginning of hydrocarbons materials. The tax
Accountants (SOCPA) standards are being the earliest comparative year); other structure offers some benefits to
followed. If an issue is not covered by entities are required to adopt IFRS as of companies choosing to invest in LLCs or
SOCPA standards, International Financial December 31, 2018, with January 1, 2017 JSCs in Saudi Arabia. Such companies are
Reporting Standards (IFRS) are followed being the transition date for IFRS free to establish branches throughout
(and are used by banks). However, Saudi convergence. the kingdom and only need to file one
Arabia is transitioning to IFRS. Listed combined return, provided they are
companies (other than banks and • The audited financial statements are branches of only one legal entity. The
insurance companies) are required to required to be uploaded within four GAZT often scrutinizes the reported
expenses and charges of a branch.

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 Doing business guide | Understanding Saudi Arabia’s tax position

The general tax burden of a Saudi

Saudi Arabia levies corporate income
tax on non-resident share in a resident
entity owned by foreign companies
• The share of taxable profit owned by the

corporation; the share of Saudi and GCC

non-Saudi/non-GCC shareholder will be
subject to 20% corporate income tax in

nationals are subject only to a religious

addition to 5% withholding tax (WHT)
applicable on the distribution of

levy called Zakat.

dividends to the non-resident (including
non-resident GCC) shareholders.
However, the Saudi/GCC shareholder
will be subject to Zakat, a fixed-rate tax
of 2.5% levied on the higher of taxable
income or what is sometimes referred
to as the “balance sheet” basis. A simple
calculation of the balance sheet basis
includes the Saudi shareholder’s share of
equity plus long-term liabilities less fixed
assets.

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Doing business guide | Understanding Saudi Arabia’s tax position

• As per the local regulations, the

The Saudi tax regulations came into
effect from July 30, 2004, which has
accounting treatment for Zakat and
income tax in joint venture companies is

introduced certain new concepts and/or

unique. The balance of the retained
earnings at the year-end cannot

modified existing practices. The taxation

necessarily be apportioned to the
shareholders in proportion to their

system in the past was much less

shareholding. This is due to the provision
of Zakat and income tax. Zakat is charged

codified and a significant portion of the

to the Saudi shareholder’s share of
retained earnings, and income tax is

tax system had evolved over a number

charged to the foreign shareholder’s
share of retained earnings, unless the

of years through various practices.

partners formally decide otherwise.

Summary of the Saudi Arabian income

tax law 2004
The Saudi tax regulations came into effect
from 30 July 2004, which has introduced Residence Related party
certain new concepts and/or modified • The 2004 tax law also introduced the The tax law has introduced the concept of
existing practices. The taxation system in concept of residency for individuals and related party. Thus, for companies,
the past was much less codified and a corporations, which is of particular ownership or control of 50% or more by
significant portion of the tax system had importance in assessing liability to WHT. the same persons or related persons shall
evolved over a number of years through be considered to be companies under one
various practices. However, the law is still • A natural person is considered resident if common control.
subject to significant interpretation. The he has a permanent residence (defined)
final treatment of any particular section of and is available in the Kingdom for a Source of income
the law will ultimately be dependent upon period that in total is not less than 30 There are extensive rules; however, in
the practices developed by the GAZT and consecutive/non-consecutive days in a summary, income is considered to be
how the particular appeals play out in the tax year. Additionally, a natural person is realized in the Kingdom if it arises from an
courts. considered resident if he resides in the activity occurring in the Kingdom; if it is
Kingdom for a period not less than 183 dividends or management fees and a
The GAZT will always lift the veil of consecutive/non-consecutive days in a manager’s fee paid by a resident company;
incorporation to determine the nationality tax year, even if he does not have a amounts paid by a resident for services
of the shareholders. They will go up the permanent residence. rendered in the Kingdom either fully or
chain of ownership to the last level. partly; or an amount paid by a resident
• For a company, residency in a tax year is company to its head office or a related
In addition to corporate income tax and considered if the company is established company for services rendered, etc. (the
Zakat, WHT is levied on payment to non- in accordance with the companies’ detailed list is included in the tax law).
residents from an “in-kingdom source”. regulations or is headquartered in the
WHT, on the other hand, ranges from 5% Kingdom.
to 20%, depending on the nature of
payment, place of performing services and
relationship with the non-resident.

