Zakat vs Corporate Tax: How Saudi Firms Are Treated

Companies operating in Saudi Arabia are treated differently for Zakat and corporate income tax purposes depending on who owns them, a distinction that matters for every business owner and investor in the Kingdom. The rules are administered by the Zakat, Tax and Customs Authority.

Resident companies wholly owned, directly or indirectly, by Saudi or GCC nationals — with no non-GCC entity anywhere in the ownership chain — are generally subject only to Zakat on their base, not to corporate income tax. By contrast, resident companies wholly owned by non-Saudi, non-GCC owners are generally subject only to corporate income tax on their taxable income.

Mixed-ownership companies fall under both regimes at once. The same legal entity pays Zakat on the Saudi/GCC ownership share and corporate income tax on the foreign ownership share, applied proportionately. Gains attributable to Saudi and GCC shareholders are generally subject to Zakat rather than tax, to the extent of that shareholding.

The rates that apply

The standard Zakat rate remains 2.5% of the Zakat base for a full Hijri year. Entities that use a Gregorian financial year apply an effective rate of roughly 2.57–2.578%, calculated as 2.5% divided by 354 and multiplied by the number of days in the financial year.

The Zakat base is typically derived using a sources-of-funds (indirect) method: external funding sources equivalent to deductible assets are added, then non-zakatable and zakatable assets are deducted to reach the base, which cannot be less than adjusted net profit. In practice, businesses identify zakatable assets such as cash, receivables, inventories and certain investments, deduct allowable short-term liabilities due within 12 months, and apply the appropriate rate.

On the tax side, the standard corporate income tax rate is 20% on taxable profits. It applies to resident capital companies on the share of profits attributable to non-Saudi partners — whether individuals or companies, resident or non-resident — and to non-resident entities with a permanent establishment in the Kingdom.

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