Friday, January 2, 2015

Are there any chances of levying income tax on Saudi Residents?

Tax on Salaried Residents
Income taxes have been waived off from resident employees back in 1975. Now no resident individual has to pay income tax on their salaries or other income. In case of religious tax “Zakat” has to be paid by all residents and expatriates in any case at the rate of 2.5 % annually on accumulated profits. Saudi law charges tax on local and foreign companies. Whereas exemption have been granted to companies in joint venture up to 25 % in Saudi Industry for first ten years. Ministry of Finance set tax percentage in case of corporate and individual and consumption taxation laws. There is no tax levied on salaried persons in KSA on individual basis. In case individual is a foreigner and is involved in business and is deriving profit from business activities inside the Kingdom can be charged with taxes according to company laws prevailing in country.

Non Resident Person under Saudi Tax System
In order to levy taxes on income of a non-resident individual, the definition has to be taken into account.
  • The person who is residing in Kingdom on permanent basis and is present physically in Kingdom for not less than 30 days in a tax year is a resident.
  • In case person does not have a permanent residence in country should be present physically not less than 183 days in Kingdom in order to make sure that he is part of KSA economy.
  • In case a Saudi person does not fulfill the above mentioned criteria he is no more a resident person no matter whether he possesses Saudi Identity or not. He would be charged same like nonresidents persons in case of profit on business activities. 

Tax Rate upon Non Resident Persons
  • The tax rate applied on profits of nonresident’s business activities is varied between specific ranges on the basis of different income levels. It has to be levied at the rate of minimum 5 % up to SR 16,000 to 30 % over SR 66,000.
  • The tax rate for an individual company earning profit through business activities or person earning salaries is given in following tax grid.
  • As for company taxes - 20%
  • For a Saudi national - 2.5% (Zakat)
  • If working in the Natural Gas sector - 30%
  • Involved in production of oil and hydrocarbons - 85%
Capital Tax in Saudi Arabia
The Saudi finance ministry offers specific exemptions and waiver on various conditions to companies up to half or even full tax amount. The capital tax rate for Saudi individual is same like corporation tax rate i.e. 20 %. Salaried and personal incomes from services are waived from taxes but zakat is a must as wealth tax on all Saudi natives no matter one is resident or non-resident. It is according to Shariah and Islamic law and is responsibility of state to gather from wealthy people in order to prolong progressive activities for needy and deserving people in Kingdom. It is basic custom and source of Finance ministry which contributes progressively for establishment of sound stability, food, wealth and education projects of deserving and poor person in KSA.

Are there any chances of levying income tax on Saudi Residents?
Due to recent decrease in the oil prices all over the world, Saudi Arabia had to face a major shock on its economy. All of us know that more than 90% of the exports of Saudi Arabia are Oil and related products. 90% of the budget of Saudi Arabia is oil dependent. If oil prices are reduced to less than half of what it used to be, there is a point of concern.  The question is, is there any chance of levying income tax on Saudi Residents? I personally think Saudi government will not go up to that extent. It is economically a very strong country. They don’t need to levy tax to finance their budget. The current economic condition will improve in future.

Legal System in Saudi Arabia
  1. Zakat and Tax System in Saudi Arabia
  2. Legal System of Saudi Arabia
  3. Domestic Violence Law in Saudi Arabia
  4. Saudization or Nitaqat in Saudi Arabia
  5. Point System for Saudi Nationality


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