Saudi Arabia · Guide
Saudi Arabia does not tax a company. It taxes the shares in it.
The share of profit that belongs to foreign owners pays income tax at 20%. The share that belongs to Saudi and Gulf owners pays zakat instead, on a different base, at a different rate.
One company can therefore owe both in the same year. This page shows how the two are calculated, with a mixed ownership example worked line by line.
Who pays what
The rate is the easy part. What decides the bill is who owns the shares.
| Owner of the shares | What applies | Rate | Calculated on |
|---|---|---|---|
| Non-Saudi, non-GCC person or company | Income tax | 20% | Its share of taxable profit |
| Saudi national or company | Zakat | 2.5% Hijri year | Its share of the zakat base |
| National of another GCC state | Zakat | 2.5% Hijri year | Its share of the zakat base |
| Oil and hydrocarbon producer | Income tax | 50% to 85% | Separate tax base |
Three points make the table usable.
- A foreign founder who owns 100% of a Saudi LLC pays income tax only. No zakat is due on a company with no Saudi or GCC owner.
- GCC nationals are treated as Saudis. The zakat regulation defines a Saudi as a Saudi national or a GCC citizen treated as such.
- Natural gas investment is taxed at the general 20%, according to PwC, not at the hydrocarbon rates.
Income tax is governed by the Income Tax Law of 2004 (Royal Decree M/1). Zakat is governed by a regulation issued under Ministerial Decision No. 1007, which applies to financial years starting after 1 January 2024.
Zakat vs income tax: two different bases
Most guides present zakat as a 2.5% version of income tax. It is not. The two are calculated on different things.
| Income tax | Zakat | |
|---|---|---|
| Base | Taxable profit of the year | A base built from the balance sheet |
| Starting point | Revenue less deductible expenses | Equity and long term funding, less deductible assets |
| Rate | 20% | 2.5% on a Hijri year of 354 days |
| In a loss year | No tax, loss carried forward | Zakat can still be due |
| Limits | Loss offset capped each year | A floor and a ceiling on the base |
The rate is not 2.5% for most foreign owned companies. ZATCA applies 2.5% to a Hijri year of 354 days. A company with a Gregorian year uses 2.5% divided by 354 and multiplied by the days in its year, which gives 2.5777% over 365 days.
The zakat base has two limits under Articles 27 and 28 of the regulation.
- A floor. If the calculated base falls below the adjusted net profit, the base moves to a minimum: the adjusted net profit, or the total of assets not deducted if that is lower.
- A ceiling. The base cannot exceed equity and its equivalents, adjusted for the gap between book profit and adjusted profit.
- A consequence. A well capitalised company with a thin year can owe more zakat than a profitable one with little equity.
When sources disagree on the zakat rate
| Source | Rate given |
|---|---|
| Wise, PwC | 2.5% |
| Deloitte, January 2026 | 2.5%, or 2.5778% on a Gregorian year |
| ZATCA Zakat General Guideline | 2.5% on 354 days, 2.5777% on 365 days |
The gap between the last two is rounding. This page follows ZATCA and uses 2.5777%.
A worked example: 60% foreign, 40% Saudi
Take an LLC with a calendar financial year. A French company holds 60% and a Saudi partner holds 40%. The figures are illustrative.
- 11. Split the ownership60% non-Saudi and non-GCC, 40% Saudi
- 22. Compute the taxable profitSAR 1,000,000 after tax adjustments
- 33. Tax the foreign share60% of 1,000,000 is 600,000, at 20%: SAR 120,000
- 44. Compute the zakat baseSAR 3,000,000 from the balance sheet, within its floor and ceiling
- 55. Apply zakat to the Saudi share40% of 3,000,000 is 1,200,000, at 2.5777%: SAR 30,932
- 66. Add the twoSAR 150,932 due to ZATCA for the year
| Line | Calculation | SAR |
|---|---|---|
| Taxable profit of the company | 1,000,000 | |
| Foreign share of profit | 60% | 600,000 |
| Income tax | 600,000 x 20% | 120,000 |
| Zakat base of the company | 3,000,000 | |
| Saudi share of the base | 40% | 1,200,000 |
| Zakat | 1,200,000 x 2.5777% | 30,932 |
| Total | 150,932 |
The total is 15.1% of the year's profit. That percentage is a result, not a rate, and it moves with the balance sheet.
- With a zakat base of SAR 1,000,000, the floor in this example, zakat drops to SAR 10,311 and the total to SAR 130,311.
- With a zakat base of SAR 6,000,000, zakat rises to SAR 61,865 and the total to SAR 181,865, on the same profit.
