Germany
Saudi Arabia
The German finance ministry's list of income tax treaties runs to nearly three pages. Saudi Arabia is not on it.
That absence is the German specific fact of this project. Two domestic tax systems apply in full, with nothing between them to share out the right to tax.
The outcome is uneven. A dividend travels well. A service fee does not. And the German low tax test, which an ordinary Saudi company passes, turns against the Saudi regimes that look most attractive.
What the German treaty list says
The Federal Ministry of Finance publishes the status of every tax agreement each January. The list dated 1 January 2026 names Saudi Arabia once.
| Part of the list | Saudi Arabia |
|---|---|
| Treaties on income and capital | Not listed |
| Special agreements for shipping and airlines | Listed: air transport, signed 8 November 2007 |
| Mutual assistance and exchange of information | Not listed |
| Future agreements and ongoing negotiations | Not listed |
The single agreement concerns the income of airlines. It does nothing for a subsidiary, a consultancy or a licence.
No negotiation is recorded either. The list is reissued every January and is worth rechecking.
What Saudi Arabia asks of a German applicant
The Saudi rules are the same for every nationality. They are set out in 100% foreign ownership in Saudi Arabia, and four points matter here.
- Full foreign ownership is the default for services, consulting, software and industry.
- Trading at 100% needs SAR 30,000,000 of capital, which closes the simple distribution subsidiary to most Mittelstand exporters.
- The applicant is normally a company. A GmbH files its commercial register extract and last year's financial statements, certified by the Saudi Embassy. An individual needs Premium Residency or the entrepreneur track.
- The general manager is expected to hold an iqama, the Saudi residence permit.
Ask the Ministry of Investment whether an apostille replaces embassy certification before paying for either. The filing order is in how to register a company in Saudi Arabia.
What the missing treaty changes
A treaty does three jobs: it caps tax at source, it decides which country taxes business profits, and it settles double residence. None of that exists here.
| Question | Under a typical Saudi treaty | Germany and Saudi Arabia |
|---|---|---|
| Saudi withholding on royalties | Often capped below 15% | 15%, domestic rate |
| Saudi withholding on a consulting fee | Can fall away without a permanent establishment | 5%, even for work done in Germany |
| Permanent establishment threshold | Treaty wording, for example 183 days | Saudi domestic definition |
| Company resident in both states | Tie-breaker clause | No rule, both may tax |
| Relief in Germany | Treaty method | Domestic credit or deduction |
The Saudi rates and the rule on services performed abroad are detailed in Saudi Arabia withholding tax for non-residents.
Dividends: 5% in Riyadh, 95% exempt in Germany
This is the flow that works. Saudi Arabia withholds 5% on a dividend with or without a treaty, and section 8b of the Corporation Tax Act leaves the dividend out of a German company's income.
| Step, for a Saudi company owned by a German GmbH | Amount |
|---|---|
| Saudi taxable profit | 100.00 |
| Saudi income tax at 20% | 20.00 |
| Dividend declared | 80.00 |
| Saudi withholding at 5% | 4.00 |
| Cash received in Germany | 76.00 |
| Part of the dividend taxed in Germany (5% of 80) | 4.00 |
Three conditions sit behind the last line.
- A holding of at least 10% at the start of the calendar year. An acquisition of 10% or more during the year counts as made at its start.
- A holding of at least 15% at the start of the period to keep the dividend out of trade tax as well.
- No credit for the Saudi 5% in practice. The dividend is left out of income, so there is no German tax on it to absorb the withholding.
German corporation tax is 15% for assessment periods up to 2027, then falls one point a year to 10% from 2032.
A founder holding the shares personally is in a different regime. Dividends bear the 25% flat tax, and Saudi withholding is credited against it, up to 25% of each dividend.
Fees and royalties: credit, deduction, or neither in full
This is the flow that suffers. Saudi Arabia withholds on the gross payment. Germany gives relief only against its own tax on net income from the same state, and only if the income counts as foreign.
| Payment from the Saudi company | Saudi withholding | Foreign income under section 34d? | German relief |
|---|---|---|---|
| Royalty for rights used in the Kingdom | 15% | Yes | Credit, capped |
| Interest on a shareholder loan | 5% | Yes, debtor is abroad | Credit, capped |
| Technical or consulting fee, work done in Germany | 5% | Doubtful without a Saudi establishment | Deduction as an expense |
| Management fee | 20% | Doubtful, same reason | Deduction as an expense |
- The credit is capped per country, at the German tax on the net income from Saudi Arabia after related expenses. A 15% tax on gross revenue can exceed it.
