Saudi Arabia applies a dual tax system: foreign-owned entities pay 20 % corporate income tax (CIT) on net profits, while Saudi and GCC nationals pay 2.5 % Zakat on the entity’s Zakat base. SEZ entities benefit from a reduced 5 % CIT rate for up to 20 years with full Zakat exemption. Withholding tax rates range from 5 % to 20 % on cross-border payments. Last updated: May 2026.
For the broader GCC tax comparison, see taxation in the GCC: a complete guide for foreign businesses. For Saudi SEZ details, see Saudi free zones and special economic zones explained.
How does the CIT/Zakat dual system work?
The tax treatment depends on the ownership nationality of the entity:
| Owner nationality | Tax type | Rate | Base |
|---|---|---|---|
| Foreign (non-GCC) | Corporate income tax (CIT) | 20 % | Net adjusted profits |
| Saudi / GCC national | Zakat | 2.5 % | Zakat base (equity + long-term liabilities – fixed assets – long-term investments) |
| Mixed ownership | CIT + Zakat proportionally | 20 % on foreign share, 2.5 % on Saudi/GCC share | Split proportionally by ownership |
The 20 % CIT rate is the highest in the GCC and applies to all Saudi-sourced income of foreign-owned entities, including branches, Permanent Establishments, and MISA-licensed LLCs. The rate has remained unchanged since 2004.
CIT is filed with ZATCA (Zakat, Tax and Customs Authority) within 120 days of the fiscal year-end. Late filing penalties are 1 % of unpaid tax per 30 days of delay.
What withholding tax rates apply?
Saudi Arabia applies withholding tax (WHT) on payments from Saudi-resident entities to non-residents:
| Payment type | WHT rate |
|---|---|
| Dividends | 5 % |
| Interest | 5 % |
| Royalties | 15 % |
| Management and technical fees | 15 % to 20 % |
| Service payments (general) | 5 % to 15 % |
WHT rates may be reduced under Saudi Arabia’s network of double taxation treaties. Treaty partners include the UK, France, India, Japan, South Korea, and over 30 other countries. The UAE-Saudi Arabia treaty reduces certain WHT rates to 5 % or 0 %.
How do SEZ tax incentives work?
The four core Saudi SEZs — KAEC, Ras Al-Khair, Jazan, and Cloud Computing — offer incentives under regulatory frameworks in force since 16 April 2026 (Cabinet Decision No. 468/1447):
| Incentive | SEZ rate | Mainland rate |
|---|---|---|
| Corporate income tax | 5 % for up to 20 years | 20 % |
| Zakat | 0 % (full exemption) | 2.5 % |
| Withholding tax on profit repatriation | 0 % | 5 % |
| Customs duty on capital equipment | 0 % | 5 % standard |
| Customs duty on inputs/raw materials | 0 % or deferred | 5 % standard |
SILZ (Saudi Integrated Logistics Zone) at Riyadh Airport operates under a separate framework and offers 0 % CIT for 50 years — the most generous tax incentive of any GCC zone.
SEZ entities are exempt from the standard Saudi Companies Law, allowing bespoke corporate governance structures. ECZA (Economic Cities and Special Zones Authority) published draft corporate rules for public consultation in March 2026.
How does Saudi VAT work?
Saudi Arabia charges 15 % VAT — the highest rate in the GCC — after tripling the rate from 5 % in July 2020. VAT registration is mandatory for businesses with annual taxable supplies exceeding SAR 375,000. Voluntary registration is available above SAR 187,500.
VAT applies to most goods and services, with exemptions for financial services, residential real-estate leasing, and life insurance. Zero-rated supplies include exports, international transportation, and supplies to SEZs.
Frequently asked questions
Can a foreign founder reduce the 20 % CIT rate?
The 20 % rate is fixed for standard mainland entities. The only reduction pathway is through SEZ incorporation (5 % for 20 years) or SILZ (0 % for 50 years). Treaty-based relief reduces withholding tax on cross-border payments but does not reduce the headline CIT rate.
Is Zakat a tax on profits or on equity?
Zakat is calculated on the Zakat base — broadly, shareholders’ equity plus long-term liabilities minus fixed assets and long-term investments. It is not based on profits. This means a company with high equity and no profits still owes Zakat. The rate is 2.5 % of the Zakat base.
Do SEZ entities file CIT returns with ZATCA?
Yes. SEZ entities register with ZATCA at the reduced 5 % rate and file returns within the standard 120-day window. ZATCA is authorised to issue detailed procedural guidance for SEZ tax processes.
Sources and further reading
- ZATCA — Saudi CIT, Zakat, and WHT filing (zatca.gov.sa)
- Cabinet Decision No. 468/1447 (December 2025) — SEZ regulatory frameworks, effective 16 April 2026
- Investment Law (Royal Decree M/19) — MISA licensing framework, effective February 2025
- KPMG Saudi Arabia — SEZ tax analysis, April 2026 (kpmg.com/sa)
- PwC Saudi Arabia Tax Summary — CIT, Zakat, and WHT rates (taxsummaries.pwc.com)