Corporate Income Tax and Zakat
Corporate taxation in Saudi Arabia is determined by ownership structure and revenue sources. Resident Companies that are fully owned by Saudi / GCC residents (i.e. residents from the UAE, Bahrain, Kuwait, Oman and Qatar) with no non-GCC shareholding are generally subject to “Zakat”, an Islamic levy based on net worth / asset base, at a rate of 2.58%. Meanwhile, foreign-owned businesses and non-resident entities with a permanent establishment in the Kingdom are subject to corporate income tax (CIT) at 20%.
Income generated from oil and hydrocarbons production is subject to tax @ ranging from 50% to 85%, depending on the amount of investments. Income generated from investments in natural gas is taxed @ 20%.
A proportional tax structure applies for businesses with a mix of Saudi and foreign ownership, where Zakat is levied on the Saudi portion and CIT on the foreign share. To comply with these regulations, companies must ensure proper documentation and accurate financial reporting.
All non-resident entities and companies, devoid of their ownership structure, which conduct business in Saudi Arabia through a PE or a branch, and which derives income from sources within the country are generally subject to corporate income tax @20%. Non-residents that provide services in Saudi Arabia without having a PE or a branch are subject to withholding tax.
Value-Added Tax (VAT) Developments
Saudi Arabia introduced VAT in 2018, initially at 5%, before increasing the rate to 15% in 2020. In 2025, VAT remains a crucial part of the tax framework, with the Zakat, Tax and Customs Authority (ZATCA) actively enforcing compliance. To avoid penalties, businesses must maintain robust invoicing systems, proper record-keeping, and timely tax filings.
A growing focus on digital taxation means that e-commerce businesses and digital service providers, both domestic and international, must comply with VAT registration and collection requirements. Non-resident companies supplying digital services to Saudi customers must register for VAT and appoint a local representative, if necessary.
With digitalization drive, E-invoicing system was swiftly implemented by ZATCA in two phases i.e. issuing e-invoices and integration of taxpayers e-invoicing system with ZATCA.
Withholding Tax (WHT) and International Tax on Cross-Border Transactions
Withholding tax applies to payments made to non-residents for services, dividends, royalties, and interests. The standard WHT rates range from 5% to 20%, depending on the type of payment and the existence of double taxation agreements (DTAs) between Saudi Arabia and the recipient’s country provides specific reliefs. Recently, the rates were moderated for related party services to give a level playing field.
Non-residents that provide services in Saudi Arabia without having a PE or branch are subject to withholding tax ranging from 5% to 20% depending on the nature of services rendered.
In 2025, businesses engaging in international transactions should review applicable DTAs to optimise tax exposure and ensure compliance with evolving transfer pricing rules. Proper documentation, including intercompany agreements and pricing policies, is essential to mitigate tax impact and curtail any audit risks.
Transfer Pricing Compliance
Saudi Arabia follows the OECD Transfer Pricing Guidelines, requiring businesses engaged in related-party transactions to maintain comprehensive Local File, Master File, and Country-by-Country (CbC) Reporting if they meet the revenue threshold. ZATCA continues to enhance scrutiny on transfer pricing compliance, and businesses should ensure they have a defensible pricing strategy backed by robust documentation.
ZATCA has enforced Transfer Pricing regulations on Zakat payers i.e. to capture related party transactions of companies which are Saudi owned / GCC.
Regional Head-Quarter (‘RHQ’) Program
Zero corporate income tax and zero withholding tax on dividends and payments to related or third parties for services essential to RHQ for 30 years is the start point of benefits being extended by Saudi Arabia to global players.
The RHQ program has been implemented to synergize certain common activities of large groups being conducted in different countries (especially in the Region) and positioning them to move into KSA, to become the leading industrial, financial and commercial hub. For such an initiative, it was imperative to offer a range of benefits and premium support services that would complement Saudi’s value proposition for global players.
An RHQ set-up is a business unit of a multinational company established under the laws of Saudi Arabia with its main objective to provide strategic direction, administrative guidance, and internal business support to its branches and affiliates in the MENA region.
Many businesses have taken prudence of this initiative and established their RHQs in Saudi Arabia.
Special Economic Zones
Vision 2030 was not just a statement, and to show-case its brilliance, Saudi Arabia established five Economic Cities classified for different sectors including financial hubs. These sectoral Zones provide necessary infrastructure and set-up to cater to the needs of their businesses.