- The income tax line does not move in either case, because it only looks at profit.
The same profit under three ownership structures
Keep the SAR 1,000,000 of profit and the SAR 3,000,000 zakat base, and change only the owners.
Two cautions before reading this as a reason to take a local partner.
- The saving is small against what a partner costs. A 40% partner here saves about SAR 49,000 a year and receives 40% of every dividend.
- A nominee Saudi shareholder is a criminal risk, not a tax plan. The limits on that route are covered in 100% foreign ownership in Saudi Arabia.
- The company is not the last layer. A dividend paid to a foreign owner carries a further withholding tax, set out in Saudi Arabia withholding tax for non-residents.
What "foreign" means when you own through a Gulf company
Many founders hold their Saudi company through a UAE or Bahrain entity. The question is whether that makes the shares "GCC".
ZATCA's income tax guideline answers in two words: the tax applies to shares owned "directly or indirectly" by non-Saudi persons. Its regulation page adds that non-Saudi shares in a mixed company that is itself a partner "are not considered Saudi shares".
| Who holds the Saudi shares | Likely treatment |
|---|---|
| A French founder in person | Income tax at 20% |
| A UAE company owned by that French founder | Income tax at 20%, ownership is read through |
| A UAE company owned by Emirati nationals | Zakat, on evidence of the owners |
| A Saudi company that is 50% foreign owned | Half income tax, half zakat on that holding |
The first two rows follow from the text. The last two depend on how ZATCA is shown the ultimate owners, which was not read in a primary source. Have it confirmed before you rely on it.
The income tax base: what is deductible
An expense is deductible when it is real, documented, incurred to earn taxable income and not capital in nature. ZATCA's deductible expenses guideline (May 2026) lists what never qualifies.
- Entertainment, including events, trips and sports.
- Personal spending of an owner, such as family or education costs.
- Income tax itself, Saudi or foreign, and fines paid to any authority.
- Payments to owners and their relatives above market price for goods or services.
- Payments by a branch to its head office for royalties, commissions, loan charges or allocated overheads.
The last line matters when choosing a form. A branch cannot deduct what it pays its head office, where a subsidiary can deduct an arm's length fee. Forms are compared in types of companies in Saudi Arabia.
| Rule | What it says | Read in |
|---|---|---|
| Losses | Carried forward without time limit, offset capped at 25% of each year's profit | ZATCA |
| Dividends received | Exempt with a holding of 10% or more kept for 1 year | ZATCA |
| Interest | Deductible up to interest income plus 50% of taxable income before interest | PwC, Deloitte |
| Depreciation | Declining balance by asset pool: 5% buildings, 25% equipment and vehicles | PwC |
| Group filing | Not allowed, each company files alone | PwC, Deloitte |
The loss cap is the rule to model. A company that loses SAR 2,000,000 in its first two years cannot wipe out its third year: at least 75% of each later year's profit stays taxable.
VAT and e-invoicing, where they reach the company
VAT is not a tax on profit, but it is the first ZATCA obligation a new company meets.
- The standard rate is 15%, in force since 1 July 2020.
- Registration is mandatory above SAR 375,000 of taxable supplies over twelve months, and optional from SAR 187,500.
- Returns are quarterly, or monthly above SAR 40 million of annual supplies, due by the last day of the following month.
- E-invoicing is rolled out in waves by turnover. Wave 23 covered turnover above SAR 750,000, with integration due by 31 March 2026 according to EY.
Thresholds have come down with each wave. Check on ZATCA's e-invoicing pages which wave covers your turnover, because the lists change several times a year.
Zones, regional headquarters and regions: the reduced rates
Three regimes lower the 20%. Each one is tied to an activity and to a presence on the ground.
| Regime | Income tax | For how long | Read in |
|---|---|---|---|
| KAEC, Ras Al-Khair and Jazan zones | 5% on qualifying activities | 20 years | ZATCA |
| Cloud Computing zone | 20%, with specific treatments | Not applicable | ZATCA |
| Regional headquarters (RHQ) | 0% on eligible income | 30 years, renewable | ZATCA |
| Less developed regions | Extra deductions, not a lower rate | 10 years | PwC |
The zones. The zone frameworks took effect on 16 April 2026, according to KPMG. In the three geographic zones, income from licensed qualifying activities pays 5%, and other income pays 20%, calculated separately. Payments to non-residents are exempt from withholding.
- The Cloud Computing zone is the exception. ZATCA's guideline states that its licensed entities are taxed at 20% and withhold at the normal rates.
