Business Taxes in Saudi Arabia: VAT, Zakat & CIT

Companies operating in Saudi Arabia are subject to three main forms of business taxation — Value Added Tax (VAT), Zakat, and corporate income tax (CIT) — all administered by the Zakat, Tax and Customs Authority (ZATCA). Understanding which applies depends largely on who owns the business.

The standard VAT rate is 15% on most taxable goods and services in the Kingdom, in force since 1 July 2020. VAT was first introduced on 1 January 2018 at 5% before rising to its current level. Some supplies are zero-rated or exempt, including specified healthcare, education, financial services, and exports, as set out in the VAT implementing regulations.

How ownership shapes what you pay

Zakat is levied at 2.5% of the Zakat base — broadly a company's net worth or capital employed, such as net working capital, investments and receivables with prescribed adjustments — rather than on accounting profit. It applies to Saudi and GCC-national shareholders. Corporate income tax, meanwhile, is charged at 20% on income attributable to non-Saudi, non-GCC shareholders and non-resident persons earning Saudi-source business income.

In practice, a fully Saudi or GCC-owned resident company pays Zakat only. A wholly foreign-owned company, or a branch or permanent establishment of a foreign entity, pays 20% CIT on its Saudi-source taxable income. Mixed-ownership companies see a split: the Saudi/GCC portion is subject to 2.5% Zakat, and the foreign portion to 20% CIT.

Businesses in designated Special Economic Zones can benefit from a reduced CIT rate of 5% for 20 years starting April 2026, applied to qualifying activities. For residents and investors, knowing these distinctions matters when planning ownership structures, budgeting for tax liabilities, and pricing goods and services in the Saudi market.

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