This guide offers an overview of the business taxes in Saudi Arabia – including Zakat, VAT, withholding taxes, corporate tax rates, and filing requirements, including key taxation strategy updates in 2025.
An integral part of Saudi’s competitive edge for global and regional businesses is its flexible, clear-cut taxation policies, which have been a leading factor in attracting more than 540 international MNCs so far.
Planning to set up a business in Saudi Arabia? Let us guide you through the journey
What Are the Primary Types of Business Taxes in Saudi Arabia?
Below is a comprehensive description of the Saudi tax landscape, including the main types of taxes applicable to various business entities.
Value Added Tax (VAT) in Saudi Arabia
Value Added Tax (VAT) is an obligatory business tax in Saudi Arabia that applies to all goods and services imported, also known as Goods and Services Tax in some countries.
It is regulated by the Zakat, Tax and Customs Authority (ZATCA) and applies to businesses with volumes of supplies greater than SAR 375,000. Currently, VAT stands at 15%.
To legally conduct operations, a business must register for a special business identification number and obtain a VAT registration number. VAT rules also stretch out to e-commerce transactions involving imported products.
Certain businesses engaged in essential services, such as healthcare, education, and food products, are either exempt from VAT or subject to lower rates.
For businesses required to pay VAT, there are comprehensive invoicing and reporting rules, including the mandatory use of e-invoicing systems through the ZATCA portal.
Documents Required by Foreign Companies to Apply for VAT include:
- Parent Company Trade License/CR
- Parent Company AoA
- MISA License
- Company’s AoA
- Company Registration (CR)
- Saudi National Address
- GM Passport
Excise Tax in Saudi Arabia
This type of tax is imposed on the production and import of certain goods.
Notable examples include soft carbonated drinks, which are taxed at a rate of 50%; energy drinks at 100%; and tobacco products, also at 100%.
Businesses involved in the production or importation of these excisable goods are required to submit their excise tax on a bimonthly basis, with returns and payments due within 15 days following the end of each tax period.
To comply with regulations, manufacturers and importers must register with the Zakat, Tax and Customs Authority (ZATCA).
Income Tax in Saudi Arabia
Commonly referred to as “capital gains,” income tax primarily targets non-Saudi entities.
This tax is levied on net adjusted profit or the share of companies owned by non-Saudis at a standard rate of 20%. However, certain industries, particularly oil and hydrocarbon production, may face higher tax rates ranging from 50% to 85%, depending on their capital.
If any shareholders of the business are Saudi citizens, a religious tax known as Zakat applies to the portion of the business owned by those Saudi shareholders. Only the Saudi/GCC portion is subject to Zakat.
It’s important to highlight that corporate income tax does not allow for any foreign taxes paid by companies to be deducted.
Withholding Tax in Saudi Arabia
Withholding Tax (WHT) in Saudi Arabia applies to income generated by operating non-resident entities within the Kingdom.
The rates vary between 5% and 20%, depending on the nature of the service and the shareholding relationship between the resident and non-resident entities.
Services subject to WHT include management fees (20%), royalties (15%), rent (5%), dividends (5%), insurance and reinsurance (5%), airline tickets, air/sea/freight (5%), in-country land transportation (15%), and other services sourced from Saudi Arabia (15%).
Companies must pay the WHT within the first 10 days of each month through the ZATCA platform, and annual WHT returns should be filed within 120 days following the end of the financial year.
Partnership firms have a shorter deadline, needing to submit their returns within 60 days. Businesses that fail to meet these deadlines may incur a penalty of 1% of their tax value for every 30 days of delay. Should ZATCA suspect any tax evasion, an additional fine of 25% may be imposed.
Incentives Schemes on Business Taxes in Saudi Arabia
To promote the growth and expansion of businesses, the government offers numerous incentive schemes for business taxes ranging from exemptions and/or deductions.
Incentives are widely available in the newly launched special economic zones (SEZs). This includes a reduced corporate income tax (CIT) rate of just 5% for up to 20 years, alongside a 0% withholding tax on the repatriation of profits from an SEZ to foreign countries.
Additionally, there is a 0% customs duty deferral for capital equipment within the SEZ, and goods exchanged within and between SEZs are exempt from VAT.
These zones also offer competitive utility rates and exemptions from operational fees for employees and their families residing within the SEZs. Businesses especially benefit from special tax treatment aligned with OECD principles to avoid double taxation, and there are flexible regulations regarding foreign talent for the first five years.
Furthermore, in the special Integrated Logistics Zone, businesses are offered the following benefits:
- 50-year tax exemption period
- 0% corporate income tax
- VAT exemptions
- Withholding tax exemptions
- Remittance tax exemptions.
Furthermore, business activities and investments in underdeveloped regions such as Ha’il, Jazan, Najran, Al Baha, Al-Jouf, and the Northern Territory are eligible for a 10-year tax relief, along with additional incentives related to salaries & training expenses.
More incentives become available if the capital for a project exceeds SR1 million and if there are more than five Saudi employees in technical and administrative roles.
What Penalties Do Businesses in Saudi Arabia Face for Not Paying Taxes?
Tax evasion transpires in various forms, including late tax filings and submission of false documents.
Penalties for Businesses:
- Late Tax Filings:
- 1% of the tax value for every 30 days of delay beyond the due date.
- Fine of 25% of the amount due
- Late Payment of Fines:
- Fine of 25% of the amount due
VAT-Specific Penalties:
- Submitting False Documents:
- Penalty exceeding the VAT amount due, capped at three times the value of goods/services
- Moving Goods In/Out of Country Without Paying VAT:
- Penalty mirroring that of submitting false documents
- Non-registration Within Specified Timeframe:
- Fine of SAR 10,000
- Late Submission of VAT Returns:
- Fines ranging from 5% to 25% of the amount due
- Non-payment of VAT:
- Monthly fine of 5% of the VAT due
- Collecting VAT Without Prior Registration:
- Fine of SAR 10,000 or less
- Failing to Maintain Proper Records:
- Fines of up to SAR 50,000
- Preventing ZATCA Employees from Performing Duties:
- Penalty of SAR 50,000
NOTE: Saudi Arabia has recently announced the extension of the “Cancellation of Fines and Exemption of the Financial Penalties Initiative” until July 2025. The initiative covers various taxes, including withholding, income, excise, and real estate transaction taxes.
To benefit from this initiative, taxpayers must be registered, submit all due returns, and pay any outstanding taxes. ZATCA allows taxpayers to settle payments in installments, provided applications are submitted while the initiative is active.
Tax payments and fines can be made via the SADAD system, using e-banking services or ATMs for amounts of SAR 20,000 or less.
Following a successful payment, a zakat certificate is issued, confirming that no other outstanding bills exist. The SADAD system, established by the Saudi Central Bank, streamlines the tax compliance process for businesses.
What’s Next for Ensuring Compliance with Business Taxes in Saudi Arabia?
Compliance with taxation is an integral part of a successful market entry for businesses, setting the path for a deeper exploration of the market’s untapped potential.
AstroLabs partners with local service providers to help incoming foreign companies manage their tax obligations effectively while focusing on the core business operations.