- A Saudi or GCC owned zone company pays the 5% too. ZATCA's example places it under the zone income tax rules, not under zakat.
- Substance is checked. KPMG reports rules published on 7 August 2026: premises and full time staff in the zone, one Saudi resident director at least, board meetings held in the Kingdom.
Regional headquarters. The 0% covers income from headquarters activities only. An RHQ cannot trade in its own name, must hold its board meetings physically in the Kingdom and files a yearly substance report. A breach left uncorrected after 90 days costs SAR 100,000.
Less developed regions. PwC lists Ha'il, Jazan, Najran, Al-Baha, Al-Jouf and the Northern region, with deductions for Saudi salaries and training. Deloitte's list names Abha in place of Al-Baha. Confirm the region before planning on it.
Transfer pricing, from the first related invoice
A founder whose foreign company invoices the Saudi one has a controlled transaction. The Transfer Pricing Bylaws (2019) require it to be priced as between independent parties.
| Obligation | Who | When |
|---|---|---|
| Disclosure form of controlled transactions | Any taxpayer with related party dealings | With the return, within 120 days |
| Master file and local file | Above SAR 6,000,000 of controlled transactions in 12 months | Kept ready, produced within 30 days of a request |
| Country by country report | Groups above SAR 3.2 billion of revenue | Within 12 months of the year end |
- In a mixed company, an adjustment is prorated. ZATCA's example: with 30% foreign ownership, a correction of 100 produces an income tax correction of 30.
- Zakat payers were outside the rules in ZATCA's 2021 guideline. PwC and Deloitte report an extension to all zakat payers from 1 January 2024. The amended text was not read here.
- An auditor's statement accompanies the form, confirming that the group's pricing policy is applied consistently, according to PwC and Deloitte.
Filing, advance payments and penalties
Zakat and income tax returns share one deadline: 120 days after the financial year end, with payment due on the same date. ZATCA's 2026 calendar gives 30 April for a December year end.
- 30 Jun 2026First advance payment, if due
- 30 Sep 2026Second advance payment, if due
- 31 Dec 2026Third advance payment and year end
- 30 Apr 2027Return, transfer pricing form and balance of tax and zakat
- Each advance payment is 25% of last year's tax, net of tax withheld, according to PwC.
- None is due when that 25% is under SAR 500,000, which means a prior year tax bill under SAR 2,000,000.
- Register with ZATCA before the end of the first financial year. The fine for missing it is SAR 5,000, or SAR 10,000 for a joint stock company.
- Books are kept in Arabic, one of the obligations listed in ZATCA's guideline.
| Failure | Penalty |
|---|---|
| Late return | The higher of 1% of revenue, capped at SAR 20,000, or a share of the unpaid tax |
| Share of unpaid tax | 5% up to 30 days late, 10% beyond, 20% beyond 90 days, 25% beyond 365 days |
| Late payment | 1% of the unpaid tax for every 30 days, advance payments included |
| False information or fraud | 25% of the tax difference |
The monthly and yearly filings outside tax are set out in Saudi company annual compliance.
What is not settled, as of October 2026
Two reforms are mentioned in most commentary. Neither could be confirmed as adopted law.
| Subject | What was found | Status |
|---|---|---|
| Pillar Two minimum tax | Deloitte, January 2026: no announcement. ZATCA's zone guideline: incentives reviewed "upon the application" of the rules | No adopted text found |
| New income tax law | A draft has been through consultation. ZATCA's 2026 guidelines still cite the 2004 law "or any other law that replaces it" | No adopted text found |
Pillar Two concerns groups with consolidated revenue of EUR 750 million or more. It does not change the bill of a founder owned company, but it can change the value of a 5% zone rate for a large group.
Not finding a text is not proof that none exists. Ask your adviser for the position on the date you sign.
The bottom line
For a foreign founder who owns the whole company, the answer is short: 20% of taxable profit, no zakat, one return within 120 days.
Mixed ownership is where the arithmetic starts. The foreign share follows profit and the Saudi share follows the balance sheet, so two companies with the same profit can owe different amounts. Run the calculation on your own figures before agreeing a shareholding.
The reduced rates exist, and each one asks for people and decisions inside the Kingdom.
To set up the company with its ZATCA registration in order from day one, see the Saudi Arabia company formation service.
Frequently asked questions
What is the corporate tax rate in Saudi Arabia in 2026?
The income tax rate is 20% of taxable profit. It applies to the share of a resident company held by non-Saudi and non-GCC owners, and to foreign companies operating through a permanent establishment. Oil and hydrocarbon production is taxed at 50% to 85%.
