Mixed-Ownership Firms Pay Both Zakat and Tax

Companies operating in Saudi Arabia with a mix of Saudi/GCC and foreign shareholders are subject to both Zakat and corporate income tax at the same time, with each obligation allocated in proportion to the relevant ownership share. The rules are set out in the new Implementing Regulation for Zakat Collection, which applies to fiscal years beginning on or after 1 January 2024 and replaces the previous regulation.

Under the framework, the foreign share of taxable profits is subject to corporate income tax at a flat rate of 20% for standard commercial entities, while the Saudi/GCC share is subject to Zakat at 2.5% of the Zakat base — applied at roughly 2.57% for companies that file on a Gregorian-year basis to reflect the longer year. The Zakat base is allocated to Saudi and GCC shareholders in line with their ownership, and taxable income is allocated to non-Saudi and non-GCC shareholders in line with theirs.

GCC nationals are treated the same as Saudi nationals for Zakat purposes. By contrast, shares held by non-Saudi partners in resident capital companies are treated as non-Saudi shares for income tax, including where those partners sit within a mixed Saudi company that participates in another resident company.

Why it matters

Zakat and tax are calculated in parallel and create separate liabilities; neither can be credited against the other. Zakat is charged on the entity's net worth as measured under Zakat rules, while the tax is charged on net adjusted profits. Under the updated regulation, the split is fixed at year end based on the Saudi/GCC ownership percentage, without adjusting for changes in ownership or legal form during the year.

Companies wholly owned by Saudi or GCC nationals pay only Zakat, while those wholly owned by non-GCC investors pay only the tax. Because the balance between the two depends directly on the ownership structure, some groups have an incentive to increase Saudi or GCC participation to shape how their liabilities are divided.

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