A keyword-rich, practical explainer for corporate taxpayers in Saudi Arabia covering who pays the 20% Corporate Income Tax (CIT), how the tax base is calculated, mixed ownership splits with Zakat (2.5%), linkages with withholding tax (WHT), permanent establishment (PE) rules, and planning ideas to manage your effective tax rate (ETR).
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Who Pays the Standard 20% CIT?
- Resident companies with foreign (non-Saudi/GCC) ownership: the profit share attributable to foreign owners is generally taxed at 20%.
- Permanent establishments (PEs) of non-residents: profits attributable to a Saudi PE are taxed at 20% on a net basis.
- 100% Saudi/GCC-owned entities: generally subject to zakat (2.5%) instead of CIT on the zakat base (non-hydrocarbon sectors).
- Hydrocarbon/extractive activities: may be subject to separate sectoral income tax rules and brackets (outside the standard 20%).
Key takeaway: Ownership mix drives whether profits sit in the CIT or zakat bucket—and many Saudi companies are mixed-ownership.
How the Saudi Corporate Tax Base Is Calculated
- Start with accounting profit (IFRS/Local GAAP).
- Add back non-deductible items (e.g., entertainment/personal, certain provisions/penalties, non-business costs).
- Deduct allowable expenses (wholly & exclusively incurred, depreciation/amortisation per tax rates, qualifying R&D, bad debts meeting conditions).
- Apply exemptions/reliefs where conditions are met (e.g., qualifying dividend/capital-gain exemptions).
- Offset tax losses brought forward (subject to applicable limits).
Maintain a clear audit trail from audited financials to the tax computation with schedules for each adjustment.
Common Deductions & Typical Disallowances
Often Deductible (subject to rules)
- Ordinary & necessary business expenses incurred in KSA.
- Tax depreciation on qualifying fixed assets; amortisation for intangibles.
- Bad debts (documented attempts to recover and write-off approvals).
- Employee costs and approved benefit/pension contributions (within caps).
- R&D/technical expenditures with business nexus.
Often Disallowed/Restricted
- Bribes, fines, penalties and other illegal payments.
- Entertainment, personal consumption, certain hospitality.
- Non-arm’s-length related-party charges (transfer pricing exposure).
- Some insurance commission and sector-specific caps.
- Costs not wholly/exclusively for the Saudi business.
Transfer pricing: Intercompany services, royalties and financing must be arm’s length, supported by Local/Master Files and benchmarking.
Mixed Ownership: Splitting CIT vs. Zakat
| Ownership Slice | Levy | Computation Lens | What to Track |
|---|---|---|---|
| Saudi/GCC shareholders | Zakat (2.5%) | Zakat base methodology | Zakat base schedules, working capital adjustments |
| Foreign shareholders | CIT (20%) | Taxable income after adjustments | Ownership register, profit allocation workpapers |
Keep a validated annual ownership schedule and a computation pack showing the split of results and liabilities.
Permanent Establishment, WHT & Treaty Interactions
- Permanent Establishment (PE): A non-resident with a Saudi PE is taxed at 20% on attributable profits (net basis).
- Withholding Tax (WHT): Cross-border payments to non-residents (dividends, interest, royalties, certain services) can attract WHT under domestic rules; double tax treaties may reduce rates when conditions (e.g., residency, beneficial ownership) are met.
- VAT (15%) & Reverse Charge: VAT is a separate system; imported services often require self-accounting under the reverse charge mechanism (input VAT recovery subject to rules).
Incentives & Regimes That Can Shift Your ETR
- Regional Headquarters (RHQ) incentives: qualifying HQ activities may access preferential treatment if substance conditions are satisfied.
- Regional investment concessions / economic zones: approved projects can benefit from targeted reliefs affecting the effective rate.
- Sectoral regimes: hydrocarbon and certain extractives operate under special statutes separate from the standard 20% rate.
Confirm current eligibility, scope and timelines before relying on incentives.
Worked Example: From Accounting Profit to CIT Payable
| Step | Computation | Amount (SAR) |
|---|---|---|
| Accounting profit before tax | Per audited FS | 25,000,000 |
| Add backs (non-deductibles) | Entertainment, penalties, non-business costs | +600,000 |
| Tax depreciation adjustment | Tax vs. book difference | −400,000 |
| Taxable income (pre-loss) | 25,000,000 + 600,000 − 400,000 | 25,200,000 |
| Loss carryforward | Subject to relevant limits | −3,000,000 |
| Final taxable income | 22,200,000 | 22,200,000 |
| CIT @ 20% | 22,200,000 × 20% | 4,440,000 |
If the company is 60% Saudi/GCC and 40% foreign-owned, apply CIT to 40% of the taxable income, with zakat computed on the Saudi/GCC share.
Filing, Payments, Controls & Audit Readiness
- Profile accuracy: confirm taxpayer status (CIT/zakat/mixed) and current shareholder registers.
- Interim cash management: forecast advance payments and model WHT & VAT outflows.
- Complete returns: submit annual return with required schedules; attach supporting docs when requested.
- Cross-tax reconciliations: align CIT computations with audited FS, FATOORA e-invoicing, VAT returns, WHT filings and customs.
- Transfer pricing file: keep Local/Master Files current; reconcile related-party totals to GL and returns.
- Record retention: maintain a “permanent file” (charter docs, agreements, fixed-asset register, loss register, board minutes) for at least the statutory period.
FAQ
Is the 20% CIT applied on gross revenue?
No. It applies to taxable income after adjustments and loss offsets.
Do tax treaties change the 20% rate?
Treaties mainly affect WHT on cross-border payments. Net profits taxed in Saudi Arabia under CIT remain subject to domestic rules unless a special regime applies.
Are capital gains taxable?
Capital gains are generally in scope; however, specific exemptions/conditions may apply (e.g., certain listed-share scenarios). Confirm before filing.
How do CIT and zakat interact?
Mixed-ownership entities split results: Saudi/GCC share under zakat; foreign share under 20% CIT.
SEO Takeaways for Corporate Readers
- Saudi corporate income tax 20%—who pays it and how to compute the tax base.
- CIT vs. zakat split for mixed-ownership companies in Saudi Arabia.
- Permanent establishment, withholding tax, and treaties—how they interact with CIT.
- Saudi tax incentives (RHQ/regions/sectors) and effective tax rate planning.
- ZATCA compliance: reconciliations, transfer pricing, e-invoicing and audit readiness.
