Understanding Saudi Arabia’s Tax System
Taxation is a fundamental fiscal tool in an economy because it is the first source of income for the government. In case of the tax in Saudi Arabia, the system is well-known for begin a relative simple one. Different from other countries, it focuses a few important tax categories. Moreover, various taxes apply on residents and local businesses. In this article, we will cover what are the most important characteristics of the tax in Saudi Arabia. We will highlight the various types of taxes in existence as well as the value added tax (VAT). In addition, we will explore the corporate tax UAE and the reforms that the government implemented to bring business setup in KSA and encourage foreign investments. Introduction to Saudi Arabia’s Taxation Landscape Saudi Arabia has an exclusive tax system. As a result, it is one of the most remarkable features that determine the stability of the country’s economy. The government of the country mainly has its revenue from oil. In addition, the leading sector can provide low tax rates for the people of this country. This does not apply to Saudi individuals’ income tax. Therefore, it becomes a voice for expatriates who are seeking for tax-free income. Thus, in addition to the sales value tax (VAT) at the standard 5% rate on the supply of goods and services, the Saudi Arabia also introduces another tax on companies. The amount of those taxes depends on the company size. This tax was introduced has a part of the government’s efforts to aid the drivenness of its economy from the oil. In fact, VAT has been bringing on a lot of money to state. Also, has been accepted by commercial entities facilitating business setup in KSA. Nonetheless, some particular industries in Saudi Arabia, like the sector of Islamic finance, are subject to specific taxes like Zakat. Without these industry-specific taxes, the market regulation and respecting Islamic principles would be hard to impossible. In addition, the government provides many incentives and tax exemptions for investor. This helps to boost the investment and drive economic expansion. Consequently, Saudi Arabia does not follow the traditional income tax system but its taxation regime is rich. Therefore, this complex landscape means that the residents and business owners must be knowledgeable on the current tax regulations. This will help to elude any penalties or legal issues. In sip of that, it is possible to overcome the complexity of the tax in Saudi Arabia. Through effective channeling and advice for the beneficiaries you will perfectly understand the landscape of this taxation system. Overview of Saudi Arabia’s Taxation The tax in Saudi Arabia combines the locally customary property tax with the modern-day value added tax. The income tax is not as intricate as others, this has components for different sources of income. Here you have a deeper dive: Corporate Income Tax. Business setup in Saudi Arabia is exposed to a corporate tax income of 20% on their total profits. Yet, there is a certain divisive part talking about. Profits acquired from the production of oil and gas have taxes that are 2-4 times the usual ones. Which ranges are normally from 50% to 85%. Withholding Tax in Saudi Arabia. Foreign entities offering something in KSA without a permanent establishment are subject to a withholding tax in Saudi Arabia. Service charge is by the service recipients and the rate of deduction varies as follows: 5% – 20%. This is depending on the type of service given. VAT Registration Threshold. The businesses with a total annual supply value exceeding SAR 375,000 (around $100,000 USD) must register for VAT. Hence, small businesses mainly reject VAT administration here since it is a complex and time-consuming task. Zakat Exemptions. Besides, Zakat must be only on the assets which are not exempted for Muslims according to Islam. There are some exemptions in the bankruptcy laws. For instance, the basic household furnishings and the primary residence are included. The same is true for the personal belongings of a debtor. In addition, the Saudi government has put in place tax exemptions as part of the effort to attract foreign direct investment. These tax holidays on certain industries can play a major role in significantly reducing the tax burden of businesses who qualify for them. In sum, the tax in Saudi Arabia combines a benefit for citizens with an expatriate income tax and a consumption tax (VAT). Types of Taxes in Saudi Arabia The tax in Saudi Arabia consists of two types of taxes: indirect tax and direct tax. The direct taxes are for individuals or companies regarding to their income or profits. The indirect taxes are for goods and services at the selling point already realized. Indirect taxes, and especially the one under Zakat, in Saudi Arabia are corporate income tax, individual income tax, and Zakat. Companies that run their businesses in the country have to pay corporate income tax based on their profit. At present the tax rate for corporate income tax remains unchanged at 20% for most business. However, they are few industries whose tax rate is 50%, such as the oil exploration and production business. Meanwhile, the income tax for individuals is for Saudi citizens and residents. The rates of individual tax depend on the level of their income and ranges between 0% till 30%. People living above a certain financial capability and residents also needs to pay Zakat. In addition to direct taxes, Saudi Arabia also imposes a value-added tax (VAT) on the sale of goods and services. Introduced in 2018, VAT currently stands at a rate of 15%. This tax applies to both domestic and imported goods and services. However, the country is not standing still and recently introduce a number of changes as a drive for diversity of income sources. The most important reform is the placing of excise taxes on harmful caloric drinks. Excise taxes have exactly the same purpose: to discourage increasing consumption of the above-mentioned products. Also, assist the government with receiving additional revenue. Furthermore,
