Corporate Zakat, Income Tax and Withholding Tax is an integrated tax system to enhance the national economy in the Kingdom of Saudi Arabia. Accordingly, let us learn about the most important information about corporate Zakat, income tax and.withholding tax in Saudi Arabia:

Corporate Zakat

1- Determining the Zakat Year (Hawl):

• Hawl. is a full Hijri year that must pass on the assets or wealth liable for zakat. Establishing this timeline is crucial to ensure accurate zakat calculations, as it sets the point from which the year is tracked.

2- Zakatable Assets:

Zakatable assets include:

• Cash: Funds available in bank accounts or cash holdings.
• Trading Goods: Products intended for sale.
• Raw Materials: Unprocessed materials.
• Finished Products: Goods ready for sale.

Non-zakatable assets include:

• Fixed Assets: Buildings, machinery, equipment, and other long-term investments used in production, which are exempt from zakat as they are considered long-term investments.

3- Valuing Zakatable Assets:

• Zakatable assets are valued at their market value at the end of the Zakat year. This requires a fair market assessment to ensure accuracy.

4- Debt Deduction:

• Liabilities payable within the year are deducted from zakatable assets. Thus, zakat is only calculated on the net value of assets after these obligations.

Zakat Rate:

• The zakat rate is set at 2.5% of the net zakatable assets after debts are deducted, providing a straightforward and transparent approach for companies to meet their obligations. Income Tax in Saudi Arabia..

Income tax is levied on individuals and businesses to regulate government revenue and foster national economic growth.

Income Tax Basics in Saudi Arabia

1- Scope and Application:

• Individuals: No income tax is imposed on Saudi nationals or residents.
• Businesses: Income tax is applied to foreign-owned companies or those engaged in oil and gas sectors. Saudi-owned businesses are fully exempt from income tax.

2- Tax Rate:

• Foreign Companies: A 20% income tax is imposed on the profits of foreign-owned companies.
• Oil and Gas Sector: Different rates apply based on revenue:
• 85% for companies with revenues exceeding SAR 375 billion.
• 50% for revenues between SAR 187.5 billion and SAR 375 billion.
• 75% for revenues below SAR 187.5 billion.

3- Tax Base:

• Income tax is based on net profits after deducting all business expenses and costs, ensuring that tax is levied on actual profits rather than total revenue.

4- Registration:

• Foreign companies and those in the oil and gas sectors must register with the General Authority of Zakat and Tax (GAZT).

5- Filing:

• Annual tax returns detailing income, profits, and related expenses must be submitted.

6- Payment:

• Taxes must be paid within the stipulated time to avoid penalties.

Withholding tax is levied on payments made to non-residents from sources within the Kingdom, forming part of the income tax system.

Withholding Tax Basics

1- Rates:

Withholding tax rates range from 5% to 20%, depending on the nature of the payment, such as:

• Royalties: 15%
• Technical services: 15%
• Interest: 5%
• Capital gains: 20%
• Dividends: 5%

2- Taxable Income:

Withholding tax includes amounts paid for:

• Administrative or technical fees.
• Technical services.
• Royalties.
• Interest.
• Rents.
• Dividends.
• Capital gains.

3- Procedures:

• Withholding at Source: The tax is withheld by the payer before transferring the amount to the non-resident recipient.
• Deposit: The withheld tax must be deposited with the GAZT within 10 days following the end of the month in which the payment was made.

Steps for Withholding Tax Compliance:

1. Determine the Type of Income: Identify the type of income being paid to non-residents and apply the appropriate tax rate.
2. Calculate the Tax: Ensure the correct tax is deducted from the payment.
3. Withholding at Source: Deduct the tax before transferring the net amount to the recipient.
4. Deposit the Tax: Deposit the withheld amount within 10 days to avoid penalties.

Saudi Arabia’s corporate zakat and tax system plays a key role in the country’s economic strategy. By implementing corporate zakat, income tax, and withholding tax, the government seeks to promote social justice, regulate public revenues, and stimulate economic growth. These measures help build a sustainable and resilient economy capable of meeting the challenges of the future and addressing the needs of its citizens.