18
 Doing business guide | Understanding Saudi Arabia’s tax position

Supply of goods associated work is considered to be Income derived by a non-

resident party from a
There is no WHT on payments made to derived from an activity performed in
non-residents for the import of goods. Saudi Arabia and is liable to tax.

Income derived by a non-resident party In case of delivery of goods from abroad

contract for supply of
from a contract for supply of goods from with "in-Kingdom associated work", where goods from abroad is not
considered as a Saudi-
abroad is not considered as a Saudi- value is not separately specified in the
source income (i.e. not subject to tax in contract for the "in-Kingdom associated
Saudi Arabia) unless it includes associated work", income for each associated work source income unless it
includes associated work
work in Saudi Arabia, such as shall be estimated at 10% of the total
transportation, installation, training or gross value of the contract for tax
other similar work. In such a case, only purposes.
in Saudi Arabia.

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Doing business guide | Understanding Saudi Arabia’s tax position

Income tax

Tax rate 20% applicable to all, except 30% for Tax losses Carry forward is allowed indefinitely. Books and All taxpayers (except non-residents
exploitation of natural gas and ranges The maximum limit allowed to be records who do not have a permanent
50% to 85% for production of oil and deducted in each year must not establishment in the Kingdom) are
hydrocarbons materials depending on exceed 25% of the annual taxable required to keep the necessary
capital investment. profit. books in the Kingdom in the Arabic
language. They must at least include
Levied on • The resident corporation – on the Capital companies will be allowed to the following:
share of the non-Saudi carry forward losses, irrespective of • Daily journal
shareholders. whether there has been a change in • General ledger
• The resident, natural, non-Saudi ownership or control, provided they • Inventory book
person who conducts activities in continue to perform the same
the Kingdom activity. For computerized records, the
• The non-resident person who computer should be located in the
conducts activities in the kingdom Currency No consideration is given to Kingdom.
through a permanent enterprise translation unrealized currency translation gains
• The non-resident person that has or losses arising from revaluation for For taxpayers operating through a
other taxable income from in- tax purposes. permanent establishment that has a
Kingdom source without having central computer system abroad, the
permanent establishment local terminal must be in the
Estimated The GAZT may assess the tax for
Kingdom to generate all statements,
taxes activities associated with worldwide
Income • Capital gains realized from the transactions, etc.
(deemed expenses on an estimated basis,
exempt disposal of financial instruments
profit tax) when local expenses for practicing
from tax traded in the Kingdom’s stock Assessment Detailed guidelines have been laid
such activities are mixed with
exchange acquired after and out in the tax regulations. Following
worldwide expenses and it is difficult
implementation of the new tax law appeal are the two appellate committees:
to separate these expenses related
and gains resulting from the disposal procedures • Settlement Committee of Tax for
to activity in the Kingdom accurately
of assets that are not part of the Conflict and Dispute
and hence it is impossible to submit
activity • Higher Committee of Tax for
actual accounts for the local activity.
• Capital gains realized from the Conflict and Dispute
disposal of securities traded on a
The minimum deemed profit rates
stock exchange outside the Kingdom
on various activities range from 80% Accelerated Accelerated tax payment procedures
provided the securities also are
(for management fees) to 10% (for tax have been introduced based on a
traded on the Saudi stock exchange
construction work contracts). payment formula. If the prior year’s tax liability
(Tadawul), irrespective whether the
disposal occurred through a stock is SR2 million or more, the taxpayer
exchange or through any other Taxable In general, the tax year is the state’s is required to settle accelerated tax
means. year fiscal year. payments in 3 equal installments.
• Cash or in-kind dividends received
from investments made by a Saudi A different year can be used in the Non- Penalties for non-submittal of the tax
resident capital company in a Saudi following circumstances: submittal return by the due date are the higher
resident or non-resident company • If it is approved by the GAZT prior and of 1% of the total revenues up to a
provided the dividend recipient owns to the effective date of law. delay maximum of SR 20,000, or they range
at least 10% of the investee • If it is a Gregorian year. penalties from 5% of the unsettled tax for a
company and for a period of at least • If the tax payer is a member of a delay not exceeding 30 days to 25%
one year. group of companies or a branch of the unsettled tax if the delay
of a foreign company that uses a exceeds 365 days.
different financial year.
Allowable Ordinary expenses necessary for
expenses the realization of taxable income. Penalties for delay in settlement
Expenses such as bad debt write-offs, Taxes on Separate rules. amount to 1% of the unsettled tax
interest deduction, depreciation exploitation for each 30 days of delay. This
expense repairs and maintenance, of natural includes the delay in the WHT and
etc. are subject to certain rules. gas accelerated tax payments.

