Posted on: 18th March 2025

Saudi Arabia’s Tax System: What Investors Need to Know in 2025

Are you thinking of investing in Saudi Arabia? The Kingdom offers exciting opportunities thanks to its ambitious Vision 2030 plan . But before you dive in, it’s essential to understand the tax system.

Unlike many countries, Saudi Arabia doesn’t impose personal income tax. Still, businesses and foreign investors must comply with corporate tax, zakat, VAT, and withholding tax regulations.

This guide breaks down what you need to know in 2025.

Corporate Tax and Zakat in Saudi Arabia

Saudi Arabia’s tax system works a little differently from others.

Businesses face two different obligations instead of a universal corporate tax: corporate tax and zakat.

• Corporate Tax:

  Foreign investors pay 20% corporate tax on profits. If your business has Saudi and non-Saudi ownership, only the non-Saudi portion is taxed at this rate.

• Zakat:

  This is a religious levy set at 2.5% of the Zakat base (which includes equity, retained earnings, and some reserves). It applies to Saudi-owned businesses and certain types of mixed-ownership firms.

Understanding whether your business falls under corporate tax or zakat is crucial for compliance and financial planning .

Withholding Tax (WHT) on Foreign Payments

If you do business with non-resident entities, you’ll need to consider withholding tax (WHT). This tax applies to payments made to foreign companies or individuals providing services to Saudi businesses.

• Dividends: 5%

• Royalties: 15%

• Interest: 5%

• Management Fees: 20%

• Technical Services Fees: 5% to 15% (depending on the agreement)

The good news? Saudi Arabia has double taxation treaties with several countries, which may reduce these rates. If your home country has an agreement with Saudi Arabia, you might be able to lower your tax burden.

VAT: What Businesses Need to Know

Value-Added Tax (VAT) applies to most goods and services in Saudi Arabia.

The current rate is 15%, one of the highest in the region. Some industries, such as healthcare, education, and exports, may qualify for exemptions or zero-rated VAT.

Businesses registered in Saudi Arabia must comply with VAT regulations, including filing returns and issuing VAT invoices. If you plan to set up a company, understanding VAT obligations is essential.

Tax Incentives for Foreign Investors

Saudi Arabia actively encourages foreign investment with tax incentives. Here are two major initiatives that could benefit investors:

• Regional Headquarters (RHQ) Programme:

  Multinational companies that establish their regional HQ in Saudi Arabia can enjoy a 30-year tax holiday. This means no corporate tax for three decades!

• Incentives for Less-Developed Regions:

  The government offers tax relief for businesses in Ha’il, Jazan, Najran, Al-Baha, Al-Jouf, and the Northern Territory. Companies in these areas can claim deductions on training costs and Saudi employee salaries.

These incentives make Saudi Arabia an attractive destination for businesses looking to expand in the Middle East.

Compliance with Saudi Arabia’s Digital Tax System

Saudi Arabia has modernised its tax system with e-invoicing, known as Fatoora. Managed by the Zakat, Tax, and Customs Authority (ZATCA), this digital system ensures transparency and compliance.

• All businesses must issue electronic invoices for sales.

• E-invoices must meet ZATCA’s regulations to be valid.

• Failure to comply can result in penalties.

If you’re operating in Saudi Arabia, an approved digital invoicing system must be used.

Foreign Investment Regulations & Tax Implications

Saudi Arabia’s government has introduced a new Investment Law (2025) to create a more business-friendly environment. Key changes include:

• Equal treatment for foreign and local investors.

• Simplified licensing and regulatory procedures.

• A clear tax framework for foreign companies.

Additionally, since 2024, companies seeking government contracts must have a regional headquarters in Saudi Arabia. This requirement encourages multinational companies to establish a presence in the Kingdom, offering long-term tax benefits.

Economic Diversification & Fiscal Policies

Saudi Arabia’s Vision 2030 is reshaping the economy by reducing its dependence on oil. The government is investing in:

• Technology and innovation

• Tourism and hospitality

• Renewable energy

As part of its 2025 budget, Saudi Arabia plans to spend SR 1,285 billion while managing a budget deficit of SR 101 billion (2.3% of GDP). These fiscal policies aim to create a stable and diversified economy, making Saudi Arabia an attractive destination for long-term investment .

Conclusion and Key Takeaways

Saudi Arabia’s tax system is evolving to support business growth while maintaining transparency. Here are the key points investors need to remember:

• Corporate tax is 20% for foreign businesses, while Saudi-owned companies pay zakat at 2.5%.

• Withholding tax applies to foreign payments, but double taxation treaties can reduce rates.

• VAT is 15%, with some exemptions for specific industries.

• Tax incentives, such as the RHQ programme, benefit foreign investors.

• E-invoicing (Fatoora) is mandatory to ensure compliance with Saudi tax laws.

• Foreign investors benefit from the 2025 Investment Law, making the process smoother and fairer.

Understanding the tax system is crucial for investors looking to enter the Saudi market.

Consulting a tax expert can help businesses maximise available incentives and stay compliant.

With the right strategy, Saudi Arabia offers excellent growth opportunities for global investors. Speak to Holborn to find out more.