How Zakat and Tax Apply to Saudi vs Foreign Firms

Companies operating in the Kingdom are subject to different rules depending on who owns them, with zakat, corporate income tax, or a combination of both applying based on ownership structure. Zakat and corporate income tax are administered by the Zakat, Tax and Customs Authority.

Resident companies that are fully owned by Saudi or GCC nationals — with no non-GCC entity anywhere in the ownership chain — pay only zakat at 2.5% on the zakat base and are not subject to corporate income tax. In contrast, resident companies that are entirely foreign-owned (non-Saudi and non-GCC) pay corporate income tax at 20% on adjusted taxable income and do not pay zakat.

Mixed-ownership companies, which combine Saudi or GCC shareholders with foreign shareholders, are subject to both. Zakat at 2.5% applies to the portion of the zakat base attributable to Saudi/GCC ownership, while corporate income tax at 20% applies to the share of taxable income linked to foreign ownership. The two bases are calculated separately and are not combined.

How the bases are calculated

The zakat base is generally the company's adjusted net worth — equity plus certain long-term liabilities, minus fixed assets and long-term investments, with regulatory adjustments — and the 2.5% rate is applied to the Saudi/GCC ownership share. The corporate income tax base is the company's adjusted net income, and only the foreign ownership share is taxed at 20%.

Capital gains on shares follow the same logic: the foreign ownership share of gains is taxed at 20%, while the Saudi/GCC share falls under 2.5% zakat. Special rules apply to companies with shares owned by persons engaged in oil and hydrocarbon production, with an exclusion for certain listed companies on the Saudi Exchange where such shares are held indirectly.

There is no consolidated group taxation for related companies; zakat and corporate income tax are computed on a legal-entity basis. Understanding these distinctions matters for investors and business owners planning ownership structures in the Kingdom.

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