One of the major points of discussion while working in the Kingdom of Saudi Arabia is the prevailing salary and taxation laws. Here is brief lowdown on the various essentialities of the same.
Saudi Arabia is a famous expat destination. Also known as the Kingdom of Saudi Arabia, it is the largest Arab country in West Asia in terms of area and the second largest Arab nation in the world after Algeria. The country is known for its vast oil reserves and therefore, is the largest oil exporter in the world. Saudi Arabia’s hegemony in the global oil and petroleum sector makes it one of the 20 most powerful countries according to the National Power Index.
No personal taxes
Saudi Arabia is one of the few countries in the world that do not collect any personal income tax. According to the rules laid out by the Department of Zakat and Income Tax, the official tax authority of Saudi Arabia, citizens of the country are exempted from paying income taxes. The population is instead required to pay Zakat, a religious tax. Other GCC nationals who are residents in Saudi Arabia are also not subject to income tax in Saudi Arabia. Kuwait, Oman, Saudi Arabia, Bahrain, Qatar and United Arab Emirates are the countries that are part of Gulf Cooperation Council. However non-Saudi and non-residents GCC nationals who are permanently residing inside the country are only required to pay taxes on their business income.
Understanding the various terminology related to taxation in Saudi Arabia
Who is considered a resident of Saudi Arabia?
- Any individual who has a permanent residence in Saudi Arabia and spends at least 30 days in a taxable year in that residence.
- Any individual who is physically present in the country for a period of at least 183 days in a taxable year.
What is a taxable year?
The fiscal year of the government is referred to as taxable year. For a newly setup business in the country, the taxable year will start from the date it obtains a commercial license.
What are the different types of incomes subject to tax?
Self-employment or business: Although it is hard for foreigners to gain permission for carrying out trade activities in Saudi, those who manage to get the necessary licenses from the Ministry of Commerce and Industry are levied income tax on their profits. However, it’s tough luck if your business runs into loss as the Saudi government does provide for the carry back of losses. The income which is subject to taxation includes all income, profits, and any other capital gain of any type other than exempt income. The non-Saudi resident’s income will be charged 20% of the tax base.
Investment Income:
Those non-resident Saudis who have invested in projects in Saudi Arabia are also subject to taxation. Any income derived from investments in Saudi projects is subject to taxation at a rate of 20%.
Employment Income:
This is what makes most expats smile. Any income received by expatriates or resident Saudis through means of direct employment is not subject to tax according to its tax laws. Allowances such as educational allowances are also kept out of taxation.
Social Security
The Saudi government charges Saudi Social Insurance Tax (GOSI), which is paid by the employers on behalf of their employees. GOSI is charged on basic salary, including housing allowances. The Saudi employees are levied 9% of their salary as GOSI while employers also contribute additional 9%. In addition, employers also have to pay 2% towards occupational hazard insurance, irrespective of the nationality of the employee. However, if you are a business traveler, there is no liability of social security.
Indirect tax
Business travelers are exempted from any sort of indirect taxes. However, imported goods require custom duties to be paid.
Withholding taxes
As per the existing laws and guidelines laid down by the Saudi government, any income of individuals who are non-resident Saudis, and is generated through services from a source inside Saudi Arabia is subject to a withholding tax. The tax rate varies between 5 to 20 percent according to the different nature of services involved. The tax collection responsibility lies with Department of Zakat and Income Tax (DZIT). The entity paying for services will be responsible for depositing the tax within the first 10 days of the month. If the resident entity pays dividends to a nonresident, the tax levied is 5%. Similarly, interests paid to nonresidents also have 5% withholding tax associated with them.
Since most of the expats employed in Saudi Arabia are under direct employment contract with their employer, they have very little to worry about. This actually explains the huge attraction that the country is as an employment destination. People are always on the lookout of opportunities to swell their own savings through pursuing employment in GCC nations. Saudi Arabia is also buzzing with lots of new employment opportunities in its vibrant oil and gas sector, along with construction sector boosted by a vibrant economy. The country is already working on its orthodox reputation and keeps on doling out favorable policies to attract expat talent.
Filing taxes: While individuals engaged in direct employment are not required to file tax returns, those residents who are self-employed or foreign individuals who carry out business in Saudi Arabia are required to file their tax returns within 120 days after the end of the fiscal year. If one fails to file the returns within the prescribed time limit, a penalty of 1% will be levied for every one month from the due date of tax until the total amount of tax is paid.
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