Registration Each taxpayer must register his A financial penalty amounting to 25%
Thin There are no specific thin will be imposed on the tax
activity prior to the end of his first tax
capitali- capitalization rules. However, there is differences resulting from submitting
year, otherwise a penalty may be
zation a rule limiting the deductibility of incorrect information or fraud.
imposed ranging from SR1,000 to
interest expense to the lesser of the
SR10,000, depending upon the
following:
classification of the taxpayer.
• The actual interest expense; or
• Interest income, plus 50% of taxable
It is now mandatory for all taxpayers
income (excluding interest income
to be registered on the GAZT online
and interest expense).
portal and all filings with the GAZT
are required to be made through the
online system.

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 Doing business guide | Understanding Saudi Arabia’s tax position

WHT The non-resident, on any

amount received from
The non-resident, on any amount received from any sources in the Kingdom, shall be
subject to WHT deductible from the gross amount according to the following rates:
any sources in the
Nature of payment WHT rate (%)
Kingdom, shall be subject
Management fee 20
to WHT deductible from
Royalties, payments against technical or consultancy services, or services 15
the gross amount per the
prescribed WHT rates.
for international telephone calls paid to the head office or any other
related entities

Dividends distributed 5

Rent, return on loans (interest) & insurance (including related parties) 5

Technical & consulting services 5

Airline tickets/air or sea freight 5

Insurance & reinsurance premiums 5

International telecommunication services 5

In-Kingdom land transportation 15

Any other payments 15

Delay penalty 1% of unsettled tax for every

30 days of delay

Responsibility for payment The party making a payment to

a non-resident is required to
withhold tax

Statutory compliance deadlines

A Saudi entity is required to comply with the following main filing requirements by law:

Statutory compliance requirements Deadline

Filing of annual tax/Zakat return 120 days from year-end (60 days for consortium)

Filing of monthly WHT return 10 days from the end of month in which payment was made

Filing of annual WHT return 120 days from year-end

Contract Information Form (CIF) Within 3 months of signing the contract or amendments to
the contracts signed with suppliers (services or materials) if
value is SR100,000 or more

Filing of accelerated tax payment To pay advance income tax in 3 equal instalments calculated
at 25% of immediately preceding year’s tax liability (SR2 million
or more), if due, by the sixth, ninth and twelfth month of
the year

Filing of audited financial statements Within 4 months of year-end

with the MOC

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Doing business guide | Understanding Saudi Arabia’s tax position

Capital gains • No gain or loss will be computed on Capital gains on the

disposal of shares traded
• Capital gains tax is assessed at 20% on transfers of assets between group
the disposal of shares by the foreign companies, provided:
shareholder in a resident company. - The companies are wholly owned on the Saudi stock
exchange (Tadawul) are
Capital gains on the disposal of shares (directly or indirectly) within the group;
traded on the Saudi stock exchange and
(Tadawul) are tax exempt if the shares - The assets are owned within the group tax exempt if the shares
were acquired after 30 July 2004. Capital for two years from the date of transfer.
were acquired after July
30, 2004.
gains realized from the disposal of
securities traded on a stock exchange Transfer pricing
outside the Kingdom will be exempt from Saudi tax law does not contain any
tax, provided the securities also are detailed transfer pricing regulations or
traded on Tadawul, irrespective whether guidelines. However, related party
the disposal occurred through a stock transactions and the applicability of the
exchange or through any other means. arm’s length principle are covered under

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 Doing business guide | Understanding Saudi Arabia’s tax position

