29 Sep Understanding Saudi Arabia’s Zakat and Corporate Tax Rules
As Saudi Arabia continues to open its economy to international investors, understanding the country’s tax and Zakat regulations has become essential for every business operating in the Kingdom. The Saudi government has modernized its tax system under Vision 2030, balancing competitiveness with transparency to attract foreign investment while ensuring compliance and accountability.
In 2025, the Zakat, Tax, and Customs Authority (ZATCA) oversees the collection and administration of all taxes and Zakat in Saudi Arabia. Whether you are a local entrepreneur or a multinational company expanding into the Kingdom, knowing how these laws work will help you stay compliant and avoid penalties.
This article provides a comprehensive overview of Saudi Arabia’s corporate tax and Zakat system, the entities they apply to, and the key updates you need to know in 2025.
1. What Is Zakat in Saudi Arabia?
Zakat is a religious obligation in Islam, representing a fixed percentage of wealth that Muslims are required to pay annually to support community welfare and social development. In Saudi Arabia, Zakat is not just a voluntary contribution but a mandatory levy applied to Saudi and GCC-owned companies under the supervision of ZATCA.
The current Zakat rate is 2.5% of the company’s Zakat base, which generally includes equity, retained earnings, and long-term liabilities. It is not calculated on net profit like corporate tax but rather on the company’s net worth or adjusted balance sheet items.
The collected funds are distributed for public welfare purposes, reflecting the Kingdom’s commitment to Sharia-compliant financial governance.
2. What Is Corporate Tax in Saudi Arabia?
Corporate tax is applied to foreign-owned entities operating in the Kingdom. This includes companies with non-GCC ownership, branches of foreign corporations, and any share of profits attributable to non-GCC shareholders in mixed-ownership entities.
The standard corporate income tax rate in Saudi Arabia is 20%, applied to the net adjusted profits of the taxable entity. The tax is levied on income derived from business activities, including trading, manufacturing, contracting, and services.
In addition, certain industries like oil and gas are subject to higher tax rates under specific Royal Decrees, reflecting the strategic importance and profitability of those sectors.
3. Dual Tax System: Zakat and Corporate Tax
Saudi Arabia follows a dual taxation system, meaning businesses can be subject to either Zakat or corporate tax — or both — depending on ownership composition.
- 100% Saudi or GCC-owned entities are subject to Zakat only at 2.5%.
- 100% foreign-owned entities are subject to corporate income tax at 20%.
- Mixed-ownership entities (Saudi/GCC and foreign shareholders) pay both, with Zakat applied to the local ownership portion and corporate tax applied to the foreign portion.
This dual framework ensures compliance with both Sharia principles and international tax standards, maintaining fairness for local and foreign investors alike.
4. Withholding Tax (WHT)
Saudi Arabia also applies a withholding tax on certain cross-border payments made by Saudi-resident companies to non-residents. The applicable rates vary based on the nature of the payment:
- 5% on dividends and rental income
- 15% on royalties, management fees, and technical services
- 20% on payments to related parties in tax havens
These rates may be reduced under applicable Double Taxation Avoidance Agreements (DTAs) between Saudi Arabia and other countries. Businesses are responsible for deducting and remitting the WHT to ZATCA at the time of payment.
5. Value Added Tax (VAT)
Saudi Arabia introduced Value Added Tax (VAT) in 2018, which was increased to 15% in 2020. The VAT applies to most goods and services, except for specific exemptions like healthcare, education, and certain financial services.
Registered businesses must file VAT returns periodically, usually every month or quarter, depending on turnover. Proper invoicing, record-keeping, and digital filing are mandatory, and non-compliance can result in fines or penalties.
6. Filing, Assessment, and Deadlines
All taxpayers must register with ZATCA within 60 days of obtaining their commercial registration. Corporate income tax and Zakat returns must be filed within 120 days of the end of the financial year.
Businesses are also required to make quarterly advance payments if they expect their tax liability to exceed SAR 500,000 in a given year. Late filing or payment can result in financial penalties, so timely compliance is crucial.
ZATCA conducts audits and assessments to verify declarations, and electronic communication has significantly reduced processing times.
7. Penalties for Non-Compliance
Failure to comply with Zakat or tax obligations can result in substantial penalties. Common violations include:
- Late filing of returns
- Underreporting of income
- Failure to withhold or remit WHT
- Non-compliance with e-invoicing regulations
Penalties may range from 5% to 25% of unpaid taxes, depending on the nature of the violation. ZATCA also reserves the right to suspend business operations or block government services for severe non-compliance cases.
8. How to Stay Compliant
For companies operating in Saudi Arabia, maintaining compliance involves more than just submitting returns. Businesses must keep accurate financial records, reconcile accounts regularly, and stay informed about regulatory updates.
Engaging with a professional consultancy like GCC Solutions ensures your tax and Zakat obligations are managed correctly. Our experts help businesses register with ZATCA, prepare compliant tax filings, maintain transfer pricing documentation, and implement e-invoicing systems aligned with Saudi regulations.
9. Why Understanding Zakat and Corporate Tax Matters
Understanding the tax structure in Saudi Arabia isn’t just about meeting legal obligations — it’s also a key element of strategic business planning. By optimizing your tax structure, managing compliance efficiently, and leveraging available deductions, you can improve profitability and maintain a positive standing with government authorities.
In an increasingly digital and regulated environment, proactive compliance builds trust with clients, partners, and regulators — ultimately strengthening your company’s long-term success in the Kingdom.
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