A Practical Guide to Tax Compliance for Saudi Companies

In the context of Saudi Arabia's "2030 Vision" to promote tax reform, tax compliance has become the core cornerstone of the sound operation of enterprises. The regulatory system of Saudi Zakat, the General Administration of Taxation and Customs (ZATCA) is becoming more and more strict. The whole process from registration and filing to declaration and payment is clearly regulated. Any omission may lead to serious consequences such as fines and account freezing.

Saudi Company Tax Compliance

1. Value Added Tax (VAT)

the standard tax rate is maintained at 15%, but emerging industries such as digital services and cross-border e-commerce apply a preferential tax rate of 5%. The key change is the automation of reporting: companies with annual revenues of more than 40 million rials are required to submit data on a monthly basis and synchronize sales/input notes through the Qiwa platform directly connected to the ZATCA system. The input deduction shall meet the principle of "matching three orders" (invoice + payment voucher + logistics record), and any missing item will lose the tax deduction qualification.

2. Enterprise income tax

general enterprises are subject to a 20 per cent tax rate, but GCC member enterprises can pay a 2.5 per cent Zakat tax (Zakat). The tax base calculation should pay attention to two deduction restrictions: the payment of royalties to overseas related parties exceeding 10% of revenue is not tax-deductible.

3. Withholding tax

the payment of dividends and interest to non-resident enterprises is subject to a withholding tax of 5%, and the technical service fee is levied at 15%. 10 days after payment, the withholding tax return shall be submitted through the ZATCA platform, and a late payment fee of 0.05 per day will be levied.

Note that from 2025, companies with taxable income exceeding 1 million riyals must have an audit report signed by a certified Saudi accountant and the retention period of the original documents extended from five to seven years, covering supply chain contracts, payroll records and religious tax payment certificates.

Tax Registration and Identity Management

1. Mandatory registration requirements

all Saudi-owned businesses must complete a tax registration with the Zakat, Tax and Customs Administration (ZATCA) and obtain a Tax Identification Number (TIN). Unregistered businesses face a daily penalty of 500 riyals (up to 25.000 riyals).

Zakat (Zakat) Registration: Saudi local companies are required to register an additional Zakat (2.5 per cent of net assets), which is paid in parallel with income tax. For example, a manufacturing company was subject to a total of 150000 rials in taxes and late fees for failing to register for day classes.

2, tax status classification.

Local companies in Saudi Arabia are subject to both corporate income tax (20 per cent) and day classes (2.5 per cent), while foreign companies pay only corporate income tax. If an enterprise does not clearly distinguish between the two types of taxes, it may lead to the risk of double taxation or tax evasion.

Policy compliance and risk prevention and control

1. Use of preferential tax policies

research and development activities: can apply for research and development expenses plus deduction (up to 150 per cent).

Specific industries: such as new energy, manufacturing can enjoy income tax relief (e. g. NEOM new city project enterprise income tax rate reduced to 5%).

2. Compliance with related transactions

master documents + local documents are required to prove that the price of the related transaction is in line with the principle of independent transactions, otherwise profits may be adjusted and back taxes may be levied.

Data: ZATCA's review of related transactions will increase to 20% in 2025, with an average of 12% of corporate profits.

3. Digital Asset Disclosure

cryptocurrency transactions need to be filed separately with ZATCA and the transaction flow recorded. A business that fails to disclose could be found to have concealed income and face a double tax penalty.

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