certain general anti-avoidance provisions, The GAZT in recent years has issued VAT
and the GAZT may challenge any internal guidance recommending a The six member states of the GCC all
transaction as follows: stronger position on service permanent intend to introduce VAT, at a rate of 5%,
• Disregard a transaction that has no establishments (PEs). The guidance states from January 1, 2018 onwards. This is to
economic effect; that if a non-resident provides services in be governed by a Framework Agreement at
KSA for a period exceeding the agreed the GCC level which applies to all GCC
• Reclassify a transaction whose form services PE duration under an applicable member states, and local VAT laws and
does not reflect its substance; tax treaty (i.e. 183 days in a 12-month regulations in each country.
period), the non-resident will be deemed
• Reallocate income and expenses to have a PE in KSA, regardless of whether The GCC Framework has been published,
between related parties or parties the services were physically rendered in and GAZT issued the final VAT law on July
under common control to reflect the KSA. Consequently, a foreign service 28, 2017. Some of the main features are as
income that would have resulted from provider rendering services in KSA for follows:
a transaction between independent more than 183 days may create a PE even • VAT is applicable at the rate at 5% from
and unrelated parties; and if it does not have any personnel or January 1, 2018 on all supplies of goods
employees actually in KSA. and services in Saudi Arabia, and all
• Estimate the appropriate tax base imports of goods into Saudi Arabia from
and impose penalties. Zakat outside of the GCC – subject to limited
Zakat is payable by Saudi (and GCC exceptions.
The GAZT is presently working on transfer national) shareholders in their share of the
pricing legislation and as a first step to Zakat base in a company. The rate is 2.5% • The GCC’s Framework Agreement set
provide legal cover in article 10 (11) of the and is calculated on the higher of the some mandatory areas for zero-rating in
tax by-laws, which was amended in April Saudi’s share in the adjusted net income all six member states (such as exports of
2014. We expect the transfer pricing rules or his share on the “balance sheet” basis. goods and services outside the GCC,
to be in line with OECD principles and to medicines and investment metals).
be announced in due course. The new Zakat regulations effective from Individual countries are however able to
1.6.1438H (February 28, 2017) replace all elect whether exemptions or zero-rates
Foreign income and tax treaties previous resolutions, circulars and apply in some other sectors. The
Saudi Arabia has signed treaties with instructions relating to Zakat collection regulations published by GAZT reflect
France, China, India, Pakistan, Malaysia, from the date of this resolution. The that Saudi Arabia has chosen a broad tax
Austria, Italy, Ireland, Greece, Japan, Korea, GAZT’s current practices are more or less base and VAT is to be applied to almost
Poland, Bangladesh, Vietnam, Ukraine, compiled in the regulations. all supplies of goods or services, subject
Netherlands, Russia, Singapore, South to limited exceptions. The VAT treatment
Africa, Spain, Turkey, United Kingdom, Turnover and other indirect taxes of different type of supplies (signaled by
Uzbekistan, Belarus, Syria, Romania, Czech and stamp duties the draft regulations and correct at the
Republic, Tunisia, Malta, Azerbaijan, Presently there are no sales or time of publication) are as follows:
Hungary, Kazakhstan, Luxembourg, consumption taxes or stamp duties in - Financial services – fee-based services
Tajikistan, Algeria, Ethiopia, Macedonia, Saudi Arabia, but the country intends to are taxable and margin-based services
Portugal, Sweden, Venezuela, Kyrgystan introduce value added tax (VAT) from are exempt
Turkmenistan and Egypt. January 1, 2018. - Insurance - all non-life insurance is
taxable and life insurance is exempt
- Food items - all taxable

Zakat is payable by Saudi (and GCC

- Education - taxable
- Health - taxable

national) shareholders in their share of

- Real estate - all real estate is taxable
except residential rental which is

the Zakat base in a company.

exempt
- Local transport - taxable

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Doing business guide | Understanding Saudi Arabia’s tax position

• VAT must be charged on supplies made • VAT reporting can be carried out on a • A limited number of items are subject to
after January 1, 2018 and tax invoices ‘cash accounting’ basis for small customs duties calculated on the basis of
must be issued for all taxable supplies, businesses with turnover of less than metric weight or capacity, rather than ad
showing a range of mandatory SR5,000,000. valorem. However, the rates for these
information. items are fairly low.
• All businesses with annual turnover less
• If an invoice is issued or a payment is than SR40,000,000 may use a quarterly • The government has recently decided to
made before the implementation or filing period, significantly reducing the raise the customs duty rates applied to
registration date but the actual supply of number of VAT returns required per year 193 products, from 5% to 25%.
the goods and services is on or after the and extending the time for making
implementation or registration date, the payment of VAT. • The Ministry of Finance has increased
VAT will be considered to be due. customs duty rates applicable to a wide
• A formal VAT assessment may be issued range of highly consumed products, with
• Any VAT deduction requires the by GAZT at any time up to five full almost 600 harmonized system (HS)
purchaser to hold a copy of a valid tax calendar years following any tax period. codes impacted. The duty increase is
invoice issued by the supplier. In certain cases, this can be extended to effective from January 2, 2017. The rate
20 years. increase is significant, with new rates of
• Deductions of VAT will not be permitted up to 25% payable on the customs value.
for entertaining, catering, and purchase VAT must be charged on A full list of impacted HS codes,

