Last updated on 7 de April de 2023
Saudi Arabia is a destination that attracts a good number of expats. Its ambitious plans and economic potential are impressive. We will analyze the most important Taxes in Saudi Arabia to understand how they work.
Content
- Introduction
- Taxes on Earned Income
- Capital Income Taxes
- Corporate Tax
- VAT
- Real Estate Taxes
- Inheritance and Gift Tax
- Public Finances in Saudi Arabia
- Conclusion
Introduction
Saudi Arabia may not be on many people’s radar. However, the Middle Eastern country has very ambitious growth targets for the future and is taking significant action. Consequently, it is gaining in prominence and is likely to be a popular destination in the years to come.
This is especially true for expats. Saudi Arabia seeks to attract the best talent from all over the world. An attractive tax system is a very strong argument for those looking for opportunities abroad.
Saudi Arabia is a country of almost 35 million people. Its geographical location is very advantageous, as it is situated between Europe, Russia, East Asia and Africa. Saudi Arabia is also home to vast fossil fuel reserves and one of the largest oil producers globally.
According to the comparison website WorldData.info, the cost of living in Saudi Arabia is quite low, about half as high as in the United States. Nevertheless, expats tend to lead a more luxurious life than the average citizen.
As for its currency, Saudi Arabia uses the Saudi Rial (SAR), whose value is pegged to the US Dollar at a fixed exchange rate of 1 USD = 3.75 SAR.
In the next sections we analyze the most important taxes in Saudi Arabia.
Taxes on Earned Income
How earned income is taxes is usually the most important criterion for expats:
Social Security
In most developed countries, social security contributions tend to be the most expensive cost for both employers and employees. How much social security contributions apply to us if we work in Saudi Arabia depends on whether we are Saudi citizens or foreign nationals.
The only concept for which Saudi social security applies to foreign national workers is occupational accident insurance. For this concept, the employer must pay the equivalent of 2% of the worker’s gross salary, with a cap.
The maximum base to calculate such a payment is SAR 540,000 per year ($144,000). Consequently, the maximum payment will be SAR 10,800 ($2,880) per year.
As for Saudi citizens, we can say that there is a social security system similar to that of Western countries. And both the Saudi worker and the employer must make contributions to it.
National workers in Saudi Arabia must contribute 10% of their gross salary to social security: 9% for social insurance and 1% for unemployment insurance. The maximum base for such payments is also 540,000 Riyals per year ($144,000).
When it comes to employers, they must pay the equivalent of 12% of the worker’s gross salary to the social security: 9% for social insurance, 1% for unemployment insurance and 2% for occupational accident insurance. The same maximum base of 540,000 Riyals applies here as well.
Thus, the total cost of Saudi social security will be 2% for foreign workers and 21% for Saudi workers.
Income Tax
Income tax does not exist in Saudi Arabia. Consequently, net salary is what remains left after the worker has paid their social security contributions.
This applies to both national and foreign workers.
Capital Income Taxes
Income received from our savings and investments, whether in the form of dividends, interest or even net rental income, is subject to a flat tax rate of 20%, regardless of the amount.
Net rental income considered for tax calculations is what remains left after all costs associated with owning that real estate have been taken into account, including mortgage interest costs.
Realized capital gains, regardless of their nature, are also subject to the 20% tax rate.
It is important to mention that Saudi Arabia also does not have a wealth tax.
Corporate Tax
Corporations operating in Saudi Arabia will have to pay taxes on their profits.
The general corporate tax rate in Saudi Arabia is 20%.
However, if a company is owned by Saudi citizens, it may be subject to Zakat, an Islamic tax that works differently. In this case, an amount close to 2.5% of the estimated value of the company will be levied on those entities, instead of the standard corporate tax rate on profits.
Finally, those companies who explore for, extract or export oil and other hydrocarbon energy sources will have to pay a corporate tax rate of between 50 and 85%. The exception is the extraction of natural gas, which is taxed at the usual rate of 20%.
VAT
The consumption of goods and services in Saudi Arabia is subject to value-added taxes, or VAT, which was not the case until just a few years ago.
The value-added tax in Saudi Arabia was introduced in 2018 with a rate of 5%. However, the rate was increased in 2020.
The general VAT rate in Saudi Arabia went up to 15% in July 2020. Although the Saudi government claimed such an increase was temporary, by 2023 it has not gone down again yet.
Real Estate Taxes
The purchase of a property in Saudi Arabia is not subject to taxes.
However, the sale of real estate is. If we want to sell a property or land in Saudi Arabia, we will have to pay 5% of the value of the transaction to the treasury. This tax was introduced at the end of 2020.
A positive thing about owning real estate in Saudi Arabia is that property taxes do not exist. As a result, while the sale of real estate is taxes, its ownership is not.
Inheritance and Gift Tax
Inheritance and gift taxes do not exist in Saudi Arabia. A Saudi resident for tax purposes is free to transfer their assets to other people without triggering any tax event.
Public Finances in Saudi Arabia
Many of the Gulf countries have abundant assets around the world, large oil and gas reserves, and virtually no debt. However, the situation is somewhat different in Saudi Arabia.
It is true that the country has a large sovereign wealth fund, significant foreign reserves and plenty of oil and gas. However, public debt has grown significantly since 2014 and reached relatively high levels:
While Saudi public debt would be considered low for most other countries, this is slightly alarming for a country like Saudi Arabia.
This is because Saudi tax income, and therefore its public budget, are heavily dependent on revenues from the extraction and export of oil and natural gas, and not so much on general tax. As a result, the state of Saudi public finances is very volatile.
Obviously, if oil and natural gas prices rise in the future, Saudi public finances would improve substantially and rapidly
Conclusion
Saudi Arabia may not be the place for everyone, especially those used to a Western lifestyle. But it has a lot to offer.
Its taxation system is very favorable to workers in general, and particularly those of foreign nationalities. As a result, it is common for professionals to want to spend a few years there, with the goal of earning enough money.
In the long run, something we should pay attention to is the government’s level of indebtedness. The situation is not worrisome yet, but it could be one day. Additionally, the same way that VAT and a tax on real estate sales were introduced, a higher level of public debt could eventually lead to the introduction of an income tax in Saudi Arabia.
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And if you want to read about another Middle Eastern country with very attractive taxation, check out this link:
Taxes in Qatar – A Complete Guide
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