Tax Insights and Updates - Saudi Arabia

Adel Daglas
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The Kingdom of Saudi Arabia has a modern and comprehensive tax system in place, which is constantly evolving to meet the needs of a growing economy. The Saudi Arabian government has been working hard to attract foreign investment and spur economic growth, and as part of this effort has been reforming the tax system.

Over the past few years, there have been several changes to the tax laws in Saudi Arabia. These changes have brought the Saudi tax system more in line with international standards and have made doing business in the Kingdom more attractive to foreign investors.

Let's explore some of the key changes that have been made to the Saudi tax system over the past six months.

Updates to Saudi Arabia's Tax Landscape

The Zakat, Tax, and Customs Authority (ZATCA) conducted more than 8,000 inspections across the Kingdom last May, which revealed that more than 80% of shops and markets are adhering to the latest tax regulations. This positive result indicates that businesses are understanding and complying with their obligations under the new tax regime.

The most significant change to the nation's tax landscape was the introduction of value-added tax (VAT) in 2018. VAT is a consumption tax levied on the sale of goods and services, and it was originally introduced to Saudi Arabia at a rate of 5% on the 1st of January 2018, with limited exceptions.

The following items continue to be subject to VAT:

  • The sale and supply of goods and services, including Oil & Gas
  • The import of goods (Since March 2020, VAT on imports of goods (paid at customs clearance) have been deferred, considering fiscal stimulus to support the economy due to pandemic.

VAT is not levied on the export of goods, as well as several other items including but not limited to:

  • Qualifying Medicines and qualifying medical goods
  • Qualifying metals such as Gold, silver, and platinum of 99% purity that is being sold for investment purposes
  • Certain financial services
  • International Goods & Passenger Transport services

From 1 July 2020, the VAT rate was increased to 15% and so far, it has remained at this rate. At the end of 2021, Finance Minister Mohammed Al-Jadaan told a press conference in Riyadh that the government would reevaluate the VAT rate once the country's fiscal situation has stabilized. The government has previously stated that this high rate will continue for at least 5 years, before reconsidering the decision for a rollback.

However, the government introduced another tax called ‘Real Estate Transaction Tax (‘RETT’) vide Royal Decree Number A-84 with a rate of 5% calculated on the value of real estate transactions, effective from 04 October 2020. Introduction of this tax meant, that certain Real estate transactions such as Sales of commercial / residential real estate, usufruct to use commercial property for a period more than 50 years etc., shall be exempt of VAT at 15% and shall be subject to 5% RETT. 

The corporate tax rate in Saudi Arabia is still levied at 20%. However, there are several different tax incentives and exemptions available that can reduce the effective tax rate. For example, the government is providing tax concessions for six of the less developed regions in the Kingdom, which include:

  • Ha'il
  • Jazan
  • Najran
  • Al Baha
  • Al Jouf
  • Northern Territory

Qualifying businesses in any of these regions can enjoy tax reductions for ten years from the start of the given project, which can equate to half the annual training expenditure of local Saudi employees, half the annual salaries paid to Saudis, and 15% of the non-Saudi capital share, with certain conditions.

The Future of Saudi Taxation Laws

Taxation in Saudi Arabia continues to be an evolving area, and we can expect that there will be further changes to the tax laws in the coming years. The Saudi government has stated its commitment to continuing to reform the tax system, with the goal of making the Kingdom more attractive to foreign investors and businesses.

We will continue to keep you updated on any new developments in the Saudi taxation landscape.