supplies made after

or expenditure on ‘restricted’ motor cars description (in Arabic) and new duty rates
– i.e. those available for any private use. can be found on the KSA Ministry of
January 1, 2018 and tax Finance website
Registration and VAT administration
invoices must be issued (https://www.customs.gov.sa/sites/sc/en/

for all taxable supplies,

• The standard VAT registration threshold SCTariffs).
is an annual turnover of SR375,000;
businesses with an annual turnover less
showing a range of Customs duty is calculated on the CIF

mandatory information.
than SR1,000,000 are however initially value of imports, which is converted to
exempt from the mandatory registration Saudi Riyals at the exchange rates
requirement until January 1, 2019, giving published by SAMA applicable on the date
the smallest businesses more time to Customs duties of the declaration. Customs duty is payable
become ready for the new rules. • Most of the consumer products are duty in cash or by a certified check drawn on a
free, e.g., rice, tea, corn, livestock and local bank.
• Businesses who fail to apply for the meat (fresh or frozen).
registration within the specified period The documents required for all
will be fined SR10,000. • Customs duties at 20% are imposed on commercial shipments to the Kingdom,
some commodities for the purposes of irrespective of value or mode of
• Each business will need to calculate the protecting Saudi industries. transportation, are:
net VAT due over monthly or quarterly tax • Commercial invoice
periods, with electronic submission • Import duty on other items ranges
of the VAT return and the payment due between 5% to 20% ad valorem on the • Certificate of origin
for that period required by the end of cost, insurance and freight (CIF) value.
the following month. • Bill of lading (or airway bill)

24
 Doing business guide | Understanding Saudi Arabia’s tax position

• Steamship (airlines) company certificate

In June 2017, Saudi Arabia introduced
• Insurance certificate (if goods are insured
by the exporter) excise law effective from June 11, 2017.
• Packing list Agreement in place, and with domestic law liabilities on a bi-monthly basis (i.e.
effective from June 11, 2017. Some of the one return every two calendar months).
• Evidence of payment to non-resident key points are listed below: Returns must be submitted together with
vendor or bank guarantee • Excise tax will be chargeable on the payment within 15 days of the end of the
importation or production of excise tax period.
Depending on the nature of goods being goods released for consumption in KSA
shipped, or upon certain requests from on or after June 11, 2017. • Importers of excise goods that are not
the Saudi importer or clauses in a entered into an approved warehousing
contractual document, specific certificates • The excise tax is, ordinarily, chargeable by arrangement will be required to pay
may also be required. reference to the “tax base” of the goods excise tax upon importation to the
concerned. The tax base is the higher of customs authorities.
GCC Unified Customs Tariff 2017 either the retail price of the goods or a
The 2017 Unified Customs Tariff has been list price which will be determined and Land tax
finalized by the customs authorities of the published by the authorities. The Council of Ministers issued the white
GCC for the region. We understand from land tax law and its implementation
informal discussions with the customs • The definitions of excise goods are, regulations in June 2016 and levied 2.5%
authorities that the updated GCC Unified broadly, soft carbonated drinks (50% ‘land tax’ on all undeveloped residential
Customs Tariff has been in force since rate), energy drinks (100% rate), and and residential/commercial plots within
January 1, 2017. An official announcement tobacco products (100% rate). urban boundaries. The land valuation is
has yet to be made, and is expected to performed by the Ministry of Housing and
take place in due course. • Excise tax registration is required for is applicable to individuals and private
anyone intending to import, produce or sector legal entities.
We understand the updated tariff includes hold (under a suspension arrangement)
amended product descriptions and any excise goods in KSA. Personal taxation
additional HS codes. Importers should • Presently, there is no employment tax in
review their import product portfolio in • All those holding excise goods valued in Saudi Arabia.
relation to the updated tariff and ensure excess of SR60,000 (whether or not
the new HS codes/product descriptions otherwise registered or registrable) are • In the 2017 federal budget, the
are followed. Incorrect classification of required to submit a one-off transitional government announced its intention to
goods on import may lead to action by the return and pay excise due within 45 days levy 6% tax on the remittance of salary by
customs authorities, even where no duty of the implementation of the tax. This expatriate individuals working in Saudi
rate increase results. means many shops and other businesses Arabia, however this has not been
will need to pay tax on stocks on hand. introduced as yet.
Excise duty
In June 2017, Saudi Arabia introduced • In addition to any transitional return, Social security, pension
excise tax, another GCC harmonized excise tax registrants must submit • The GOSI (social insurance) is paid for
initiative with the GCC Framework returns reporting their total excise the employees who are on a residential

