The Dual System: Zakat vs Corporate Income Tax
Saudi Arabia applies a unique dual system: Zakat (for Saudi/GCC-owned businesses) and Corporate Income Tax (for foreign investors). Mixed ownership applies both proportionally.
Saudi Tax Summary 2026
| Tax Type | Rate | Who Pays |
|---|---|---|
| Zakat | 2.5% of zakat base | Saudi/GCC-owned companies |
| Corporate Income Tax | 20% | Foreign-owned companies |
| VAT | 15% | All businesses (above threshold) |
| Personal income tax | 0% | None |
VAT at 15%
| Item | Details |
|---|---|
| Mandatory registration | Annual revenue above SAR 375,000 |
| Voluntary registration | Revenue SAR 187,500-375,000 |
| Filing | Monthly (over SAR 40M) or quarterly |
Withholding Tax (WHT)
| Payment Type | Rate |
|---|---|
| Dividends (10%+ ownership) | 5% |
| Interest | 5% |
| Royalties | 15% |
| Management fees | 20% |
| Technical/consulting | 5% |
E-Invoicing (Fatoorah)
- Phase 1 (Generation): Complete — all businesses required
- Phase 2 (ZATCA integration): Rolling out in waves through 2025-2026
2026 Penalty Exemption Initiative
ZATCA relaunched penalty exemptions on January 1, 2026 for 6 months. Waives late registration, filing, and correction penalties.
FAQ
Do foreign employees pay tax in Saudi?
No, there is no personal income tax in Saudi Arabia. Employees (Saudi and foreign) pay no tax on their salaries.
What’s the difference between zakat and corporate tax?
Zakat (2.5%) applies to Saudi/GCC ownership share. CIT (20%) applies to foreign ownership. A 50/50 company pays zakat on the Saudi half and CIT on the foreign half.