Corporate Income tax @5% for upto twenty years, and zero withholding tax rate for repatriation of profits has been extended. Certain other exemptions pertaining to customs duties and VAT are also being extended to be more cost-effective. Special tax treatment aligned to OECD principles would avoid Double taxation.
As many countries across the globe experience bonded zones, Saudi Arabia has extended the concept of bonded zones and specialised integrated logistics zone within these Economic Cities for efficiencies, lower costs and access; though keeping in mind the non-bonded zone areas to be completely delineated for residential, common areas etc.
Infrastructure of a magnitude beyond imagination is in the offing at these SEZs.
Excise Tax and Customs Duties
Excise tax applies to specific goods such as tobacco (100%), sugary drinks (50%), and energy drinks (100%). Businesses in these sectors must ensure timely filing and compliance with product classification rules.
On the customs front, Saudi Arabia’s participation in the GCC Common Customs Law influences import duties. However, the Kingdom also continues introducing tariff amendments to support local industries. Businesses must monitor any changes affecting their supply chains and explore customs duty exemptions where applicable. Supplies of produce within the GCC has certain customs duty exemptions in Saudi Arabia, subject to compliance of Proof of Origin Rules.
E-Invoicing and Digital Compliance
Saudi Arabia is at the forefront of digital tax compliance and therefore implemented mandatory e-invoicing (FATOORA) during its first phase. The second phase of e-invoicing, which includes integration with ZATCA systems, is now in effect for larger businesses and is gradually expanding to all taxpayers.
The integration at different levels of threshold known as “Waves” has by far integrated a significant number of registrants and currently ongoing. By the end of 2025 or mid-2026, the entire Kingdom would have integrated its E-invoicing system with ZATCA’s - FATOORA System. This may result and culminate in lesser compliances for VAT payers. Companies must ensure their invoicing systems comply with ZATCA’s technical requirements to avoid penalties.
Tax Disputes and Voluntary Disclosure
ZATCA has strengthened its enforcement mechanisms, leading to increased tax audits and assessments. Businesses should proactively address tax compliance risks to avoid disputes. The voluntary disclosure program offers a structured way to rectify past tax errors with reduced penalties, making it a viable option for businesses needing to correct historical filings.
Further, ZATCA has initiated exemptions on “late payment fines” subject to payment of upfront principal tax amount.
Real Estate Transaction Tax
Real Estate Transaction Tax (RETT) was introduced in October 2020, at the rate of 5 percent on all real estate transactions, and calculated on the value of the transaction, as prescribed under the law.
Consequently, all real estate transactions that have taken place since October 4th, 2020, are subject to the RETT. Further, due to prior anomaly, it was clarified that all real estate transactions would now be exempt from VAT from this date onwards, except commercial leasing/rental and the provisions of stays in hotel accommodation.
ZATCA analyses RETT qualifying transactions as per the regulations and policy guidelines to ascertain the levy. Transactions such as - Transfer of ownership, sale of residential, commercial, agricultural land, 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 Murabahah.
RETT is generally levied on all individuals and organizations which are 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 under the law.
For instance, exemptions are:
- compulsory disposals of real estate (e.g., seizure of ownership for public benefit).
- the transfer of real estate by inheritance.
- temporary transfer of property for use as a financial or credit guarantee, etc – Specific procedure to be followed for declaration and payment.
- the exemption of supplies of real estate has certain cost impacts, and specific transactions should be evaluated.
To support Saudi nationals, the government has committed to meet the cost of RETT, which could be due on the purchase of a first home up to a value of SAR1 million provided the citizen produces a certificate of exemption from the Ministry of Housing.
It is important to look at these exemptions granted, and any real estate related transaction should be carefully evaluated to analyse the impact.
Global Minimum Tax – BEPS 2.0
While Saudi Arabia has expressed its commitment to global minimum corporate tax rate, formal announcement on Pillar Two legislation is yet awaited. Notably, other GCC jurisdictions, including the UAE, Qatar, Kuwait, Bahrain, and Oman (effective 2025), have already enacted or announced Pillar Two legislation, indicating a clear regional trend.
In 2025, MNEs should proactively engage with ZATCA updates and seek expert advice to assess potential future impacts and ensure preparedness.
Navigating the Saudi tax landscape in 2025 requires a strategic approach to compliance, documentation, and financial planning. With continuous regulatory updates, businesses must stay informed about tax obligations, leverage available incentives, and invest in robust tax governance frameworks. Seeking professional tax advisory support can enhance compliance efficiency and help businesses mitigate risks while capitalising on opportunities in the Kingdom’s dynamic economic environment.