25
Doing business guide | Understanding Saudi Arabia’s tax position

permit (iqama) of a Saudi entity. The financial year for which a deduction is A unified system for
salaries and wages based
GOSI contributions are computed on being claimed; and
basic salary, housing allowance and - The fund has an independent legal
commission payments, if any. These status, regardless of whether it is on experience and
qualifications is applied in
contributions are required to be settled established inside or outside Saudi
at the following rates: Arabia.
the government sector.
Annuity branch Occupational hazards
Salaries in the private
Total Employer’s Employee’s Employer’s sector are determined
by the market but are
share share share

Saudi nationals 22% 10% 10% 2%

generally higher to reflect
Foreign employees the increased risk
associated with working
2% - - 2%
(expatriates)

in Saudi Arabia.
• The minimum and maximum monthly Labor relations and workforce
levels of contributory wage for Saudi Visa and entry requirements
employees are SR1,500 and SR45,000 • All visitors require visas except for the
respectively. For non-Saudi employees, following:
the minimum and maximum levels are - Nationals of the GCC countries.
SR400 and SR45,000 respectively. - Transit passengers who intend to
continue their journey by the same or
• GOSI is not applicable on individuals first connecting aircraft within 18 hours,
visiting Saudi Arabia on a temporary, provided they possess onward or return
business or a visit visa. documentation, do not leave the airport
and make no further landing in Saudi
• Retirement benefits are payable to Arabia (except nationals of Burkina
insured Saudi workers at 60 Hijri years Faso, Mali, Niger and Nigeria who
(58 Gregorian years). No annuities always require a transit visa).
contribution exists for expatriate - Holders of re-entry permits and landing
workers. permits issued by the Saudi Arabian
Ministry of Foreign Affairs.
• Capital companies are allowed to deduct - Business visitors from countries outside
their contribution to a retirement, social the GCC must obtain a visitor’s visa.
insurance or any other fund established The visa is contingent on a letter of
for the purpose of settling employees’ invitation from a Saudi business or an
end-of-service benefits or medical official body such as a regional chamber
expenses, provided: of commerce.
- The allowable deduction does not exceed
the unfunded liabilities relating to the
fund that are due at the beginning of the

26
 Doing business guide | Understanding Saudi Arabia’s tax position

Presently the visa fee has been increased • Annual paid vacation of 21 days is due A pregnant woman is entitled to one
in all categories. The nationality-wide after one year of service and up to five month maternity leave before the delivery
visitor’s fee is as follows: years. If the employee is with the same and six weeks after the birth. Employers
bear the cost of medical check-ups,
Nationality Single entry (SR) Multiple entry Multiple entry Multiple entry treatment and birth expenses and may
for 6 months (SR) for 1 year (SR) for 2 years (SR) not terminate a female worker during
USA 400 400 400 400 pregnancy or during her time off after
(multiple entry
the birth.
for 5 years)

