Overview of Tax Compliance in Saudi Arabia

Saudi Arabia is the largest nation in the Middle East; it has a land size of roughly 2.15 million square kilometres. Due to its substantial oil reserves, Saudi Arabia occupies a major place in the global economy as one of the top producers and exporters of oil globally. Saudi Arabia uses a special taxation structure known as the "tax-free" regime. Individuals in the nation are not subject to personal income tax, capital gains tax, or wealth tax. Saudi Arabia, a big producer and exporter of petroleum, occupies a key place in the global oil and natural gas market. It has become the largest petroleum exporter and a vital member of the Organization of Petroleum Exporting Countries (OPEC), holding around 20% of the world's proven petroleum reserves. The nation's Vision 2030 plan, which intends to reduce its dependency on oil, promote economic diversification, and improve various service areas, including healthcare, education, infrastructure development, tourism, and more, was introduced in April 2016.

Types of Taxes in Saudi Arabia

• Corporate Income Tax: A corporate tax is a type of taxation where businesses must pay taxes on their profits. Corporate enterprises' net income or earnings are subject to a direct tax known as the corporation tax in Saudi Arabia. A corporation's profit during normal business operations determines the tax rate. Foreign investors also pay income tax in Saudi Arabia, and their tax rate is 20% of net adjusted profits. The country has withholding tax (WHT) rates ranging from 5% to 20%. Additionally, based on their Zakat base, businesses are required to pay the 2.5% Zakat tax, an Islamic wealth tax.
• Customs: A tax levied on products or merchandise when they are imported or exported across international borders is referred to as a customs tax. Customs duties are assessed on imported goods in Saudi Arabia based on the tariff rates listed in the Saudi Customs regulations at the time of payment. These fees are deducted from the import's value or purchase price. Customs fees can range in amount and can even reach up to 25% of the import price.
• Value Added Tax: Value Added Tax, or VAT, is levied at a specific rate on products and services. Although there may be certain exceptions, the general VAT rate in Saudi Arabia is typically 5% for the majority of goods and services. However, the government changed the usual VAT rate to 15% as of July 1, 2020, which means that the majority of goods and services are now liable to this higher amount of taxation.
• Social Insurance Tax: The social insurance tax ensures the well-being and financial security of the workforce, a crucial part of Saudi Arabia's social security system. The tax is paid once a month. Employers are liable for paying this tax. Employees in Saudi Arabia are obligated to make a 21.5% contribution to the social insurance system. The employee and the employer split this contribution. They contribute 9.75% of the employee's salary, and the company matches 11.75% of that amount.
• Real Estate Transaction Tax: Real estate transaction tax is a tax levied on the transfer of real property from one party to another. It is sometimes referred to as real estate transfer tax or property transfer tax. Usually, the government or municipal authorities impose it when buying or selling real estate. No of the size, shape, or existing usage of the real estate being transferred, Saudi Arabia imposes a RETT at a rate of 5% on the total value of the property. The real estate transaction tax was created to bring in money for the government and pay for the costs of handling property transfers. 

The RETT is also applicable to the transfer of entities with a high concentration of real estate, as that term is used in the RETT. This indicates that the 5% tax would be imposed if the transfer involved an entity that predominantly holds real estate assets. Although the RETT is typically applicable, there are several exclusions offered for particular situations.

Tax Return in Saudi Arabia

Within 120 days of the end of their fiscal year, Saudi Arabian taxpayers must submit their tax returns to the General Authority of Zakat and Tax (GAZT). Because the tax system is self-assessment-based, taxpayers are in charge of appropriately determining and disclosing their own tax amounts. Companies owned by Saudi individuals or a combination of Saudi and non-Saudi individuals are required to submit audited financial statements along with their tax returns under the tax authority's laws. The tax authority can determine the veracity of the financial data supplied by businesses and determine their tax liabilities in accordance by submitting audited financial accounts. The integrity and dependability of Saudi Arabia's tax system are enhanced by this practice.

Tax period in Saudi Arabia

The tax period followed in Saudi Arabia is the financial/ calendar year, which is from January 1 to December 31. Other fiscal years are also allowed to be followed with the permission of the authorities.

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