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BUSINESS FORMS & STRUCTURES
CURRENCY & BANKING
TAXATION INVESTMENT & TRADE LABOR LAW ENVIRONMENTAL LAW
A zakat or income tax (a religious wealth tax) is assessed on the taxable income of most business organizations. Since only Saudis and GCC nationals are subject to zakat, foreigners pay an income tax in proportion to their equity interest. Foreign employees are not taxed on their salaries or wages. There is no sales tax. Capital gains fall under the same umbrella as ordinary income. Taxable net income is fairly consistent for all types of business organizations, foreign or resident.
Corporate Income Tax
Corporate income taxes are levied on the profits of foreign shareholders in a mixed company and the net profits of branches of foreign companies. Company tax rates, which are applicable to limited liability and joint stock companies, are taxed between 25 to 45 percent depending on profit. Petroleum and other hydrocarbon producing companies, however, are subject to a flat tax rate of 85 percent of net operating income.
Foreign companies entering into joint ventures with Saudi companies that have been recognized as developing projects by the Foreign Capital Investment Committee may receive a five year tax holiday. The exemption only applies to the particular project for which the Foreign Capital Investment Committee approval is granted. Other income may be held to fall outside the exemption, and therefore, be taxable. Manufacturers of agricultural products may be granted a ten year tax exemption.
Deductions and Losses
In general, all necessary business expenses incurred in Saudi Arabia are tax deductible except for specific types of expenses which may not be deductible. Expenses of the later type include doubtful debts, termination benefits and general administrative costs of the head office. Other types of expenses may be deductible only if certain conditions are met (e.g., agency fees). Statutory maximum rates have been set with regard to depreciation.
Saudi law has no provision allowing tax losses to be carried forward or back.
Taxation of Partnerships
A general partnership is taxed in a manner similar to that of a resident company. Non-Saudi and non-GCC individuals and corporate partners, however, are taxed upon their allocated share of profit at the applicable individual corporate tax rates.
Taxation of Individuals
Saudis and GCC nationals are not subject to income tax. Self employed foreigners who are resident in Saudi Arabia are not taxed on income from non-Saudi sources but only on Saudi-source income. Foreign employees are not taxed on their wages and salaries. When applicable, income tax is levied by reference to the following table:
* If the period which the foreigner stays in the Kingdom exceeds one year, the first SR 6,000 of income will not be taxed.
Zakat is the religious wealth tax imposed on Saudis and GCC nationals, and on companies entirely owned by them. In case of mixed participation, zakat is assessed by reference to the proportion of Saudi or GGC participation. Zakat rates are 2.5 percent of capital which is not invested in fixed assets or long term investments or which relates to deferred pre-incorporation expenses.
Withholding tax is imposed on payments made to non-residents and to persons not registered with the tax authorities for activities within the Kingdom. Tax must be withheld based on deemed minimum profit of 15 percent of the payment. Certain management fees, license fees and royalties are taxed assuming a 100 percent profit. Companies must withhold tax on payments to non-residents including foreign shareholders regardless of any tax holiday granted to the company.
Treaties for the Prevention of Double Taxation
The only double tax treaty signed in Saudi Arabia is with France. Similar treaties have been negotiated with Britain and with Germany. Countries, including Britain, Germany, Japan, and the United States, allow taxpayers to take a credit against their taxable income in such countries for any Saudi Arabian income tax paid.
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