UK 510 510 1,950 1,950 Expatriate packages for skilled workers

Schengen 250 250 250 250
generally include provisions for housing,
countries schooling, annual leave tickets, and rest
and recreation trips. Unskilled workers
Turkey 225 225 5,000 8,000 require accommodation and transport
Other 2,000 3,000 5,000 8,000 paid to and from the Kingdom.
nationalities
Wages Protection System
The Ministry of Labor launched the Wages
Working hours employer for more than five years, he will Protection System (WPS) from March 1,
As per the Saudi labor law amended in be entitled to 30 days paid annual 2014. The aim of this system is for the
October 2015, an employee or worker in vacation. Ministry of Labor to have a timely and
Saudi Arabia should not work more than accurate record of bank account payments
eight hours in a single day; if the employer • End of service benefit is due upon the made between an employer and
decides to readjust the working hours due term or termination of the contract: the employee. This applies to Saudi citizens
to any reason then it should not exceed employee will be entitled to half a month and Saudi expatriates in the private sector.
more than 48 hours in a week. During of pay for each of the first five years of
Ramadan, working hours for Muslims service, and one month’s pay for each By implementing the above system, not
should not exceed six hours in a single day subsequent year. If the employee resigns, only is the Ministry of Labor maintaining
or 36 hours in a week. Government offices he will be entitled to (i) one-third of the the salaries record and ensuring the
are closed all day Friday and Saturday. end of service benefit if he spends a payment of salaries to employees in Saudi
Overtime is typically paid at time and a minimum of two years and up to five bank accounts, but other revenue
half. The labor regulations outline years in service, (ii) two-thirds of the end authorities are also monitoring, such as:
provisions for overtime work. of service benefit if he spends five to ten • GOSI department will ensure that the
years in service and (iii) the full end of salaries (e.g. basic and housing subject to
Wages and benefits service benefit if he spends more than GOSI contribution) reported to the GOSI
A unified system for salaries and wages ten years in service. department also match the employment
based on experience and qualifications is contract.
applied in the government sector. Salaries • Workers are allowed sick leave with full
in the private sector are determined by the pay for the first 30 days and three- • GAZT may use this information for tax
market but are generally higher to reflect quarters pay for the next 60 days. purposes and start comparing the
the increased risk associated with working salaries as reported in WPS and as
in Saudi Arabia. • There is no compulsory annual bonus, reported in the tax returns, and may
but a bonus is paid by most companies. disallow any unreconciled differences.
Other mandatory employee benefits to be
paid by the employer include the following:

27
Doing business guide | Understanding Saudi Arabia’s tax position

There could also be implications for • The Ministry of Labor developed a Saudi employees in the
private sector receiving
companies using the services of payroll database to monitor the length of
providers or paying directly to employee’s expatriate workers’ work permits and
bank accounts outside KSA. contracts to ensure that qualified Saudis salaries of SR1,500 are
considered as “half-
have the option to apply for the post
Termination of employment before an expatriate’s permit is renewed.
• Saudi labor regulations permit dismissal workers” in their
at the employer’s discretion during a • The latest Saudization initiative was
companies’ Saudization
records in the Nitaqat
three-month probationary period. An launched under the auspices of the
employer who terminates an employee Ministry of Labor (the Nitaqat program).
after three months of work should not Under the program, Saudi nationals system, while Saudis
receiving less than that
meet any regulatory resistance if comprise 30% of the workforce of every
procedures are followed and the cause Saudi company which employs more
is legitimate. than twenty (20) employees, subject to amount are not included
certain limited exceptions. The
at all when calculating
their firm’s Saudization
• Contracts for specified periods may not companies are categorized according to
be terminated unless there is cause, and a basic color scheme: red, yellow, green
an employee may challenge premature and premium. In summary, companies percentage.
termination at the Labor Office. However, classified as green or premium are
an employer should not encounter any fulfilling Ministry of Labor sanctioned
difficulties in non-reviewing employment Saudization requirements and will receive
of an employee at the end of a contract. specified benefits. On the other hand,
An unspecified-term contract may be those companies classified as red or
ended with 30 days’ notice for monthly yellow are non-compliant and will be
workers and with 15 days’ notice for subject to various sanctions.
other workers.
• Saudi employees in the private sector
• On termination, the employee is entitled receiving salaries of SR1,500 are
to the termination benefit as per the considered as “half-workers” in their
labor law and a service certificate from companies’ Saudization records in the
the employer specifying the period of Nitaqat system, while Saudis receiving
service and the salary. less than that amount are not included at
all when calculating their firm’s
Employment of foreigners Saudization percentage. However, the
• Saudi Arabia is dependent on foreign government is considering a minimum
labor. Nevertheless, the number of wage of SR3,000 for Saudis and
Saudis entering the labor force is specifying conditions for calculating
increasing every year and the public Saudization quotas. The companies are
sector’s traditional capacity to absorb required to pay SR2,400 per foreign
them is eroding. Hence the government employee at the time of renewal of their
is increasingly determined to hire more residential permit (Iqama) if a company’s
Saudi nationals instead of foreign number of foreign workers exceeds the
workers wherever possible. number of Saudis.

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 Doing business guide | Understanding Saudi Arabia’s tax position

• However, in the recently announced

In the 2017 federal budget, the
government plans to introduce an
2017 fiscal budget, these amounts have
been increased. For companies in which

“expat levy” only if a company’s expat

expats do not exceed the number of
Saudi or GCC employees, the fee will no

employees exceed the number of

longer be waived, but will be charged at a
discounted rate.

