Zakat vs 20% Tax: How It Works for Companies in Saudi

Companies operating in Saudi Arabia face two different obligations depending on who owns them: Zakat for Saudi and Gulf owners, and a 20% corporate income tax for foreign ownership. Understanding which applies is essential for any business owner, investor, or professional working in the Kingdom.

Saudi-owned companies pay Zakat at 2.5% of the Zakat base for a Hijri fiscal year. Companies wholly owned by nationals of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, or the United Arab Emirates are generally treated the same way and are subject to Zakat only. Where a company follows a Gregorian fiscal year, Zakat is generally calculated at an equivalent annual rate of about 2.578%.

Foreign-owned companies are subject to a 20% corporate income tax on net adjusted taxable profit attributable to non-Saudi and non-GCC ownership. For mixed-ownership companies, the Saudi and GCC share is subject to Zakat, while the non-Saudi and non-GCC share is taxed at 20%, with the split generally following the ownership proportions. Oil and hydrocarbon activities may instead face special rates ranging from 50% to 85%.

Filing, payment, and what to remember

Zakat and corporate income-tax returns are generally filed within 120 days after the end of the company's fiscal year. For a fiscal year ending 31 December, the usual deadline is 30 April of the following year. Payments are made electronically after submitting or amending a return, through available electronic banking or ATM channels.

Registration, returns, assessments, amendments, and payments are all handled through the ZATCA electronic portal, and foreign and taxable mixed-ownership companies register through its corporate income-tax registration service. Two important points: Zakat is not simply 2.5% of accounting profit — it applies to the calculated Zakat base — and the 20% tax applies to net adjusted taxable profit, not accounting profit. There is no separate fixed government fee; the amount due is the assessed liability, and these obligations recur each fiscal year.

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