- Business income is foreign only if earned through an establishment or permanent representative abroad. A fee earned from a German office does not obviously qualify.
- Where no credit is available, the Saudi tax is deducted from income instead. That recovers only a fraction of it.
The management fee is the expensive line: 20% in Saudi Arabia, and probably no German credit. Define what the parent actually delivers before the contract is signed.
The 15% test: does a Saudi subsidiary pass
German controlled foreign company rules attribute a foreign company's passive, low taxed income to its German shareholder, whether or not it is distributed. Three tests apply together.
- 11. ControlMore than half of the votes, capital or profit rights, alone or with related persons
- 22. Passive incomeIncome outside the active list: for example trading or services routed through the German shareholder, licensing, financing
- 33. Tax burden below 15%Measured on income recomputed under German rules, and on tax actually levied
- 44. Substance defenceAvailable only to companies in the EU or EEA, so not to a Saudi company
- 55. AttributionTaxed in Germany in full, with credit for the Saudi tax paid
| Saudi regime | Saudi rate | Against the 15% line |
|---|---|---|
| Ordinary company, foreign owned | 20% | Above |
| Cloud Computing zone | 20% | Above |
| KAEC, Ras Al-Khair, Jazan zones, qualifying income | 5% | Below |
| Regional headquarters, eligible income | 0% | Below |
So an ordinary Saudi subsidiary at 20% passes. Three qualifications keep that from being automatic.
- The burden is computed on German rules. The 20% headline is the starting point, and the comparison uses income as German law would measure it.
- Tax must be collected. A rate of 15% or more that is owed but not actually levied still counts as low.
- The threshold is recent. The 15% line applies to company years ending after 31 December 2023. Older commentary uses 25%, under which a 20% rate counted as low.
The Saudi regimes themselves are described in Saudi Arabia corporate tax.
When a Saudi incentive fails the test
A low rate alone does not trigger attribution. The income must also be passive, and that is where a German group's own involvement counts.
- Manufacturing is active. A factory in a zone taxed at 5% stays outside the rules on its production income.
- Trading turns passive when the German shareholder or a related party supplies the goods or buys them, unless the Saudi company shows it runs the business itself.
- Services turn passive on the same logic, when the German side performs them or receives them.
- Licensing is passive unless the company exploits its own research.
When attribution applies, the amount is taxed without the dividend exemption or the flat tax. Saudi tax actually paid is credited, and a later dividend is relieved so the same profit is not taxed twice.
Passive income of up to one third of total income, and no more than EUR 100,000, is disregarded.
A regional headquarters at 0% therefore needs the passive income analysis before the application.
The resident manager, read from Germany
Saudi practice expects a manager on the ground. German law gives a second reason to want one.
A company is fully taxable in Germany if its place of management is there, defined as the centre of top level business direction. A Saudi company steered day to day from Stuttgart risks being resident in both states, with no tie-breaker.
If the founder moves to Riyadh instead, two exit rules apply to the person.
| Rule | Who it reaches | Effect |
|---|---|---|
| Exit tax, section 6 | Residents for 7 of the last 12 years with a substantial shareholding | Shares treated as sold at market value on departure |
| Extended liability, section 2 | German citizens resident 5 of the last 10 years, moving to a low tax territory, with German economic interests | German tax on non-foreign income for 10 years, above EUR 16,500 a year |
Saudi Arabia levies no income tax on salaries, so it is likely to count as a low tax territory under section 2. Have it confirmed before the move.
What to report to the Finanzamt
The Saudi company must be disclosed in Germany, whatever tax it produces.
| Event | Threshold |
|---|---|
| Founding or acquiring a business or branch abroad | None |
| Acquiring shares in a foreign company | 10% of capital, or total acquisition cost above EUR 150,000 |
| First controlling influence over a non-EU, non-EFTA company | Alone or with related persons |
- Deadline: with the tax return for the year concerned, and at most 14 months after that year ends.
- Sanction: a fine of up to EUR 25,000 for a late, incomplete or missing notice.
Sequencing a German entry
- Fix the activity code. It decides whether the SAR 30 million trading line applies.
- Choose the shareholder, GmbH or individual. It decides the German dividend regime and who files in Riyadh.
- Run the 15% test before choosing a zone or headquarters regime, not after.
- Decide how the parent is paid. Dividends cost 5% at source. Fees cost 5% to 20% with weak German relief.