• The dependent levy of SR1,200 per

annum for each expat dependent Saudi employees.
residing in the Kingdom is effect from July
2017. This amount would increase to employee, the employer must apply for a DME launched an International Tax
SR2,400 per annum per dependent with formal work permit before the end of the Services Center of Excellence in Dubai in
effect from July 2018 and SR3,600 per month. The formal permit is necessary to 2009. The center offers our clients as well
annum per dependent with effect from re-authorize the residence permit. The as investors in the region services which
July 2019 and SR4,800 per annum per Ministry of Labor issues work permits, include structuring groups with inbound
dependent with effect from July 2020. but the Ministry of Interior controls entry and outbound investments within the
visas and residence permits. There are Middle East and North Africa. The Center
various private-sector “enabling” agencies leads some of our largest global tax
• To increase the cost of employing that can complete formalities faster than engagements.
expatriate staff over Saudi nationals, the firms can themselves.
government has steadily raised the Deloitte’s Middle East practice has been
charge for work permits and other • In the 2017 federal budget, the awarded a Tier One ranking in tax services
documentation. Work-permit fees government plans to introduce an “expat for five consecutive years by the
(renewable every one to two years, for levy” only if a company’s expat employees International Tax Review’s World Tax
certain categories of employment, and exceed the number of Saudi employees. Awards. Top tier rankings are provided to
payable by the employer) now stand at firms that have “an international network
SR2,000 in addition to an extra fee of Deloitte in Saudi Arabia – and leading reputation” which is “reflected
SR1,000 for any expatriate wanting to How can you benefit? in the size and quality of transactions” in
change jobs. Foreign workers must pay Deloitte Middle East (DME) is committed to the relevant jurisdiction.
for exit and re-entry visa fees, at the rate providing client insight and delivering
of SR200 for the first two months and thought leadership to help our clients We would welcome the opportunity to
thereafter SR100 for each additional keep abreast of key developments in the discuss your needs further and provide
month. tax landscape. Deloitte has more than you with a better understanding of the
90 years of presence in the Middle East, issues discussed in this material. Please
• Expatriate workers need an entry work making it the longest standing professional do not hesitate to contact one of our
visa to work in Saudi Arabia. The services firm in the region. We will outline specialists.
prospective employer applies for the some key areas where we have offered a
permit, which is issued by the Saudi differentiated value added service to
embassy in the expatriate worker’s home clients in KSA.
country. This also serves as a residence
permit for one month. To retain the

29
Doing business guide | Understanding Saudi Arabia’s tax position

Want to do business
in Saudi Arabia?
We are here to help.
Deloitte & Touche Bakr Abulkhair & Co.

Al Khobar
ABT Building
Al Khobar
Saudi Arabia
Phone: +966 (0) 13 668 5700
Fax: +966 (0) 13 887 3931
Nauman Ahmed Nasser AlSagga Farhan Farouk
Jeddah Senior Director, Tax - KSA Partner, Tax - Al Khobar Senior Director, Tax -
Saudi Business Center Middle East Tax Leader Tel +966 (0) 13 668 5700 Jeddah
Madinah Road Tel +966 (0) 13 668 5701 [email protected] Tel +966 (0) 12 657 2725
Jeddah [email protected] ff[email protected]
Saudi Arabia
Phone: +966 (0) 12 657 2725
Fax: +966 (0) 12 657 2722

Riyadh
Prince Turki Bin Abdullah
Al-Saud Street, Sulaimania Area
Riyadh
Saudi Arabia
Phone: +966 (0) 11 282 8400
Fax: +966 (0) 11 282 8428

Wissam Merhej Issa Ayash Aamir Majeed

We welcome the opportunity to discuss Senior Director, Tax - Director, Tax - Al Khobar Director, Tax - Al Khobar
your needs further and provide you with Riyadh Tel +966 (0) 13 668 5708 Tel +966 (0) 13 668 5725
a better understanding of the issues Tel +966 (0) 11 282 8400 [email protected] [email protected]
discussed in this material. Please do not [email protected]
hesitate to contact one of our specialists.

The ‘Doing business guide’ series is

supplemented by the Middle East Tax
Handbook, which provides a summary of
basic tax information in a country-by-
country snapshot.

Syed M. Naqvi
Director, Tax - Jeddah
Tel +966 (0) 12 657 2725
[email protected]

30
Doing business guide | Understanding Saudi Arabia’s tax position

31
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