Zakat or 20% income tax? How a Saudi company is taxed depends on who owns it
A Saudi company does not choose between zakat and income tax: its owners decide it. The share owned by Saudi and GCC nationals pays zakat at 2.5% of the zakat base. The share owned by anyone else pays corporate income tax at 20% of taxable profit. A company with mixed ownership pays both, each on its own share. Both returns are due 120 days after the financial year ends.
The rule in one table
| Ownership | What it pays | Rate | Calculated on |
|---|---|---|---|
| Saudi and GCC nationals | Zakat | 2.5% (about 2.578% for a Gregorian year) | The zakat base (broadly, equity and long-term funding less long-term assets) |
| Everyone else (foreign owners) | Corporate income tax | 20% | Taxable profit |
| Mixed ownership | Both, split by ownership percentage | 2.5% and 20% | Each on its own share |
The ownership split is taken at the end of the financial year. Changes in ownership during the year are not apportioned.
Why the difference matters more than the rates
The two taxes are calculated on different things, so they behave very differently:
- Income tax follows profit. A foreign-owned company that makes a loss pays no income tax for that year, and can carry losses forward.
- Zakat follows the zakat base. Because it is calculated largely on equity and long-term funding, a Saudi- or GCC-owned company can owe zakat in a year with little or no profit. Under the Zakat Implementing Regulations in force since 2024, the zakat base cannot be lower than adjusted net profit and cannot exceed equity at the year end, adjusted for the difference between taxable and book profit.
So 2.5% is not automatically cheaper than 20%. A well-capitalised company with modest profits can pay more zakat than it would have paid in income tax, and a highly profitable company with little equity will usually pay less.
A simple example
A company is 60% owned by a UAE-based group with non-GCC shareholders and 40% by a Saudi national. In the year it makes a taxable profit of SAR 1,000,000 and its zakat base is SAR 2,000,000.
| Foreign share (60%) | Saudi share (40%) | |
|---|---|---|
| Taxed on | 60% × SAR 1,000,000 = SAR 600,000 | 40% × SAR 2,000,000 = SAR 800,000 |
| Rate | 20% income tax | 2.5% zakat |
| Due | SAR 120,000 | SAR 20,000 |
This is simplified. Real calculations adjust both profit and the zakat base for many items, but the split always works this way.
GCC owners and GCC companies
GCC nationals are treated like Saudis for zakat. A company owned entirely by GCC nationals, directly or through companies that are themselves wholly GCC-owned, pays zakat rather than income tax. A single non-GCC owner anywhere in the chain changes the position for that share, so check the full ownership chain before you choose a structure.
Withholding tax: the third tax foreign-owned companies meet
When a Saudi company pays a non-resident, it usually has to withhold tax and pay it to ZATCA by the 10th of the following month. Common rates:
| Payment to a non-resident | Rate |
|---|---|
| Dividends | 5% |
| Interest | 5% |
| Royalties | 15% |
| Technical and consulting services | 5% |
| Management fees | 20% |
Tax treaties can reduce some of these rates if the recipient's country has a treaty with Saudi Arabia and the conditions are met.
Deadlines and records
| Filing or record | Deadline / Requirement |
|---|---|
| Zakat and income tax returns | Within 120 days after the financial year ends, with payment |
| Withholding tax | By the 10th of the month after the payment |
| Financial statements | Filed on Qawaem within six months of the year end |
| Zakat records | Kept for 10 years under the 2024 regulations |
What this means when you set up
- Decide ownership before you register. It decides the tax, and changing it later can mean a different regime from the next year end.
- Build the chart of accounts for both taxes from day one if ownership is mixed, so the zakat base and taxable profit can each be calculated from the same books.
- Plan dividends and payments abroad with withholding tax in mind.
- Keep the books monthly. Both returns are only as good as the ledger behind them.
Frequently asked questions
Talk to us
Alliant Co. is a foreign-owned Saudi company: we file our own corporate income tax, zakat and VAT returns. From our Dammam office we offer the same filing to other companies, together with the bookkeeping behind it. See our VAT, zakat and income tax service and our bookkeeping service, or message us on WhatsApp.
Sources
- ZATCA, Zakat Implementing Regulations (Ministerial Resolution 1007, 2024) and Income Tax Law: zatca.gov.sa
- KPMG, new Zakat Implementing Regulation: kpmg.com
- PwC Worldwide Tax Summaries, Saudi Arabia withholding taxes: taxsummaries.pwc.com
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Alliant Co. · CR 7003521841 · Yazid Ibn Malik, Al Khalidiyah Ash Shamaliyah, Dammam 32231 · info@alliant.sa · +966 55 754 2748 · Alliant Co. is a private company and is not affiliated with any government authority.