- Name the resident manager and document that decisions are taken in the Kingdom.
- Register, then file the German notice with the next tax return.
Banking follows registration: see business bank account in Saudi Arabia.
The bottom line
Without a treaty, the structure that works is plain: a German company holding at least 15% of an ordinary Saudi company taxed at 20%, paid by dividend. Saudi Arabia takes 24% in total and Germany taxes 5% of what arrives.
Each departure from that has a price. Fees and royalties meet full Saudi withholding and limited German relief. A 5% zone or a 0% headquarters reopens the controlled foreign company question, without a substance defence.
Take German advice before the Saudi application, because the registration fixes the activity and the regime.
If you want the Saudi side set up to match that structure, start with the Saudi Arabia company formation service.
Frequently asked questions
Is there a double tax treaty between Germany and Saudi Arabia?
No general one. The Federal Ministry of Finance list at 1 January 2026 shows only an air transport agreement signed on 8 November 2007, and records no negotiation for an income tax treaty.
What withholding tax does Saudi Arabia apply to payments to Germany?
The domestic rates apply in full: 5% on dividends, interest and technical or consulting fees, 15% on royalties and other services, and 20% on management fees. No treaty reduces them.
How is a Saudi dividend taxed in a German GmbH?
It is left out of income, and 5% of it is treated as a non-deductible expense, so 95% is effectively exempt. The GmbH must hold at least 10% at the start of the calendar year, and 15% for trade tax.
Can Saudi withholding tax be credited in Germany?
On royalties and interest, yes, up to the German tax on the net income from Saudi Arabia. On a dividend exempt under section 8b it cannot. On fees earned from Germany without a Saudi establishment, deduction is the likelier outcome.
Is Saudi Arabia a low tax country under German CFC rules?
Not at the ordinary 20% rate, since the German line is 15%. Qualifying income in three special economic zones is taxed at 5% and regional headquarters income at 0%, both below the line, and the substance defence is limited to EU and EEA companies.
Do I have to report a Saudi company to the German tax office?
Yes. A German resident reports a holding of 10% or more, acquisition costs above EUR 150,000, or first control of a non-EU company, with the tax return and within 14 months of the year end.
Can I manage the Saudi company from Germany?
It is risky on both sides. Saudi practice expects a resident manager, and a company whose top level direction sits in Germany is fully taxable there, with no treaty rule to resolve the overlap.
Sources
- German Federal Ministry of Finance, status of double taxation agreements and negotiations at 1 January 2026 (letter of 7 January 2026): Saudi Arabia appears once, for the air transport agreement of 8 November 2007, and not among income tax treaties or ongoing negotiations
- Aussensteuergesetz, section 8: the list of active income, the substance defence limited to EU and EEA companies, and low taxation defined as an income tax burden below 15%, including where 15% is owed in law but not actually levied
- Koerperschaftsteuergesetz, section 8b: dividends left out of a company's income, 5% of them treated as non-deductible expenses, and the 10% minimum holding at the start of the calendar year
- Einkommensteuergesetz, section 34c: credit of foreign tax against the German tax on income from the same state, deduction on request, and deduction only where the income is not foreign income
- ZATCA tax circular on withholding tax, January 2025: the Saudi domestic rates that apply in full to a German recipient, and the rule on services performed outside the Kingdom
Official and read on 5 October 2026: the Federal Ministry of Finance list of tax agreements at 1 January 2026, and the German statutes on gesetze-im-internet.de (Aussensteuergesetz sections 2, 6 to 13 and 21, Koerperschaftsteuergesetz sections 1, 8b, 23 and 26, Einkommensteuergesetz sections 3 no. 40, 32d, 34c and 34d, Gewerbesteuergesetz sections 8 and 9, Abgabenordnung sections 10, 138 and 379). Statutes are quoted from the consolidated German text; the English renderings are ours. The Saudi figures are those of the guides of this series, which rest on ZATCA and Ministry of Investment publications. Not read in a primary source: the former 25% threshold, the shareholding level in section 17 of the Einkommensteuergesetz, German administrative guidance on how these sections are applied, whether zakat or the Saudi tax on a given income counts toward the 15% burden, solidarity surcharge and trade tax rates, and the acceptance of a German apostille by each Saudi authority. Interpretation, to confirm with a German tax adviser before acting: the classification of a fee as foreign income, the creditable amount of Saudi withholding, and any conclusion on controlled foreign company rules for a specific structure. The list of agreements is updated each January, so check whether negotiations have opened. This is not legal or tax advice.