Capital gains in Saudi Arabia can be taxed very differently depending on who realizes the gain (resident vs. non-resident), what is sold (shares, business assets, real estate), and where the value is created (in-Kingdom vs. out-of-Kingdom). This guide distills the rules corporate taxpayers need to know to plan disposals, price transactions, and file clean returns with ZATCA.
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At a Glance: Who Pays Tax on Capital Gains?
- Resident taxpayers subject to Corporate Income Tax (CIT): Capital gains are generally included in taxable income and taxed at the standard 20% CIT (non-hydrocarbon).
- Saudi/GCC-owned (Zakat) taxpayers: No CIT on gains; instead, equity/Zakat-base effects apply. For mixed-ownership entities, the foreign portion is taxed at 20% CIT; the Saudi/GCC portion is covered by Zakat.
- Non-residents (no PE): Gains from the disposal of shares in a Saudi resident company are typically taxed in KSA at 20% on the net gain (treaty or domestic relief may apply).
- Non-residents with a PE in KSA: Gains attributable to the PE are taxed under CIT at 20%.
Important exception: Capital gains from disposing of listed shares on Tadawul are generally tax-exempt if statutory conditions are met.
Capital Gains: What Counts & How to Measure
- Scope: Share disposals, sales of business assets, and certain reorganizations can create gains/losses.
- Tax base: Net gain = consideration (often the higher of contract value, market value, or book value) minus tax cost base (purchase price plus qualifying costs).
- Timing: Tax point is typically the date of transfer of legal/economic ownership per the sale agreement.
- Currency: Convert foreign-currency amounts using the applicable exchange rate as of the tax point; keep rate evidence.
Resident vs. Non-Resident: Rate & Treatment Matrix
| Scenario | Who is the Seller? | Asset/Transaction | Saudi Tax Result | Notes |
|---|---|---|---|---|
| Resident CIT payer | Saudi resident company (foreign share) | Sale of subsidiary shares (unlisted) | 20% CIT on net gain | Include in annual CIT return; transfer pricing may impact basis |
| Resident Zakat payer | Saudi/GCC-owned entity | Disposal of business asset | No CIT (Zakat regime applies) | Track effect on Zakat base and equity |
| Mixed ownership | Resident company (Saudi+foreign) | Share sale (unlisted) | Pro-rata: foreign share at 20% CIT; Saudi/GCC share via Zakat | Maintain clear ownership allocation schedules |
| Non-resident w/o PE | Foreign company | Sale of shares in a Saudi resident company | 20% tax on net gain in KSA (subject to treaty/relief) | May need KSA registration/clearance; check treaty relief & exemptions |
| Non-resident with PE | Foreign company (KSA PE) | Sale of PE business assets | 20% CIT on gains attributable to the PE | Attribute gains via PE financials; maintain support |
| Listed shares | Resident or non-resident (conditions apply) | Disposal on Tadawul | Generally exempt if statutory conditions are met | Confirm eligibility and documentation |
Structuring Tips to Manage the Effective Rate
- Transaction perimeter: Consider asset vs. share deal impacts on basis, loss usage, and VAT/RETT interactions.
- Listed route: Where commercial and regulatory conditions allow, disposal via Tadawul may be exempt.
- Group reorganizations: Explore no-gain/no-loss relief for qualifying intra-group transfers; ensure conditions (ownership %, continuity, timing) are met.
- Treaty relief: Check applicable double tax treaties for reduced or exclusive taxing rights; collect residency certificates and pass beneficial-ownership tests.
- Mixed ownership planning: Segregate gains between Zakat and CIT ownership blocks; keep shareholder registers and pro-rata workpapers audit-ready.
- Valuation: Obtain robust FMV reports for related-party sales to avoid adjustments under arm’s-length rules.
Computation Example: Resident vs. Non-Resident
| Item | Resident CIT Payer | Non-Resident (No PE) |
|---|---|---|
| Sale proceeds (unlisted shares) | SAR 20,000,000 | SAR 20,000,000 |
| Tax cost base | (SAR 12,000,000) | (SAR 12,000,000) |
| Net capital gain | SAR 8,000,000 | SAR 8,000,000 |
| Tax rate | 20% CIT | 20% capital gains tax in KSA |
| Tax payable | SAR 1,600,000 | SAR 1,600,000 |
Illustration only. Listed-share disposals may be exempt; treaties can alter taxing rights; related-party pricing/valuations can change the gain.
Filing & Compliance Essentials
- Residents: Report gains in the annual CIT return (and in Zakat computation for the Saudi/GCC share as applicable). Keep sale agreements, valuations, board approvals, and bank proofs.
- Non-residents: Share disposals in a Saudi resident company may require KSA tax registration and a capital gains filing/clearance. Plan timelines to avoid closing delays.
- Withholding tax (WHT): Capital gains are typically not a WHT category; compliance usually occurs via assessment/return—confirm mechanics for your deal.
- Record retention: Maintain files for at least 10 years (longer if a dispute is open).
FAQ for Saudi Corporate Taxpayers
Are capital losses deductible?
Losses on qualifying disposals may offset gains per tax rules; track holding periods and related-party constraints.
Do transfer pricing rules apply to share deals?
Yes—related-party disposals must be at arm’s length with defensible valuations and contemporaneous documentation.
What about real estate?
Separate RETT (5%) may apply on real estate transfers. Factor both income-tax and RETT outcomes into pricing.
Action Checklist (Before You Sell)
- Define seller profile (resident/Zakat payer/non-resident; any PE).
- Confirm if the asset is listed on Tadawul and whether exemption applies.
- Map treaty relief and collect tax residency certificates early.
- Obtain independent FMV valuation and lock pricing mechanics.
- Prepare a tax memo covering rate, base, exemptions, and filings (CIT/Zakat/treaty).
- Align SPA clauses: tax covenants, clearances, and evidence delivery at closing.