Do foreign owned companies pay zakat in Saudi Arabia?
A company owned entirely by non-Saudi, non-GCC shareholders pays income tax and no zakat. Zakat applies only to the share held by Saudi nationals, GCC nationals or Saudi entities, so it appears as soon as one of them holds shares.
What is the difference between zakat and income tax?
Income tax is 20% of the year's taxable profit. Zakat is 2.5% on a Hijri year, or 2.5777% on a calendar year, of a base built from the balance sheet, mainly equity and long term funding less deductible assets. Zakat can be due in a year without profit, and it has a floor and a ceiling.
Is the zakat rate 2.5% or 2.5777%?
Both are correct. The 2.5% rate applies to a Hijri year of 354 days. A company with a Gregorian year of 365 days uses the rate prorated by ZATCA, which comes to 2.5777%. Most foreign owned companies use a Gregorian year.
How is a company with Saudi and foreign shareholders taxed?
Each share follows its own regime. The foreign percentage of taxable profit pays 20% income tax. The Saudi percentage of the zakat base pays zakat. The company files both returns with ZATCA and pays the sum of the two.
Are GCC shareholders treated as foreign?
No. The zakat regulation treats citizens of GCC states as Saudis, so their share pays zakat. A Gulf company owned by non-GCC persons is different, because income tax applies to shares held directly or indirectly by non-Saudis.
What is the tax rate in a Saudi special economic zone?
Qualifying activities in the KAEC, Ras Al-Khair and Jazan zones pay 5% for 20 years, and other income pays 20%. The Cloud Computing zone is taxed at 20% under ZATCA's guideline. Substance in the zone is required.
When is the Saudi corporate tax return due?
Within 120 days of the financial year end, together with payment. For a year ending 31 December that is 30 April. The zakat return and the transfer pricing disclosure form follow the same deadline.
Does a small company have to make advance tax payments?
Usually not. According to PwC, three advance payments of 25% of the prior year's tax are due at the end of months 6, 9 and 12, but none is required when that 25% is below SAR 500,000.
Has Saudi Arabia introduced a 15% global minimum tax?
No adopted Pillar Two text was found as of October 2026. Deloitte reported no announcement in January 2026, and ZATCA's zone guideline refers to a future application of the rules. Confirm the position before relying on a reduced rate.
Sources
- ZATCA Simplified Guideline for Income Tax, second version, May 2026: the 20% rate, the 50% to 85% hydrocarbon range, who is taxable, the dividend exemption and the late filing and late payment penalties
- ZATCA Zakat General Guideline under the 1445H regulation, October 2024: zakat on the Saudi and GCC share, the 2.5% Hijri rate, the 2.5777% rate on a 365 day year, and the floor and ceiling of the zakat base
- ZATCA Zakat and Tax Returns Calendar 2026: zakat and corporate income tax returns due within 120 days of the financial year end, 30 April for a December year end
- ZATCA Guideline on Tax and Customs Operations in Special Economic Zones: 5% income tax for 20 years on qualifying activities in three zones, 20% in the Cloud Computing zone, and the reference to a future Pillar Two review
- PwC Tax Summaries, Saudi Arabia tax administration, reviewed 29 July 2026: three advance payments of 25% of the prior year liability and the SAR 500,000 threshold below which none is due
Official and read on 5 October 2026, all published by the Zakat, Tax and Customs Authority (ZATCA): the 20% rate and the penalties (Simplified Guideline for Income Tax, May 2026), the zakat rate, scope and base limits (Zakat General Guideline, October 2024), the 120 day deadline (2026 returns calendar), the special economic zone rates (zone guideline, file dated 29 September 2026), the regional headquarters regime and VAT thresholds (regional headquarters guideline, May 2026) and the SAR 6 million and SAR 3.2 billion transfer pricing thresholds (Transfer Pricing Guidelines, third edition, November 2021). English versions of ZATCA documents are indicative and the Arabic text prevails. Reported by international firms and not read in a primary text: the advance payment formula and its SAR 500,000 threshold, the interest deduction cap, the depreciation rates, the extension of transfer pricing to zakat payers from 2024, the less developed region incentives and the zone substance rules of 7 August 2026 (PwC, Deloitte, KPMG). To be reconfirmed before acting: the status of Pillar Two and of the draft income tax law, for which no adopted text was found, the e-invoicing wave that applies to your turnover, and how ZATCA evidences ultimate ownership through a Gulf holding company. The worked example uses round illustrative figures. This is not legal or tax advice.