Zakat or income tax: which applies to your company

Ownership decides

A company in Saudi Arabia pays zakat on the share owned by Saudi and other GCC nationals, and corporate income tax on the share owned by others. A company with mixed ownership pays both, each on its own share. Both are filed with ZATCA in a single annual return.

Zakat

• Charged at 2.5% of the zakat base for a Hijri year, or 2.5778% for a company that uses the Gregorian year.
• The zakat base is broadly equity and long-term funding, less long-term assets, adjusted under ZATCA’s rules, with a floor based on adjusted profit.
• A zakat certificate from ZATCA is needed for many government and bank transactions.

Corporate income tax

• Charged at 20% on the taxable profit attributable to non-GCC ownership.
• Higher rates, from 50% to 85%, apply to oil and hydrocarbon production.
• Losses can be carried forward under the conditions the law sets.

Withholding tax

• Payments to non-residents, such as fees, royalties, rent, interest and dividends, are subject to withholding tax.
• Rates depend on the type of payment: 5% on items such as rent, dividends, interest and technical services; 15% on royalties and payments to a head office or related party for services; 20% on management fees. A tax treaty may reduce them.
• Withholding tax is filed and paid by the 10th day of the month after the payment.

Deadlines

• The annual return and payment are due within 120 days of the financial year end.
• Audited financial statements are filed with the return where the company is required to have them.
• Late filing and late payment carry penalties.

How we run it

We keep the books ready for the return all year, work with the auditors at year end, prepare and file the zakat or tax return, and keep the certificate current.