Business Taxes in Saudi Arabia: VAT, Zakat & CIT

Businesses operating in Saudi Arabia deal with three main levies: Value Added Tax (VAT), Zakat, and corporate income tax. Understanding how each works helps owners, investors, and expat entrepreneurs stay compliant and plan ahead.

VAT is applied at a single standard rate of 15% on most goods and services, with no reduced rates. It was first introduced at 5% on 1 January 2018, then raised to 15% on 1 July 2020, and remains at 15% in 2026 with no announced reductions. VAT also covers digital services supplied to consumers in the Kingdom.

Registration depends on annual taxable supplies. It is mandatory once these exceed SAR 375,000, and optional once they exceed SAR 187,500. Some supplies are zero-rated (0%), including exports to non-residents, qualifying medicines and medical equipment, investment metals of 99% or higher purity, and international transport. Certain healthcare, education, and financial services may be exempt or zero-rated.

Zakat and corporate income tax

VAT is administered by the Zakat, Tax and Customs Authority (ZATCA). Businesses must register, file returns, and pay through ZATCA's electronic portal. Filing is typically monthly or quarterly depending on turnover, with payment due shortly after the return deadline.

Zakat is charged at 2.5% of the zakat base for a Hijri fiscal year, or 2.578% for those on a Gregorian year. The base is calculated mainly on equity and certain liabilities, including owner's equity, working capital, retained earnings, and specified balance sheet items.

Who pays what depends on ownership. Resident companies wholly owned, directly or indirectly, by Saudi and GCC nationals — with no non-GCC entity in the ownership chain — are subject only to Zakat, not corporate income tax. This distinction matters for structuring businesses and understanding annual obligations.

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