Corporate entities in Saudi Arabia with mixed ownership—combining GCC and non-GCC shareholders—must navigate complex rules for splitting their liabilities between Income Tax and Zakat. The Zakat, Tax and Customs Authority (ZATCA) enforces specific allocation principles to ensure compliance and fairness in taxation.
📌 What Are Mixed Ownership Entities?
A mixed ownership entity is a company where part of the ownership belongs to Saudi or other GCC nationals (subject to Zakat) and another portion belongs to foreign shareholders (subject to corporate income tax). These entities are common in sectors such as construction, manufacturing, oil services, and retail.
The split of tax liabilities is calculated based on the ownership ratio between Zakat payers and non-Zakat payers.
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⚖️ How the Split Works
- Step 1 – Determine Ownership Percentages: Establish the shareholding structure, separating GCC and non-GCC ownership.
- Step 2 – Allocate Profits: Profits are split proportionally between Zakat-paying and tax-paying shareholders.
- Step 3 – Apply Relevant Rates: Zakat is generally calculated at 2.5% of the Zakat base, while corporate income tax applies at 20% for non-GCC owners.
📊 Example of Liability Split
Consider a company with SAR 10 million in taxable profits, owned 60% by GCC nationals and 40% by foreign investors:
- GCC portion (60%) = SAR 6 million → Subject to 2.5% Zakat = SAR 150,000
- Foreign portion (40%) = SAR 4 million → Subject to 20% CIT = SAR 800,000
The total liability would therefore be SAR 950,000, split between Zakat and income tax according to the ownership ratio.
💡 Compliance Tips for Mixed Ownership Entities
- Maintain updated shareholder records with nationality details.
- Prepare separate Zakat and income tax calculations for submission to ZATCA.
- Ensure that retained earnings, reserves, and adjustments are allocated correctly.
- Seek professional tax advisory services to prevent misallocation penalties.
🚫 Common Mistakes to Avoid
- Failing to update shareholding changes in ZATCA records.
- Incorrectly apportioning mixed revenues and expenses.
- Overlooking foreign partners in joint venture agreements, leading to underpayment of CIT.
🏁 Conclusion
Mixed ownership entities in Saudi Arabia face unique challenges in splitting Zakat and corporate income tax liabilities. By following ZATCA’s allocation rules, maintaining accurate records, and seeking expert advice, companies can ensure full compliance while optimizing their tax position.
