Saudi Arabia’s Corporate Income Tax law provides significant tax relief for qualifying corporate investors through the dividend income exemption. A key provision is the 10% ownership rule, designed to encourage long-term strategic investments.
📌 Introduction
Dividend income represents a vital revenue stream for many Saudi corporate taxpayers, especially those investing in subsidiaries, joint ventures, or strategic equity holdings. The 10% ownership rule under Saudi tax law grants a full Corporate Income Tax (CIT) exemption on dividends, provided specific criteria are met. This incentive supports capital market growth and strengthens intra-group corporate investment.
💡 The 10% Ownership Rule Explained
Under the 10% ownership rule, dividend income received by a Saudi resident corporate investor is exempt from CIT if:
- The investor owns at least 10% of the share capital of the dividend-paying company.
- The holding period is at least 12 consecutive months before the dividend is declared.
- The investment is made for strategic, not speculative, purposes.
This rule applies to both domestic and qualifying foreign investments, though foreign-source dividends must also meet additional conditions to avoid double taxation.
📖 Eligible Entities & Scope
The exemption applies to Saudi resident entities subject to CIT, including:
- Joint Stock Companies (JSCs)
- Limited Liability Companies (LLCs)
- Foreign-owned branches registered in Saudi Arabia
Zakat-only taxpayers are outside the scope of this CIT exemption but may have their own zakat-specific dividend treatment.
⚠️ Common Mistakes Leading to Disqualification
- Failing to maintain the 10% ownership threshold throughout the 12-month period.
- Investments structured through non-qualifying intermediaries.
- Insufficient documentation proving ownership and holding period.
- Claiming exemption on dividends from entities in tax-haven jurisdictions without meeting anti-avoidance rules.
Become Our Featured Tax Expert.
This premium ad space is reserved for one tax professional. Put your firm in the spotlight and reach qualified Saudi Arabia leads directly.
To claim this exclusive spot, contact us at [email protected].
📊 Example: How the 10% Ownership Rule Works
| Scenario | Ownership % | Holding Period | Dividend Amount (SAR) | CIT on Dividends |
|---|---|---|---|---|
| Qualifying Investment | 15% | 14 months | 2,000,000 | 0 (Exempt) |
| Non-Qualifying – Short Holding | 12% | 8 months | 2,000,000 | 15% CIT applicable |
| Non-Qualifying – Low Ownership | 8% | 18 months | 1,500,000 | 15% CIT applicable |
💼 Compliance & Documentation Requirements
To successfully claim the dividend exemption under the 10% rule, corporate taxpayers must maintain:
- Shareholding registers and corporate resolutions proving ownership percentage.
- Investment contracts and board meeting minutes.
- Dividend distribution records from the paying company.
- Evidence of continuous ownership for at least 12 months.
For foreign-source dividends, tax residency certificates and proof of foreign withholding tax paid (if any) should also be kept.
✅ Conclusion
The 10% ownership dividend exemption is one of the most valuable corporate tax relief measures in Saudi Arabia, offering companies the ability to receive substantial dividend income tax-free when strategic investment conditions are met. Corporate taxpayers should review their investment structures, maintain rigorous documentation, and ensure compliance with both domestic and international tax rules to maximize the benefit of this provision.
